2014-01-12wsj.com

The Basel Committee for Banking Supervision, made up of banking regulators from around the world, said it had revised the definition of its leverage ratio in ways that will allow banks to report lower levels of overall risk. The leverage ratio measures capital held by a bank against its total assets, so the changes will lead to higher reported capital ratios. That will reduce the pressure on banks to either shed assets or raise more capital to meet the requirement.

The biggest beneficiaries of the changes appear likely to be banks most involved in securities and derivatives markets. Most important, the rules no longer require banks to count 100% of their off-balance-sheet assets. That not only includes most of banks' derivatives exposures, but also the guarantees and letters of credit that are essential to greasing the wheels of international trade.

In addition, the changes allow for extensive "netting" of securities-financing transactions, such as repurchase agreements, or "repos," for greater counting of margin payments received from counterparties. And they let banks eliminate double-counting of exposures involving central counterparties. Those changes will have the effect of reducing assets reported under the leverage ratio, increasing banks' reported ratios.



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