Leverage Ratio

Basel Committee, Leverage Ratio, OTC derivatives, Repo, SA-CCR, securities financing transactions, topstory

The Basel Committee on Banking Supervision (BCBS) issued changes to the Leverage Ratio last week that will have impacts to the derivatives and securities finance industries. Like any regulation, this…

Basel Committee finalizes Leverage Ratio revisions for client margin and window-dressing for SFTs

June 27, 2019

Basel Committee, Leverage Ratio, Margin, SFTs, window-dressing

The Basel Committee on Banking Supervision today released a revised treatment of client cleared derivatives for purposes of the leverage ratio. The Basel Committee also issued a revision to the…

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

June 21, 2019

Basel Committee, Leverage Ratio

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…

BofE working paper finds (again) that Leverage Ratio damages repo market resilience

May 3, 2019

Bank of England, Leverage Ratio, Repo

Decomposing changes in the functioning of the sterling repo market Joseph Noss and Rupal Patel We identify the degree to which changes in gilt repo market functioning have been driven…

ABA: FDIC Approves Proposal to Exclude Central Bank Deposits from SLR

March 31, 2019

ABA, FDIC, Leverage Ratio, SLR

March 29, 2019 The FDIC today approved a joint agency proposal to exclude central bank deposits from the denominator of the supplementary leverage ratio for banking organizations predominantly engaged in custody banking…

ICMA supports daily leverage ratio calculations but asks for targeted refinements to support repo

March 18, 2019

Basel III, ICMA, Leverage Ratio, Repo

ICMA ERCC responds to BCBS consultation on leverage ratio disclosure March 13 2019 The ICMA ERCC has today responded to a consultative document published by the Basel Committee on Banking…

For US banks, is CCAR or the Leverage Ratio the binding constraint on securities finance

February 20, 2019

Basel III, Federal Reserve, Regulatory, US

CCAR, Leverage Ratio, topstory, US

The Federal Reserve’s Comprehensive Capital Adequacy Review (CCAR) stress test are more of a binding constraint on bank’s use of capital than the Leverage Ratio for some activities, for example…

World Federation of Exchanges responses to Basel Committee’s Leverage Ratio Consultation

January 18, 2019

Basel Committee, client clearing, Leverage Ratio, SA-CCR, WFE

The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has published its response to the Basel Committee on Banking Supervision’sconsultation on the leverage ratio treatment…

How final are the Basel Committee’s market risk rules?

January 17, 2019

Basel III, Regulatory, Risk Management

Basel Committee on Banking Supervision, BCBS, Leverage Ratio, Market Risk, topstory

The Basel Committee’s “Minimum capital requirements for market risk” is a statement of finalization for important bank risk management rules. But is this really a finalization or another stop on…

Basel Committee seeks to reduce window dressing in the Leverage Ratio

December 13, 2018

Basel Committee, Basel III, Leverage Ratio, window-dressing

The Basel III leverage ratio standard comprises a 3% minimum level that banks must meet at all times, a buffer for global systemically-important banks and a set of public disclosure…

Europe readies for CRD-V (Premium)

November 14, 2018

Basel III, Europe, Regulatory

Basel III, CRD-V, Europe, Leverage Ratio, topstory

The European Parliament and the European Council are in discussions to amend the Capital Requirements Directive and Regulation rules (CRD-IV) to create CRD-V. This latest iteration recognizes recent Basel Committee…

BoE working paper: The leverage ratio, risk-taking and bank stability

November 9, 2018

This paper addresses the trade-off between additional loss-absorbing capacity and potentially higher bank risk-taking associated with the introduction of the Basel III leverage ratio. This is addressed in both a…

Basel Committee seeks views on the leverage ratio treatment of client cleared derivatives

October 21, 2018

Basel Committee, Cleared Derivatives, Leverage Ratio

The Basel Committee on Banking Supervision today published a consultative document entitled Leverage ratio treatment of client cleared derivatives. A key element of the Basel Committee’s post-crisis Basel III reforms…

The ECB on repo in the Leverage Ratio: taking a strong stand today may not turn out well tomorrow

October 8, 2018

Basel III, Europe, Regulatory

ECB, Leverage Ratio, Repo, topstory

The ECB’s publication last week of “The implications of removing repo assets from the leverage ratio” creates a conundrum. On the one hand, the findings stick true to the Basel…

