The Basel Committee has been criticised by those who claim that introducing the leverage ratio creates a regulation that favours risk taking, as the measure deals with the banks in the same way irrespective of the risks they take. However, the leverage ratio is intended to 2  BIS central bankers’ speeches  complement the risk-based capital measure and to act as extra protection to ensure that the level of capital at the banks does not fall too low. It can, for example, limit how much the capital can fall in relation to the bank’s total assets if the models the banks use to calculate risk weights fail to capture risk to a sufficient extent and the risk weights therefore become too low. As yet, the Basel Committee’s agreement on the leverage ratio does not specify any quantitative requirements. However, from the beginning of next year, large banks all over the world will need to publish their leverage ratios. The idea is that the Basel Committee will monitor developments when the banks begin to report their leverage ratios with a view to migrating to a minimum requirement from 2018. However, in most cases the risk-based capital requirement will continue to be the binding capital requirement, and not the leverage ratio. However, the opposite may of course apply in some cases. This is also reasonable because, when all is said and done, a requirement that can never be considered binding is not particularly meaningful.
Some people wonder why don’t we simply make the Charter part of the HKMA’s regulatory requirements for banks given the importance of fair customer treatment? My reply to this is that: banks have to deal with tens of thousands of customers every day to provide a great variety of services and conduct countless transactions. While imposition of regulatory rules would bring about some effects, no external rules could possibly be all-pervasive, more difficult still about transforming the corporate culture or long-standing values in workplace. Fair treatment of customers ought to be firmly embedded in the corporate culture of banks that all personnel – from board of directors, chief executives, senior management, to frontline employees – will accept, defend and uphold treating their customers fairly as a guiding principle. Banks’ incentive mechanism must also promote and support this culture in every aspect of the banks’ operations. BIS central bankers’ speeches  1  6. Bank customers, as consumers of various types of bank products and services, should receive appropriate protection. While banks should treat their customers fairly, the latter should also be responsible and smart. The most basic requirement is that customers should try their best to understand the products and services provided by banks, including credit cards, personal loans, home mortgages and wealth management products, their relevant risks, costs and expenses, and whether the products and services are suitable for them.