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Part III Quantitative Capital Requirements, 5 The Construction of the Total Risk Exposure Amount and the Relationship with the Combined Buffer Requirements

Bart P.M. Joosen

From: Capital and Liquidity Requirements for European Banks (1)

Edited By: Bart P.M. Joosen, Marco Lamandini, Tobias H. Tröger

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 22 May 2024

Subject(s):
Credit risk — Capital requirement — Leverage

This chapter focuses on the total risk exposure amount (TREA) and on the leverage ratio (LR). It begins by introducing the different concepts of an institution’s capital, before discussing the TREA in the Capital Requirements Regulation (CRR), including the most significant changes introduced by the CRR II. The chapter then analyses the relationship between the TREA and the different additional buffer requirements set out in the fourth Capital Requirements Directive (CRD IV). The TREA is also the denominator of the ratios of these different additional buffers. Finally, the chapter looks into the LR. Contrarily to the capital ratio, the LR is a non-risk weighted capital measure. The binding LR which requires institutions to maintain at least Tier 1 (T1) capital of 3% of their non-risk weighted assets is a new ratio introduced by CRR II. An additional ratio will apply for global systemic important institutions (G-SIIs).

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