Three per cent leverage ratio takes centre stage - in 2015
The latest, but most likely not the last, of the many papers and proposals on reform of capital rules for banks emerged overnight. Among their proposals is one to "test" a "minimum tier one leverage ratio of three per cent".Banks will have to disclose the leverage ratio and the inputs into its calculation from January 2015. The leverage ratio will be worked out as an average over a quarter.The leverage ratio is supported by plenty of banking regulators in Europe and some in North America as a practical improvement on the risk-weighted method of working out capital ratios that is wearing some of the blame for the extent of the weakness in banks over the course of the financial crisis. Some banks turned out to be running leverage ratio as low as one per cent in Europe.Banks and bank regulators in Australia are cool on the concept but may learn to live with it, depending on the scope to modify the proposal.The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, and in turn looked after by the Bank of International Settlements, published its plans earlier today.The paper deferred a recommendation on how to handle "contingent capital" and other capital buffers, a topic on which other discussion papers are circulating.The committee also said that it planned to soften the deductions required against capital from investment in banking subsidiaries.