The Leverage Ratio (LR) is a non-risk-based ratio that prevents an excessive build-up of leverage on institutions’ balance sheets.
The goal is to have enough Tier 1 capital in relation to the total consolidated non-risk-weighted assets in order to meet the expected minimum BASEL III leverage ratio (initial value is 3%).
The Leverage Ratio Return is highly coupled with the COREP Reporting as it predominantly utilizes the results or intermediate calculations of COREP to prepare the necessary calculations that ultimately lead to the automated production / generation of the LR Return.
Some of the attributes / concepts required to be available by COREP for the automation of LR inlcude:
- On and off-balance sheet items – additional breakdown of exposures
- Breakdown of all exposures according to the risk weights applied under the credit risk section of the CRR
- Alternative definition of capital
- Provides with the capital measures needed for the review provided for in article 511 of the CRR
- Breakdown of leverage ratio exposure measure components
- Breakdown of all exposures according to the exposure classes under the credit risk section of the CRR
- Entities that are consolidated for accounting purposes but are not within the scope of prudential consolidation
- SFTs covered by a master netting agreement per entity category
- SFTs not covered by a master netting agreement per entity category
- Derivatives per entity category
- Off-balance sheet items per entity category
- Other assets per entity category
- Memo items for investments, accounting assets and equities