Are there any requirements with respect to the leverage ratio?

Banking & Finance (2nd edition)

Israel Small Flag Israel

The Bank of Israel Proper Banking Conduct Rule 218 implements the requirements from banking institutions to calculate their leverage ratio, namely the ratio between their Tier 1 capital and their exposure levels. Generally, following the implementation of the Basel III Rules Israel transferred from a policy of reviewing the total capital adequacy to a policy of being focused more on the Tier 1 capital.

The exposure levels will generally be calculated in accordance with the accounting principles, with certain exceptions (primarily: (a) certain adjustments to the calculations of balance sheet exposures and non-derivative items; and (b) the prohibition on setting off loans and deposits). Furthermore, PBC Rule 218 includes elaborate instructions and guidelines as to the methods of calculating the leverage ratio, the items which are to be included as well as the items which may, or should, be set-off or disregard when making the calculations.

As of this date, the minimum leverage ratio of banking institutions in Israel whose balance sheets comprise 20% or more of the total balance sheet assets of banking institutions in Israel (currently the two largest banks in Israel) is 6% and for all other banking institutions – 5%.

Austria Small Flag Austria

Since 2015 all institutions are required to disclose their leverage ratio and its components. Supervisors will track the new ratio in order to analyse its impact more closely and to complete possible adjustments. Recently an amendment of the CRR implementing a binding leverage ratio requirement of 3% of Tier 1 capital was agreed upon.

Cyprus Small Flag Cyprus

Banks in the Republic of Cyprus are required to calculate their leverage ratio and report it to the CBC but there are still no particular leverage ratio requirements.

Finland Small Flag Finland

The credit institution must have the methods in place to recognize, manage and follow up any excessive leverage risk and adhere to the leverage ratio requirements. The legal basis of the leverage ratio requirements is the Capital Requirements Regulation, as amended by Commission Delegated Regulation (EU) 2015/62. The Capital Requirements Regulation sets out the calculation of the leverage ratio and the reporting requirements in relation to that ratio.

France Small Flag France

Banking institutions comply with the prudential regulation and regarding the leverage ratio they must im-plement policies and processes to detect, manage and monitor the risk of excessive leverage deter-mined according to CRR.

Turkey Small Flag Turkey

Basel III leverage ratio framework is implemented in Turkey under the Regulation on the Calculation and Evaluation of the Leverage Levels of Banks (the “Leverage Regulation”) in order to ensure that banks maintain adequate levels of capital on consolidated and unconsolidated basis against risk exposure. The leverage ratio shall be calculated on a monthly basis and similar to Basel III, the Leverage Regulation stipulates that the quarterly arithmetical mean of the monthly-calculated leverage ratios of banks shall not fall below the minimum leverage ratio of 3%.

Switzerland Small Flag Switzerland

In order to implement the BCBS's final leverage ratio requirement, the Swiss regulations will be revised to, starting the course of 2018, require a leverage ratio of 3% for all banks.

See above at Question 12. for the existing leverage ratio requirements for systemically important banks and Swiss G-SIBs or D-SIBs.

Germany Small Flag Germany

A credit institution’s leverage ratio and its components have to be reported to the regulatory authorities on a quarterly basis. The calculation of the leverage ratio has to be made in accordance with Art 429 CRR in connection with Delegated Regulation (EU) 2015/62. Currently there is no quantitative element regarding the leverage ratio that has to be met. However, the current drafts of the amended CRR and CRD IV contain maximum leverage ratios.

Slovakia Small Flag Slovakia

Requirements contained in the CRR are directly applicable in the Slovak Republic and banks in Slovakia are required to counteract the risk of excessive leverage. Banks are obliged to disclose their leverage to the NBS.

Singapore Small Flag Singapore

Yes. These are effected within MAS Notice 637.

Japan Small Flag Japan

A bank with international operations is required to disclose its leverage ratio on a quarterly basis. The FSA released the draft leverage ratio rule to the public for comment in December 2018 and plans to introduce the minimum leverage ratio of 3% in March 2019.

Oman Small Flag Oman

The CBO has followed BCBS guidelines in introducing a simple, transparent, non-risk based leverage ratio, in order to constrain build-up of leverage in the banking sector and reinforce risk based require-ments based on a “back-stop” measure. The leverage ratio of the banking sector was 13 per cent. at the end of 2017 as against the minimum Basel III requirement of 3 per cent.

Georgia Small Flag Georgia

Yes, the requirements with respect to the leverage ratio were introduced the By-law on the Requirements of Leverage Ratio for Commercial Bank approved by the Decree N214/04 of the President of the National Bank of Georgia. According to Article 1.3 of the By-law, the rules under the By-law are based on the Basel framework and in case any rule or definition is not provided by the By-law, the bank shall adhere to the standards established by the Basel Committee, regulation (EU) 575/2013 and directive (EU) 2013/36. Under Article 3.4 of the By-law, the leverage ratio of the bank shall always exceed 5% unless the law or the National Bank of Georgia establishes the requirement of an individual leverage coefficient for the bank.

Liechtenstein Small Flag Liechtenstein

See our answer above under section12.

Luxembourg Small Flag Luxembourg

The calculation and reporting requirements set out in Article 429 and the following of the CRR Regulation are applicable in Luxembourg.

