LR

Question 1

Regulatory Requirement (CRR / Basel III / CRR3)

Answer 1

Minimum Requirement

Under CRR Article 429:

Leverage Ratio ≥ 3%

This means:

Tier 1 Capital must be at least 3% of total leverage exposure.

Some G-SIBs (Global Systemically Important Banks) have additional buffers.

Question 2

COREP Templates for Leverage Ratio

Answer 2

Template | Description |
| ——– | —————————————- |
| C47.00 | Leverage ratio calculation (summary) |
| C48.00 | Exposure breakdown |
| C49.00 | Off-balance sheet exposures |
| C50.00 | Derivatives exposures |
| C51.00 | Securities financing transactions (SFTs) |

Question 3

Leverage Ratio Formula

Answer 3

Basic Formula

Leverage Ratio = Tier 1 Capital ÷ Total Exposure Measure
Tier 1 Capital Includes:

CET1 capital

AT1 capital

After regulatory deductions

This is taken directly from COREP Own Funds templates (C01.00)

Question 4

Total Exposure Measure — Key Components

Answer 4

A. On-Balance Sheet Exposures

Examples:

Loans

Securities

Cash and balances with central banks

Important:

Based on accounting value

No risk weighting

Adjusted for regulatory deductions

B. Derivative Exposures

Includes:

Replacement cost (current exposure)

Potential future exposure (PFE)

Supervisory method: SA-CCR (Standardised Approach for Counterparty Credit Risk)

Reported in COREP Template C50.00

C. Securities Financing Transactions (SFTs)

Examples:

Repo transactions

Reverse repos

Securities lending

Reported in COREP Template C51.00

D. Off-Balance Sheet Exposures

Examples:

Loan commitments

Guarantees

Letters of credit

Converted using Credit Conversion Factors (CCFs)

Reported in COREP Template C49.00

Question 5

Key Supervisory Criteria

Answer 5

Supervisors assess:

Capital adequacy relative to exposure size

They want to ensure banks do not over-leverage.

Exposure completeness

All exposures must be included correctly:

On balance sheet

Off balance sheet

Derivatives

SFTs

No risk-weight reduction allowed

Unlike RWA calculations, leverage exposure does not allow risk-based reductions.

Question 6

Differences Between Leverage Ratio and Risk-Based Capital Ratios

Answer 6

Feature Leverage Ratio CET1 / Total Capital Ratio
Risk weighting No Yes
Exposure measure Total exposure Risk-weighted exposure
Complexity Simple Complex
Purpose Backstop Primary capital measure

Question 7

CRR3 Changes & Enhancements

Answer 7

CRR3 strengthens leverage ratio framework by:

Improving exposure measurement accuracy

Refining SA-CCR derivative calculations

Enhancing disclosure requirements

Ensuring consistency with Basel III final reforms

Question 8

Practical COREP Reporting Controls (Interview-Relevant)

Answer 8

Key validation checks include:

Reconciliation between COREP Own Funds and leverage templates

Consistency with balance sheet exposures

Correct derivative exposure calculation (SA-CCR)

Completeness of off-balance sheet exposures

Validation of exposure exclusions (if applicable)

Question 9

What is the leverage ratio and how is it reported in COREP?”

Answer 9

The leverage ratio is a non-risk-based capital ratio that measures Tier 1 capital relative to total exposure, including on-balance sheet assets, derivatives, securities financing transactions, and off-balance sheet exposures. It is reported in COREP templates C47 through C51. Its purpose is to provide a simple backstop to risk-based capital ratios and ensure banks maintain sufficient capital regardless of risk weighting. The minimum regulatory requirement under CRR is 3%, and key supervisory focus areas include exposure completeness, consistency with financial reporting, and correct application of SA-CCR for derivative exposures.

Question 10

Control Expected by Regulators

Answer 10

Supervisors expect a clear reconciliation between:

FINREP balance sheet → COREP leverage exposure

With documented explanation of differences.

Question 11

LR vs FINREP Step-by-Step Reconciliation Process

Answer 11

Step 1: Start with Accounting Balance Sheet (IFRS)

Source:

FINREP templates (F01.01 balance sheet)

IFRS consolidated balance sheet

Step 2: Apply Regulatory Adjustments

Some items must be adjusted or excluded.

Examples:

Adjustment Explanation
Deduct Tier 1 capital elements Avoid double counting
Exclude fiduciary assets Not owned by bank
Adjust derivatives exposure Replace accounting value with regulatory exposure
Include off-balance sheet exposures Not on balance sheet but included in leverage exposure

Step 3: Add Off-Balance Sheet Exposures

Examples:

Off-Balance Sheet Item Exposure
Loan commitments 200
Guarantees 100
Total OBS exposure 300

These must be converted using Credit Conversion Factors (CCFs).
Step 4: Adjust Derivative Exposure (Critical Difference)

Accounting value ≠ Regulatory exposure

Accounting uses:

Fair value

Leverage ratio uses:

Replacement cost

Plus potential future exposure (SA-CCR)

Example:

Measure Value
Accounting derivative value 50
Leverage exposure 120

Step 5: Add Securities Financing Transactions (SFTs)

Examples:

Repo

Reverse repo

Securities lending

These may differ from accounting netting.

Question 12

Key COREP Templates Used

Answer 12

Template | Purpose |
| ——– | ———————– |
| C47.00 | Leverage ratio summary |
| C48.00 | Balance sheet exposures |
| C49.00 | Off-balance sheet |
| C50.00 | Derivatives |
| C51.00 | SFTs |