Another approach involves discussing and developing proposals for regulatory floors of different kinds, for example risk-weight floors like the one we have for mortgages in Sweden today or floors that cover the total capital requirement that is also in place today. Finally, it is a  4  BIS central bankers’ speeches  question of tightening up supervision and improving transparency concerning risk weights. It is probable that the assessment of the banks risk weights will be broadened and eventually become a permanent part of the undertakings of the Basel Committee. As in the case of the leverage ratio, there are those that claim that these measures will reduce the banks’ incentives to effectively manage their own risks. However, in my opinion it is question of avoiding a regulatory framework that gives the banks incentives to use their own models with the aim of reducing their risk weights and their capital requirements more than can be justified by the risks in their operations. It is important to find solutions to this problem as it will otherwise be difficult to restore the credibility of the frameworks and thus of the banks. Basel III is also relevant to the Swedish banking system Once Basel III is in place around the globe, the safety margins in the global financial system will be greater than previously.
In the case of systemicallyimportant banks there is also an extra capital requirement over and above the minimum requirements. How large this supplement is depends on how systemically important the bank is. For global systemically-important banks the extra requirement will begin to apply from next year. For the last 12 months there has also been an agreement in the Basel Committee on the short-term liquidity measure, the LCR. In brief, the LCR means that the banks must have a large enough buffer of high liquid assets to be able to cover their cash outflows during a 30-day long stressed scenario. The aim is to strengthen the banks’ resilience to short-term liquidity stress. The LCR will come into force no later than 1 January 2015, but some countries are already applying it. In Sweden, a stricter version of the LCR has been applied since 2013. Leverage ratio complements the risk-based capital requirement As I mentioned earlier, the Basel Committee has made a lot of progress on the leverage ratio this year. In January the Committee agreed on a common method for calculating the ratio. The leverage ratio can be described as measure of how much of a bank’s assets the bank funds using its own capital. Like the risk-based capital measure, the leverage ratio aims to increase the ability of the banks to cover losses. However, unlike the risk-based capital measure, the leverage ratio does not take differences in risk between a bank’s different assets into account.