On 13 December 2018, the Basel Committee on Banking Supervision (Basel Committee) issued a consultative document seeking potential revisions to the disclosure requirements for the leverage ratio.

The Basel Committee is particularly concerned about “window-dressing”, in the form of temporary reductions of transaction volumes in key financial markets around reference dates resulting in the reporting and public disclosure of elevated leverage ratios. Earlier this year the Basel Committee indicated that window-dressing by banks is unacceptable, as it undermines the intended policy objectives of the leverage ratio requirement and risks disrupting the operations of financial markets.

Specifically, the Basel Committee proposes that banks be required to include in their Pillar 3 disclosures, in addition to current requirements, the amounts of each of the following exposures calculated based on an average of daily values over the quarter:

  • adjusted gross securities financing transaction assets recognised for accounting purposes;
  • replacement cost of derivative exposures; and
  • central bank reserves that are included in on-balance sheet exposures.

The deadline for comments on the consultative document is 13 March 2019. The Basel Committee proposes that these potential revisions be implemented no later than 1 January 2022 and apply to all internationally active banks.

The Basel Committee also warns that whilst the scope of the consultative document is limited to the disclosure of a limited set of exposures, it will continue to monitor trends in banks’ leverage ratio exposures and may consider extending the scope of disclosure requirements based on averages if warranted to address potential window-dressing behaviours identified for other types of exposures. The Basel Committee will also continue to consider whether amendments to leverage ratio Pillar 1 calculation requirements would be appropriate to mitigate window-dressing behaviours.