Global regulators expected to ease banking leverage rule - source

LONDON Tue Dec 3, 2013 11:36am EST

LONDON Dec 3 (Reuters) - Global banking regulators are expected to ease a new capital rule due in 2018 to rein in risky balance sheets after U.S. complaints, a European regulatory source said on Tuesday.

The Basel Committee on Banking Supervision published a proposal in June to flesh out a leverage ratio that banks will have to introduce in January 2018.

It measures a bank's capital against all of its assets, without adjusting them for risk, and act as a backstop to a lender's core risk-weighted capital requirements.

The ratio has been set at 3 percent, meaning a bank must hold capital equivalent to 3 percent of its total assets.

A key issue for Basel was how to square accounting systems that vary in the way they treat derivatives.

U.S. accounting rules allow for estimating derivatives holdings on a net basis, while international standards used in Europe and elsewhere use gross positions, which can be much larger and push lenders to hit the 3 percent mark much more quickly.

Holdings of derivatives at Deutsche Bank for example, appear much larger than at JPMorgan.

Basel opted for gross positions in its June proposal, to the dismay of U.S. lenders who would face having to raise more capital to comply.

The insistence on only gross positions is set to be scaled back by the Basel Committee, which is meeting in Hong Kong.

"There will be a sound compromise to allow an acceptable degree of netting for all banks, subject to good comparability and transparency," the European regulatory source involved in the negotiations said.

Consultancy EY said the original proposal could significantly increase the leverage ratio of entities reporting under U.S. accounting rules.

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