EBA reports on impact of possible leverage ratio definitions

05 March 2014

The European Banking Authority (EBA) published today a report on the leverage ratio which provides a policy analysis and a quantitative assessment of the impact that would derive from aligning the current Capital Requirements Regulation (CRR) definitions of the leverage ratio's exposure measure to the revised standard published by the Basel Committee on Banking Supervision (BCBS) on 12 January 2014 (‘Basel III'). The EBA has produced the report on its own initiative to provide recommendations to the European Commission in view of its forthcoming delegated act on the definitions of leverage ratio.

The report uses data collected for the Basel III monitoring exercise as of 30 June 2013 through a sample consisting of 173 EU institutions from 18 Member States.

Overall, the assessment indicates that the revised Basel III framework leads to leverage ratios that are broadly in line with, or possibly slightly higher than, leverage ratios calculated according to the current CRR. On this basis, and considering that the revised Basel III framework represents a more accurate measure of leverage, the EBA recommends, in the interest of consistency between the leverage ratio calculation within the EU and the other jurisdictions that implement Basel III, aligning the CRR definition of the leverage ratio's exposure measure to the Basel III framework. The analysis underlying this report has not indicated any EU specificities which would prompt a deviation from the BCBS standard.

Furthermore, the EBA noted that with respect to the Securities Financing Transactions (SFTs), the current CRR text may allow for different interpretations, which is reflected in the report. Therefore, in the event the EU Commission delegated act does not align the treatment of SFTs with that of Basel III, the EBA recommends that the treatment in the current CRR be clarified in accordance with the interpretation that is more prudent and closer to the Basel III treatment.

Next steps

Through its delegated act, the European Commission is empowered to amend, as per Article 456(1)(j) of the CRR, the capital measure and total exposure measure before the start of public disclosure of leverage ratio in 2015. In view of this act, the EBA has performed, on its own initiative the analysis provided in this report. In addition, by 31 October 2016, the EBA is mandated to provide a calibration report also of the leverage ratio, according to Article 511(3) of the CRR.