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Fitch: Dilution of Basel Leverage Ratio Assists Trading Banks  

January 17, 2014
Matthew AmlĂ´t, CPI Financial

Fitch still expect on- and off-balance sheet exposures to reduce as trading banks make progress in meeting leverage ratio requirements, particularly for European institutions, where this is a new regulatory constraint. If banks took on additional risks to take advantage of the revised rules, Fitch would take this into account in their rating analysis.

Global and universal trading banks should also be able to build capital and be in compliance with the leverage ratio by the 2018 deadline, especially with the relaxed definitions. It is likely many banks will accelerate their compliance with the minimum 3 per cent standard, since public disclosure starts in 2015 and banks will want to keep in line with their peers.

The changes are to the leverage ratio's denominator - the exposure measure. Several deal with derivatives, where the exposure can now be lowered by deducting cash variation margins, excluding exposures that would be double-counted in some central clearing processes and capping written credit derivatives exposures at the level of the maximum potential loss.

Read more: CPI Financial

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