December 7, 2015 / 10:35 AM / in 4 years

BoE sticks with anti 'window dressing' rule for bank leverage ratio

LONDON (Reuters) - Britain’s banks will get an extra year to December 2017 to prepare for publishing more detailed information on their leverage ratios or the broad measure of capital to non risk-weighted assets, the Bank of England said on Monday.

A man walks past the bank of England in London, Britain September 23, 2015. REUTERS/Neil Hall

The BoE’s supervisory arm, the Prudential Regulation Authority (PRA), said it would go ahead with imposing a stricter method on UK lenders for calculating leverage ratios than required under global rules.

In July it proposed that banks also use the daily average of the ratio for calculating the end of quarter figure for publication to avoid “window dressing”, or attempts to flatter the figure around the reporting date.

This would be in addition to the “point in time” end of quarter figure.

Some banks said this would be burdensome, but the BoE said it would go ahead with daily averaging, though it has agreed to delay the start date for publication - but not privately reporting to regulators - to give lenders more time to get the system’s accuracy right.

“Based on the above, the PRA considers it appropriate to extend the transitional period for daily averaged disclosures from 12 months, that is ending on 31 December 2016, to 24 months, that is ending on 31 December 2017,” the PRA said in a statement.

“This would mean that there is a period where the daily averaged number is being reported to the PRA but not publicly disclosed, which would allow firms additional time to improve the accuracy and comparability of the averaged numbers without compromising the effective monitoring of the UK leverage ratio framework,” it said.

The leverage ratio is a separate “backstop” to a bank’s core ratio, which measures capital to risk-weighted assets.

The more stringent approach of using “daily averaging” will move Britain in line with the United States and is the latest attempt by regulators to stop banks “gaming” the capital adequacy system.

Policymakers have said that such steps are needed to restore investor trust in a sector tarnished by the 2007-09 financial crisis that found lenders were under capitalised.

Some banks told the PRA’s consultation that disclosing a daily-averaged leverage ratio in addition to the “point in time” figure” may lead to investors “misinterpreting” the data.

But PRA said on Monday it was essential to have a credible disclosure regime and that it would be up to banks to explain the market differences between the two figures.

Reporting by Huw Jones, editing by Louise Heavens and Susan Thomas

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