ECB: removing repo from the Leverage Ratio would be a bad idea

October 3, 2018

ECB, Leverage Ratio, Repo

This article summarises the key findings from a counterfactual exercise where the effect of removing repo assets from the leverage ratio on banks’ default probabilities is considered. The findings suggest…

How the Basel change on settled-to-market will impact balance sheets (Premium)

September 26, 2018

Basel Committee, LCR, Leverage Ratio, NSFR, Settled to market, topstory

The Basel Committee has issued a new FAQ on how banks need to treat settled-to-market derivatives transactions in the Liquidity Coverage Ratio and Net Stable Funding Ratio. This will renew…

World Federation of Exchanges calls for global reform of Leverage Ratio

September 7, 2018

Alex Tonhazy

Leverage Ratio, WFE, World Federation of Exchanges

London, Friday 7 September 2018 – The World Federation of Exchanges (“WFE”), the global industry group for CCPs and exchanges, has today published its response to the four global standard-setting boards…

Bank of England paper on repo finds what the market knows: UK Leverage Ratio damages liquidity and creates regulatory arbitrage

August 3, 2018

Alex Tonhazy

This paper shows that the leverage ratio affects repo intermediation for banks and non-bank financial institutions. We exploit a novel regulatory change in the UK to identify an exogenous intensification of…

Risk: EU Considering Moving Leverage Ratio Reporting From Quarterly to Daily

July 18, 2018

The European Parliament wants to close a loophole in leverage-ratio reporting by making banks calculate the ratio daily, instead of quarterly. The switch is intended to reduce volatility by curbing…

BoE reviews types of bank internal capital markets

June 24, 2018

Bank of England, Leverage Ratio, Prudential Regulation Authority, risk models

Banks allocate capital to their business lines to assess those lines’ relative performance, which informs their strategic decisions. Capital allocation, together with Fund Transfer Pricing (FTP), are two important internal…

BoE research suggests leverage ratio disincentives client clearing

June 15, 2018

Bank of England, Clearing, Leverage Ratio

As part of the post-crisis regulatory reform, many interest-rate derivative transactions are required to be centrally cleared. Nevertheless, the treatment of this type of transaction under the leverage ratio (LR)…

Dodd-Frank reform passes US Senate but the House will be tough (Premium)

March 20, 2018

Dodd-Frank, Regulatory, US

Dodd-Frank, Financial CHOICE Act, House, Leverage Ratio, topstory, US Senate

The Economic Growth, Regulatory Relief, and Consumer Protection Act passed the US Senate last week with important roll backs of the Volcker Rule and US Leverage Ratio. This is the…

Finadium Survey: Better Regulation for Europe’s Securities Financing Transactions

February 14, 2018

Basel III, Collateral Management, ECB, Europe, Repo, Securities Lending

Basel III, Europe, Finadium, Leverage Ratio, Liquidity Coverage Ratio, Repo, securities financing transactions, Securities Lending, topstory

European regulation of Securities Financing Transactions (SFTs) is having its desired effect, which is a near gold standard of risk management. Unfortunately, it’s at the cost of market vibrancy. A…

A Proposal for Smart Regulation in European SFT Markets

January 25, 2018

Michael Cyrus

Basel III, Collateral Management, Europe, Regulatory, Repo, Securities Lending

Europe, LCR, Leverage Ratio, Michael Cyrus, NSFR, Regulation, SFT, SFTR, topstory

In a post-crisis era, Europeans must focus on efficient and smart regulation in Securities Financing Transactions (SFT) to support competitive financial markets. This can be achieved but requires regulatory attention…

The Minneapolis Fed wants a 15% Leverage Ratio and a 1.2% tax on secured financing. That’s one way to reduce risk…

January 16, 2018

Basel III, Regulatory, Shadow Banking, US

Federal Reserve Bank of Minneapolis, Leverage Ratio, Minneapolis Fed, Shadow Banking, systemic risk, TBTF, too big to fail, topstory

The Federal Reserve Bank of Minneapolis has released a plan to end Too Big to Fail (TBTF) on a comprehensive basis. The choice is again between strengthening bank balance sheets…

