Improving Banking Supervisory Mechanisms
In the OIC Member Countries
11
The leverage ratio aims to:
 Restrict the build-up of excess leverage in the banking sector to avoid destabilizing the
financial system and the economy;
 To simplify the risk-based requirements by switching to a simple, non-risk-based
“backstop” measure
 This new ratio ensures both the on- and off-balance sheet assets to be included in the
capital assessment.
 Leverage ratio = Capital measure/Exposure measure, where the capital measure for the
leverage ratio is the Tier 1 capital of the risk-based capital framework
 A bank’s total exposure measure is the sum of the following exposures: (a) on-balance
sheet exposures; (b) derivative exposures; (c) securities financing transaction (SFT)
exposures; and (d) off-balance sheet (OBS) items.
Consequently, BASEL III, imposes a constraint of 3% on the leverage of banks, i.e. the ratio of
Tier 1 capital to the total exposure of banks to supplement the risk-based capital framework of
BASEL II. The new leverage ratio will be much easier to calculate and will have a simpler logic
than that of right weight calculations.
Timeline: According to BASEL Committee, leverage ratio will be disclosed by 2015.
Below is the summary of the new BASEL III requirements and their time table.
Table 2: Time-table for new BASEL III Requirements
Phases 2013 2014 2015 2016 2017 2018 2019
Capital
Leverage Ratio
Parallel run 1 Jan 2013 - 1 Jan
2017
Disclosure starts 1 Jan 2015
Migration to
Pillar 1
Minimum Common Equity
Capital Ratio
3.50% 4.00% 4.50% 4.50%
Capital Conservation Buffer 0.625% 1.250% 1.875% 2.500%
Minimum common equity plus
capital conservation buffer
3.50% 4.00% 4.50% 5.125% 5.75% 6.375% 7.00%
Phase-in of deductions from
CET1*
20% 40% 60% 80% 100% 100%
Minimum Tier 1 Capital 4.50% 5.50% 6.00% 6.00%
Minimum Total Capital 8.00% 8.00%
Minimum Total Capital plus
conservation buffer
8.00% 8.625% 9.25% 9.875% 10.50%
Capital instruments that no Phased out over 10 year horizon beginning 2013