Basel Committee seeks to improve Leverage Ratio for margin, Securities Finance Transactions

The Basel Committee on Banking Supervision met in Basel on 19-20 June to discuss a range of policy and supervisory issues, and to take stock of its members’ implementation of post-crisis reforms.

This was the first Basel Committee meeting chaired by Pablo Hernández de Cos, Governor of the Bank of Spain, following his appointment by Governors and Heads of Supervision in March 2019. The Committee thanked his predecessor, Stefan Ingves, Governor of Sveriges Riksbank, for his strong leadership of the Committee and for overseeing the finalisation of the post-crisis Basel III reforms. Members also expressed their appreciation of William Coen, who has served the Committee for twenty years and as Secretary General since 2014. The Committee thanked him for his substantive contributions. The Committee welcomed the appointment of Carolyn Rogers as the next Secretary General, who will assume her new responsibilities on 14 August 2019.

At its meeting, the Committee:

  • agreed on a targeted and limited revision of the leverage ratio to allow margin received from a client to offset the exposure amounts of client-cleared derivatives. This revision, which will be published next week, seeks to balance the robustness of the leverage ratio as a safeguard against unsustainable levels of leverage with the G20 Leaders’ commitment to promote the central clearing of standardised derivative contracts. The Committee will monitor the effect of this revision on the leverage ratio framework;
  • agreed on a set of disclosure requirements to curb leverage ratio window dressing, building on the measures outlined in a Committee newsletter published last year. The standard will be revised to require banks to disclose their leverage ratios based on the quarter-end and average values of securities financing transactions. These disclosure requirements will be published next week. The Committee will continue to monitor window-dressing behaviour across financial markets.
  • approved a report on Pillar 2 supervisory practices and approaches, which will be published shortly and
  • reviewed the reports that assessed the implementation of the Net Stable Funding Ratio and large exposures standards in Australia, Canada and India. Publication of these reports is expected in July.

The Committee discussed its work programme for evaluating the impact of its post-crisis reforms and will publish additional information of this work in due course.

Committee members discussed matters related to financial technology and crypto-assets. The Committee took note of a report on the regulatory and supervisory implications of open banking and application programming interfaces; the report will be published in due course. It agreed to conduct further work on financial technology, including on the risk management challenges associated with the use of artificial intelligence and machine learning in financial services. Committee members took note of recent developments related to crypto-assets, and discussed the diverse range of technological and economic characteristics of crypto-assets. Crypto-assets have exhibited a high degree of volatility and present a number of risks for banks. The Committee continues to assess the risks from crypto-assets and the best ways to address them.

The Committee also took note of the first comprehensive report by the Network for Greening the Financial System (NGFS), and discussed the implications of the report’s recommendations for the Committee’s future work. The Committee agreed to join the NGFS as an observer.

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