And now, taking a very bold leap from football back to banking regulation: It is appropriate to demand more capital for holding high-risk assets than for holding nearly risk-free assets. In addition, an apparently simpleleverage ratio could serve as a valuable backstop and act as a safeguard, in particular, against model errors and mis-calibration of risk weights.
I fully agree with the leverage ratio’s overall intention to deliver transparent and credible ratio, complementing the risk-based capital requirements – how simple it really is still has to be seen, especially in the light of different national accounting standards. Nevertheless, the core message of Basel III itself is quite simple.