Off Balance Sheet Items and Reconciling Frameworks within Basel III: Revisions to the Basel III Leverage Ratio Framework

Abstract

This presentation highlights developments which have occurred in particular with leverage ratios – and particularly with respect to supplementary leverage ratios. It also incorporates consequences – both intended and unintended, that have emanated in relation to these ratios. Jurisdictional adoptions of supplementary leverage ratios have raised concerns in respect of the real rationales behind certain jurisdictional preferences, and whether competitive disadvantages accrue to countries which have decided to opt for more stringent requirements.

This presentation also highlights rationales which have prompted recent revisions to supplementary leverage ratios – with particular focus on the need for revisions to the credit conversion factors for off-balance sheet items – as well as concerns relating to calibration between the risk-weighted capital ratio and leverage ratio based frameworks; and how often off balance sheet exposures are to be calculated.

With off balance sheet exposures still constituting a major focus – as well as how best to address off balance sheet items, the 2016 proposed revisions also provide an insight to treatments which have particular relevance in matters relating, for instance, to provisions, securitizations – and also underlines why certain jurisdictions have opted for supplementary and enhanced supplementary leverage ratios as measures whereby issues such as potential undercapitalization of institutions (banking and non financial) and off balance sheet exposures could be addressed.

Keywords: Off balance sheet exposures, credit conversion factors, supplementary leverage ratios, enhanced supplementary leverage ratios, systemically relevant financial institutions