Global CCP group warns on Basel rules under LR

January 10, 2018

Basel capital rules, CCP12, CCPs, Leverage Ratio, margin management

Due to the publication of Finalising post crisis reforms by the Basel Committee on Banking Supervision, CCP12 would like to highlight its continued concerns regarding the application of the Leverage Ratio on CCP…

A quick primer on “settled-to-market” vs. “collateralized-to-market” in counterparty credit risk (Premium)

December 18, 2017

Basel III, Central Counterparties, Collateral Management, Derivatives

capital, CEM, collateralized to market, Leverage Ratio, Settled to market, topstory

CCPs have changed or are changing their rules on Variation Margin to allow “settled-to-market” (STM). This is a useful change that will save money, and complements the desire of firms…

Finalizing Basel III: the revised Leverage Ratio gets a thumbs down and really isn’t final anyhow

December 11, 2017

Bank for International Settlements, Basel Committee, Basel III, Leverage Ratio, SFTs, Supplementary Leverage Ratio, Tier 1 capital, topstory

The Basel Committee on Banking Supervision released their “final” Basel III post-crisis reform documentation last week, and there is a lot to unpack. Already, the Quantitative Impact Study shows that…

What does “recalibrating” the Leverage Ratio mean?

December 7, 2017

Basel III, Europe, Leverage Ratio, Supplementary Leverage Ratio, topstory, US

There has been a lot of talk lately about recalibrating the Leverage Ratio, especially in the US where the enhanced Supplementary Leverage Ratio (eSLR) of 5% for holding companies and…

Are carve-outs in national versions of the Leverage Ratio a good idea?

November 8, 2017

Basel III, Liquidity Management, Regulatory

carve-outs, Leverage Ratio, SLR, topstory

There has been discussion in recent months about the possibility of large carve-outs in the US Supplementary Leverage Ratio; this follows years of carve-outs in the European version of Basel…

BoE: the leverage ratio and liquidity in the gilt and repo markets

November 3, 2017

Bank of England, Leverage Ratio, Liquidity Management

Market participants have argued that a significant unintended consequence of post-crisis regulatory leverage ratio requirements has been a reduction in the liquidity of fixed income markets. In this Bank of England…

Hong Kong, Singapore or EU post-Brexit: will Advanced Approach bank capital models be a consideration? (Premium)

October 25, 2017

Asia, Basel III

Advanced Approach, Basel III, capital costs, Hong Kong, Leverage Ratio, NSFR, Singapore, Standardized approach, topstory

The news that London-based banks are considering Hong Kong as a new APAC “booking entity” trading hub brings up an important qualification for banks looking for an expanded Asian base…

BoE: solvency and wholesale funding cost interactions at UK banks

October 13, 2017

In a staff working paper, Bank of England researchers study the interaction between solvency and funding costs at UK banks. They use the market-based leverage ratio as a proxy for market participants’…

The layering of regulatory cost on Securities Financial Transactions

September 19, 2017

Michael Cyrus

Basel III, Collateral Management, Europe, Repo, Securities Lending

DekaBank, Europe, Leverage Ratio, Michael Cyrus, NSFR, regulatory cost, securities finance, SFTs, topstory

It is now part of financial textbook wisdom that collateralization is a favored tool to reduce unsecured exposures in financial systems and thereby promote systemic stability. However, in stark contrast,…

How fast could deregulation occur in US financial markets? Comments from Fed Vice-Chair Stanley Fischer suggest some answers

August 22, 2017

Basel III, Federal Reserve, Regulatory

Federal Reserve, Leverage Ratio, Regulatory, Stanley Fischer, topstory, US Treasury

While there may be some excitement in the air about US deregulation, last week Federal Reserve Vice-Chairman Dr. Stanley Fischer eviscerated critics of Dodd-Frank by saying that deregulation would be…

Great post from the Fed: impact of the Leverage Ratio on US/Europe/Asian bank participation in the US repo market

August 9, 2017

Basel III, Federal Reserve Bank of New York, Leverage Ratio

Research from the Federal Reserve Bank of New York suggests that the implementation details of financial regulations can have important implications for global financial markets. Differences in implementation of the…

BoE: dealer intermediation, market liquidity, and the impact of regulatory reform

July 14, 2017

Bank of England, bank regulation, corporate bond liquidity, Leverage Ratio, Repo

The Bank of England has developed a model of dealer intermediation in bond markets that takes account of how changing regulatory requirements for banks since the financial crisis, in particular,…

