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Basel Committee Weighs Both a Tougher Standard and a Measure to Water It Down 

April 6, 2016

Donna Borak, The Wall Street Journal

A plan by global regulators to lift a key backstop capital measure all depends on how you add it up.

The Basel Committee on Banking Supervision, in a plan scheduled to be released Wednesday, is weighing how to raise a bank’s leverage ratio, which measures capital against total assets, from the current threshold of 3%. At the same time, the regulatory body is considering how banks account for risky assets, particularly derivatives, complex instruments that try to deliver double or even triple returns of the indexes they track.

The proposed changes on derivatives will ultimately determine the bite of any increase the committee makes to the leverage ratio: If policy makers loosen how banks account for risky assets, that would potentially undermine the impact of boosting the ratio.

The body, which is based in Switzerland and has 29 members including the U.S., said it was weighing whether to apply a more risk-sensitive approach, distancing itself from a 25-year-old method of calculating exposure to derivatives. The largest financial institutions have raised concerns that the method currently in use is too limiting.

The plan is the latest in a string of steps the committee has taken in recent months to complete its 2016 regulatory-overhaul agenda, an effort to address remnants of the financial crisis. Read more

 
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