Why gross up exposures for fully collateralized transactions? The ICMA and ISLA respond to new Leverage Ratio proposals.

Two comment letters last week on the Leverage Ratio from ICMA and ISLA draw important attention to how projected Basel III capital rules impact exposure netting. With netting, banks are generally all right under the new regime. Without it, entire business lines (including repo and securities lending) are exposed to limits and capital treatments that may become prohibitively expensive. Following our recent article on grossing up repo exposures (“All roads lead to grossing up of repo exposures, so far“), we take a look at the main issues highlighted by ICMA and ISLA.

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