The Pfandbrief 2011 | 2012

waiving exemption from retroactive application for purposes of solvency in specific cases)
and
increase privileged risk-weights conditional to domestic loan loss and default histories in
EU member states warranting such measures.
If actually implemented, all of these amendments could lead to a further increase in required
regulatory capital.
Introduction of a maximum leverage ratio
Given the recent experience from the financial crisis, the regulatory maximum leverage ratio
stipulated in the Basel III framework was designed to put a definitive end to the build-up of
excessive debt in the banking sector, thereby preventing painful deleveraging processes in the
real economy in crisis situations. The leverage ratio (LR) is intended to act as an additional
backstop measure to supplement the risk-sensitive capital requirements of the Basel regulations.
According to CRD IV, the leverage ratio will initially be implemented at the beginning of
2013 as an observation ratio as part of the bank regulatory review process under Pillar II of the
Basel framework. During the first half of 2017, the last year of the observation phase, an analysis
will determine whether a mandatory leverage ratio unreasonably burdens individual business
models and/or credit transactions, and a decision will be made as to whether it should
remain in Pillar II as an observation ratio or be moved to Pillar I as a mandatory regulatory
ratio. At the same time, an early, firm commitment by politicians as to which direction the process
should take will be crucial for avoiding the undesirable strategic positioning on the part of
the banking industry that is already expected to start soon. The leverage ratio is defined as
33
Leverage Ratio =
Capital measure
Exposure measure
Basel III rules call for a minimum leverage ratio of 3%, subject however to final calibration.
A corresponding qualification applies to the specific definition of the leverage ratio, as well
as to the capital measure in the numerator and the exposure measure in the denominator.
Based on the existing definition in the Basel III framework, the capital measure in the
numerator is determined by the Tier 1 capital (in accordance with Basel III). As an alternative,
during the course of the Basel III implementation at the EU level, consideration will be given
to limiting this to common equity Tier 1 capital. In line with the relevant amounts set forth in
the solvency regulations, the exposure measure encompasses on-balance-sheet assets, derivatives
and off-balance-sheet transactions. On-balance-sheet assets are regularly reported at the
respective book value; for derivatives, the stated value is determined using the mark-to-market
method (already laid down in the solvency regulations).
It should be noted that no credit-risk mitigants (e.g., securities collateral, mortgages, guarantees)
may be used to reduce the exposure measure of the hedged underlying transaction.
The only exception to this under the Basel III regulations is for certain netting agreements,
especially involving derivatives transactions.