Portugal Small Flag Portugal

The requirements concerning the leverage ratio derive directly from Regulation (EU) 575/2013 and indirectly from the recommendations issued by the European Banking Authority. For instance, the leverage ratio shall be calculated as an institution’s capital measure divided by that institution’s total exposure measure, expressed as a percentage, and where the capital measure shall be the Tier 1 capital.

Credit institutions shall have policies and practices in order to identify, manage and monitor the risk of excessive leverage. They shall address the risk of excessive leverage in a precautionary manner by taking due account of potential increases in the risk of excessive leverage caused by reductions of the institution’s own funds, and shall be able to withstand a range of different stress event.

Banco de Portugal shall review and evaluate the exposure of credit institutions to the risk of excessive leverage as reflected by indicators of excessive leverage, taking into consideration the business model of credit institutions when assessing the adequacy of their leverage ratio and of the arrangements, strategies, processes and mechanism implemented by institutions to manage the risk of excessive leverage.

Malta Small Flag Malta

Currently, the MFSA requires credit institutions to monitor and report on their leverage ratio. To this ef-fect, the MFSA provides templates which are to be used for the submission of data relating to the lever-age ratio of credit institutions. One requirement which applies to credit institutions when reporting data required as ratios is that such must be reported using the decimal notation to four decimal places. Once the binding leverage ratio requirement becomes effective, as part of the CRR reforms, credit institutions will be required to comply with the applicable thresholds.

Qatar Small Flag Qatar

QCB Circular No. 63 of 2014 was issued to regulate Leverage Ratio in all national banks operating in Qatar, which refers to Basel III leverage ratio framework and disclosure requirements issued by Basel Committee on Banking Supervision in January 2014. In this respect, national banks shall maintain more than 3% of the leverage ratio at all times.

Romania Small Flag Romania

The leverage ratio is calculated based on the requirements of EU Regulation 62/2015 and reported under the EU Regulation 428/2016. However, the implementation of the ratio is still open as no mandatory requirement is currently applied.

Serbia Small Flag Serbia

The bank shall, at every moment, maintain the capital on the level required for the coverage of all risks the bank is exposed to or may be exposed to in its operations, at minimum in the amount required for the maintenance of regulated capital adequacy indicators, that is, increased indicators, including the requests related to leverage ratio.

United Kingdom Small Flag United Kingdom

Yes, the UK through the PRA Rules now has a requirement that a regulated firm must hold sufficient tier 1 capital to maintain, at all times, a minimum leverage ratio of 3.25%.

The rules apply to every firm that is a UK bank or a building society that, on the firm’s last accounting reference date, had retail deposits equal to or greater than £50 billion either on: (1) an individual basis; (2) if the firm is a parent institution in a Member State, on the basis of its consolidated situation; or (3) if the firm is controlled by a parent financial holding company in a Member State or by a parent mixed financial holding company in a Member State and the PRA is responsible for supervision of that holding company on a consolidated basis under Article 111 of the CRD, on the basis of the consolidated situation of that holding company.

United States Small Flag United States

Currently, US federally-chartered banks must maintain a leverage ratio of at least 4 percent. Large, internationally active banking organizations—generally those with at least $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign exposure—are also subject to a supplementary leverage ratio of 3 percent. Bank holding companies with more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody must meet an enhanced supplementary leverage ratio that is 2 percentage points greater than the supplementary leverage ratio. In November of 2018, the FRB proposed a new rule for Prudential Standards for Large Bank Holding Companies and Savings and Loan Holding Companies which would adjust the above thresholds (for US banks and banking organizations – the proposed rule is not applicable to intermediate holding companies, subsidiary depositary institutions, or federal branches or agencies of foreign banking organizations). If finalized, the new rule would raise the thresholds for the supplementary leverage ratio, such that banks with total consolidated assets of less than $100 billion would not be subject to any leverage ratio requirements. The rule is still in the comment process as of the date of this publication.

https://www.federalreserve.gov/aboutthefed/boardmeetings/files/draft-frb-fr-notice-20181031.pdf

Italy Small Flag Italy

Yes, after the implementation of the Basel III framework, a limitation to the leverage ratio (including off-balance sheet exposures) has been established with a backstop function to the risk-based capital requirement, and in order to contain the excess of leverage ratio at a systemic level. The calculation of the leverage ratio has to be made in accordance to article 429 of the CRR.

Thailand Small Flag Thailand

The BoT has issued the notification with respect to guideline for calculation leverage ratio pursuant to Basel III since 2012. Under such notification, the BoT asks the commercial banks to send the calculation of leverage ratio on a solo basis so that the BoT can establish the appropriate regulations in the future. We understand that the leverage requirements (3% of total exposures without any weighting) will come into force in 2022.

Slovenia Small Flag Slovenia

According to the Slovenian Banking Act, a bank has to establish and implement an appropriate policy and procedures for managing the risk of excessive leverage. For mentioned purposes, a bank has to define indicators of the risk of excessive leverage that include a leverage ratio defined in accordance with Article 429 of Regulation (EU) No 575/2013, and the mismatch of assets and liabilities. A bank has to treat the risk of excessive leverage by taking appropriate account of a possible increase in the aforementioned risk that is the result of a decrease in the bank’s capital due to expected or actual losses. To that end, a bank has to be able to withstand various stress scenarios that take into account the risk of excessive leverage.

Updated: May 14, 2019