Basel leverage ratio impacts derivatives

Author: Edward Price | Published: 8 Feb 2016

The Basel Committee on Banking Supervision's (BCBS) announcement that it won’t raise the level of the leverage ratio may be a victory for banks but the ratio itself may still push them out of the derivatives clearing space.    

The Basel Committee is aware of concerns over the leverage ratio. The Committee is expected to revisit one such key issue this year, namely how banks calculating the leverage ratio must count clients’ collateral as their own when clearing.  

"That squeezes banks’ balance sheets, and so the argument is banks are simply shying away," said V Gerard Comizio, partner at Paul Hastings.

The Commodity Futures Trading Commission (CFTC) supports a change to this requirement. But US regulators are not a homogenous group. The Federal Deposit Insurance Corporation (FDIC) is much less supportive, most notably in the person of its vice-chairman, Tom Hoenig.

V Gerard Comizio