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Part V Basel III Requirements, 22 The Leverage Ratio

From: International Regulation of Banking: Capital and Risk Requirements (2nd Edition)

Simon Gleeson

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From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 25 September 2020

Leverage — Capital requirement
22.01 A leverage ratio is simply a non-risk-sensitive capital requirement, as can be seen from the following comparisons: A leverage ratio is therefore by definition a blunt instrument, and it may be asked why, given that Basel is based on sophisticated risk assessment, it should be considered desirable to introduce into the architecture a regime which is unsophisticated and does not reflect risk? 22.02 The conventional answer to this question is that the leverage ratio is merely a ‘backstop’, and exists to ensure that banks do not aggressively game the system....
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