On January 12, 2014, with the concurrent endorsement of the Group of Central Bank Governors and Heads of Supervision (GHOS), the Basel Committee on Banking Supervision (BCBS) issued additional information regarding the leverage and liquidity requirements under Basel III, including the following:

• The full text of Basel III’s leverage ratio (Leverage Ratio) framework and related disclosure requirements that modifies the earlier consultative proposal issued in June 2013;
• Proposed revisions (the Consultative Document) to the Basel III framework’s Net Stable Funding Ratio (NSFR) modifying the earlier consultative proposal issued in December 2009 and Basel III agreement of December 2010 (as revised in June 2011);
• Disclosure standards for the Liquidity Coverage Ratio (LCR), including a template for such disclosure, reflecting additional work undertaken at the direction of the GHOS;
• Guidance for supervisors on market-based indicators of liquidity; and
• Modification of the LCR to permit (with national discretion) restricted-use committed liquidity facilities (RCLFs) provided by central banks to be included in the LCR’s high-quality liquid assets (HQLA).

The effect of these changes and additional guidance on the US rules to implement Basel III¹ is unclear. In particular, the reaffirmation by BCBS of a minimum three percent Leverage Ratio is not consistent with the US proposed minimum requirement of five percent in the case of large, systemically important banking organizations that would be subject to the supplementary leverage ratio. Also, in light of current reports of ongoing discussions among international regulators regarding a more restrictive leverage ratio, it is perhaps significant that the BCBS states that, based on the parallel run period, final adjustments to the definition and calibration of the ratio will occur by 2017 when the requirement will migrate to a Pillar 1 treatment on January 1, 2018.

Leverage Ratio

The Basel III framework introduced a simple, transparent, non-risk-based leverage ratio...