Improving Banking Supervisory Mechanisms
In the OIC Member Countries
14
required to have 2.5%, surcharge, Barclays, BNP Paribas, Citigroup and Deutsche Bank have
been selected as 3rd highest SIFI category causing an additional 2% capital charge to be paid.
Leverage Ratio
On September 2014, a combined effort of US regulators made an obligation on leverage ratio
for relatively larger US banks. The Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance
Corporation (FDIC) proposed to impose the agencies’ leverage ratio standards for large,
interconnected US banking organizations. According to this recent regulation, the proposal
would apply to any US top-tier bank holding company (BHC) with at least $250 billion in total
consolidated assets. On the basis of these new regulations, these institutions will have a
supplementary leverage ratio. This additional ratio will be an additional 3% leverage on top of
BASEL III. The US Federal Reserve Board is proposing a minimum leverage ratio of 5% for
systemically important banks and 6% for retail banks owned by a systemically important bank
to be applied from 2018 BASEL III requirements as we discussed in the previous section.
Changes in Europe
European banking sector has faced a serious challenge after the Euro crisis. Problems within
Europe and coordination in deposit insurance caused serious changes in the European
banking.
Establishment of the European Banking Authority (EBA)
Recently, in 2014, an independent banking authority has been established after the Euro crisis.
EBA is an independent EU authority, which works to ensure effective and consistent prudential
regulation and supervision across the European banking sector. Its overall objectives are to
maintain financial stability in the EU and to safeguard the integrity, efficiency and orderly
functioning of the banking sector. The main task of the EBA is to contribute to the creation of
the European Single Rulebook in banking whose objective is to provide a single set of
harmonized prudential rules for financial institutions throughout the EU. The Authority also
plays an important role in promoting convergence of supervisory practices and is mandated to
assess risks and vulnerabilities in the EU banking sector.
The European system set up for the supervision of the financial sector is made of three
supervisory authorities: the European Securities and Markets Authorities (ESMA), the
European Banking Authority (EBA) and the European Insurance and Occupational Pensions
Authority (EIOPA). The system also comprises the European Systemic Risk Board (ESRB) as
well as the Joint Committee of the European Supervisory Authorities and the national
supervisory authorities.
Leverage Ratio
EBA is currently developing a draft on its supervisory reporting requirements for the leverage
ratio, which aims at providing national authorities with harmonized information on the
leverage ratio using uniform reporting formats. Other European countries do have additional
requirements on the use of leverage ratio. In Switzerland the largest banks will be required to
meet a minimum leverage ratio against total capital of around 4.3 percent by 2019. In the UK
the authorities are reviewing the case for using the leverage ratio as a macro-prudential tool
and have already imposed stress tests that use CET1 capital rather than total tier 1 capital as
the capital measure for the leverage ratio.