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FRM Part II · FRM Exam Part II · High-level Summary of Basel III Reforms

Under the finalised Basel III framework, a G-SIB leverage ratio buffer is applied to global systemically important banks. How is this buffer set?

The G-SIB leverage ratio buffer equals 50% of the bank's risk-weighted higher-loss-absorbency buffer and must be met with Tier 1 capital. For example, a 2% risk-based buffer implies a 1% leverage buffer on top of the 3% minimum.

  1. AA fixed 3% added to the minimum leverage ratio for all G-SIBs
  2. BEqual to 50% of the bank's higher-loss-absorbency risk-weighted G-SIB buffer requirement, met with Tier 1 capitalCorrect
  3. CEqual to 100% of the risk-based G-SIB buffer, met with CET1 only
  4. DDetermined case by case by national supervisors with no link to the risk-based buffer

Explanation

The leverage ratio buffer for G-SIBs is set at 50% of the G-SIB's risk-weighted higher-loss-absorbency requirement, and must be met with Tier 1 capital. A G-SIB with a 2% risk-based buffer thus has a 1% leverage buffer, giving a 4% leverage requirement. The 100% option overstates the link.

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