Banks are set to face a broad international leverage limit that will catch off-balance sheet risks and prevent them from hiding their debt, according to the head of the Basel Committee on Banking Supervision.
Bloomberg reports that the Basel group is seeking to put a ceiling on indebtedness that will prove robust no matter how complicated a bank’s business model, Stefan Ingves, its chairman, said in an interview.
'We want to catch leverage in a reasonable way, because one of the things that history has taught us is that when you look at episodes ex-post, when things fall apart, the conclusion is almost always that there was somehow too much leverage in the system and it was found out way too late', said Ingves, who is also governor of Sweden’s central bank.
A quarter of large global banks would have failed to meet a draft version of the Basel leverage rule had the standard been in force at the end of last year, according to data published by the Basel committee on 25th September. Concerns that banks can reduce their capital requirements by simply changing how they measure the risk of losses on their assets have prompted calls from some supervisors for more reliance on leverage limits, on the grounds that they are harder for lenders to game
The group, which brings together regulators from 27-nations including the U.S., U.K. and China, is in 'a good position' to complete work on the leverage ratio rule 'towards the end of the year or sometime early next year', Ingves said.
Under the committee’s timetable, banks will be expected to publish how well they measure up to the rule from 1st January, 2015, with the measure to become binding in 2018.
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