Asian regulators officially delay Basel III’s FRTB

July 11, 2017

Asia, Basel III, Regulatory

Asia, Basel III, FRTB, Leverage Ratio, topstory

We’ve been expecting this for a while and it has finally happened: Asian regulators are saying they will delay Basel III implementation of the Fundamental Review of the Trading Book…

Bank of England proposes to exempt claims at Central Banks from Leverage Ratio but raise ratio to 3.25%

June 27, 2017

The PRA publishes CP11/17 Consultations by the FPC and PRA on changes to the UK leverage ratio framework relating to the treatment of claims on central banks – CP11/17 This…

Fed’s Powell says recalibrated Leverage Ratio, no capital for collateral and move to SA-CCR all on the table for CCP clearing benefits

June 24, 2017

CCPs, Federal Reserve, Leverage Ratio, Powell, SA-CCR

Central Clearing and Liquidity Governor Jerome H. Powell At the Federal Reserve Bank of Chicago Symposium on Central Clearing, Chicago, Illinois — Having pushed for the move to greater central…

ECB working paper: The leverage ratio, risk-taking and bank stability

June 22, 2017

This paper addresses the trade-off between additional loss-absorbing ca- pacity and potentially higher bank risk-taking associated with the introduc- tion of the Basel III Leverage Ratio. This is addressed in…

US Treasury report on financial regulations will result in big changes to bank capital rules (Premium)

June 14, 2017

Basel III, Dodd-Frank, Regulatory, US

Dodd-Frank, Leverage Ratio, Liquidity Coverage Ratio, stress tests, topstory, US Treasury, Volcker Rule

The US Treasury has released an expected report looking at a wide variety of financial regulations as per a Presidential Executive Order earlier this year. We have analyzed the sections…

US industry associations call for collateral revamp of SLR, overhaul or removal of NSFR (Premium)

May 31, 2017

Basel III, Dodd-Frank, Regulatory, US

Dodd-Frank, Executive Order, IIF, Leverage Ratio, NSFR, SIFMA, SLR, topstory

US industry associations have been writing US Treasury Secretary Steven Mnuchin with their requests for changes to US financial regulations. A common theme is that the US application of Basel…

Repealing Dodd-Frank: understanding the revised Financial CHOICE Act (Premium)

May 9, 2017

Derivatives, Dodd-Frank, US

Dodd-Frank, Leverage Ratio, OTC derivatives, repeal, topstory, US

The US House of Representatives Financial Services Committee recently passed a revised Financial CHOICE Act for discussion. This is the big Republican plan for repealing/replacing Dodd-Frank rules, including the proposed…

Fed blog: Credit Market Arbitrage and Regulatory Leverage

January 11, 2017

CDS, Fed, Leverage Ratio, SLR

In a companion post, we examined the recent trends in arbitraged-based measures of liquidity in the cash bond and credit default swap (CDS) markets. In this post, we turn to the…

Zurich event recap: risk vs. return, SFTR, Peer to Peer (Premium)

December 6, 2016

Basel III, Europe, Investments, Securities Lending

Beneficial Owners, direct, Leverage Ratio, peer to peer, Securities Lending, SFTR, Switzerland, topstory, Zurich

Our thanks to hosts ZKB and SIX Securities Services for another excellent event yesterday in Zurich. The conversation got very engaged towards the end with valued and new exchanges of…

The Minneapolis Fed plan for big banks: a 15% Leverage Ratio

November 21, 2016

Basel III, Federal Reserve, US

Basel III, Leverage Ratio, Minneapolis Fed, too big to fail, topstory

Hold the phone, a 15% Leverage Ratio? This was the plan released last week by the Federal Reserve Bank of Minneapolis. Before we explain how too far gone this proposal…

OFR says brokers borrow less repo but more are borrowing backed by illiquid collateral

November 10, 2016

Leverage Ratio, OFR, Repo

Do Higher Capital Standards Always Reduce Bank Risk? The Impact of the Basel Leverage Ratio on the U.S. Triparty Repo Market This paper examines how risk-taking in the repurchase agreement,…

Should HQLA and IM be exempted from the Leverage Ratio?

November 2, 2016

AT1, Basel III, IM, Leverage Ratio, Risk Magazine, topstory