The Clearing House Association submitted a comment letter to the Basel Committee on the impacts of both the Basel and U.S. supplemental leverage ratio proposals on U.S. G-SIBs. The letter supports a leverage ratio as a simple non-risk based backstop to risk-based capital measures. The proposed revisions, however, raise three fundamental concerns: (i) taken together with initiatives by national regulators in some jurisdictions to apply a super-equivalent supplementary leverage ratio to the banks they regulate, the supplementary leverage ratio ultimately may act not as a backstop but instead as the binding constraint for many banks; (ii) proposed revisions’ treatments of exposures arising from derivatives and from securities financing transactions (SFTs) substantially overstate the true risk, as quantified by more accurate and realistic measures of those exposures, and thereby create the potential for serious distortions; (iii) proposed revisions’ approach to the exposure measure is too narrow. 

In order to make the supplementary leverage ratio a simple and credible backstop to risk-based measures, the Basel Committee should comprehensively revisit the calculation of the exposure measure and its components ̶ particularly the treatment of off-balance sheet (OBS) commitments and unconditionally cancellable commitments, and not limit its review to derivative exposures and SFTs. Additionally, TCH’s comment letter argues, among other things, that the proposed revisions to the treatment of derivatives and securities financing transactions exposures substantially overstate true risk.