The BIS released an analysis of 29 major banks indicating that LR-OFs are irreplaceable.

What's this about?

A report by the Financial Stability Institute (FSI) at the Bank for International Settlements (BIS), titled "Leverage Ratio and Calculation Ceiling: Reinforcement and Overlap", released on 28 April, edited by Patricia Badino Jonathan Basinger and Renzo states that leverage ratio (LR) and calculation ceiling (OF) under the Basel III standard may supplement a bank's capital requirements in some circumstances but cannot be used interchangeably.

The report also notes that if the last full OF level 72.5% is enforced, 6 out of 13 global systemically important banks (G-SIBs) disclosing information will be subject to restrictions from the OF.

Why separate: Leverage and the computational ceiling perform different functions.

Leverage is a broad criterion that compares the fund's capital to assets or overall risk burden without relying on complex risk weight calculations. The calculated ceiling is a requirement for banks using internal models so as not to make their model-calculated risks too low.

As the computational ladder moves up to 72.5%, banks relying on internal models may be drawn into holding more capital even though leverage is passing criteria.

What do the 6 out of 13 numbers mean?

Of the 13 disclosed G-SIBs, six would be bound by OF if they were to use their last full scale. This figure does not mean that banks are safe or do not hold more capital but indicates that the remaining limits may vary according to each bank's asset structure, risk and calculation methodology.

Some might be controlled by leverage, some by the computational ceiling and some may be both at once so reporting like this helps to show that capital standards don't work the same way for all banks.

What is the effect on readers?

For Thai readers who follow the financial system, this news isn't unique to banks in Europe or the United States because Basel III is a framework that large banks use in many countries and capital pressures can affect bank costs through loans, deposits, fees, or poor management.

In the context of Thailand and the region, banking users may therefore benefit from indirect effects rather than direct changes in digital asset prices or exchange platforms. If a bank is required to hold more funds, the resulting effect can be seen in credit tightening, product pricing or business restructuring by large banks.

The next spot to watch.

The point to look at is not just whether the calculated ceiling reaches 72.5% and which bank will pass, but which banks have risk assets that are calculated with internal models above the ceiling and which banks need to raise capital in order to meet both criteria simultaneously.

Data from the BIS FSI suggests that LR and OF are complementary protective layers rather than alternatives, so readers should keep an eye on their bank's fundraising information to distinguish it as supervisory information rather than investment advice.