The Basel Committee on Banking Supervision on 13 October published assessments of how six members implement its leverage ratio framework. Australia, Japan, Korea and Switzerland received the top grade, compliant. Canada and the United Kingdom were rated largely compliant, one notch lower. The releases close the first round of multi-jurisdiction leverage ratio reviews under the Regulatory Consistency Assessment Programme (RCAP). For the three Asia-Pacific members, the headline grade hides findings that differ in useful ways, and one Australian finding connects directly to the Committee’s wider effort against window-dressing.
Australia’s overall grade hides a weaker score on disclosure
The Australia report rates two components, definitions and calculation and exposure measurement, as compliant, but disclosure only largely compliant. The disclosure grade turns on one potentially material finding: APRA allows banks to use a “best estimate”, in some cases based on month-end values, in place of strict daily averages for securities financing transaction assets in leverage ratio templates. The assessors say this “could weaken safeguards against window-dressing”.
Two other deviations were judged not material: wording in APRA’s prudential standard APS 110 that could be read as allowing banks to exclude retained securitisation exposures, and the treatment of margin lending outside the definition of securities financing transactions.
Australia also goes further than Basel in places. It calculates the ratio using common equity tier 1 capital as the numerator, where Basel uses tier 1, and sets a 3.25% minimum against Basel’s 3%. Under RCAP rules, that super-equivalence does not offset the deviations. The ratio applies to Australian banks approved to use the internal ratings-based approach for credit risk, which the report says covers all of Australia’s internationally active banks. In its response, APRA said it had taken “a pragmatic approach” on a small number of issues, having regard to Australian conditions, industry feedback and regulatory burden.
Japan has no explicit “at all times” rule
The Japan report rates all four components compliant, including the buffer for global systemically important banks that Japan introduced from end-March 2023. The assessors found one deviation: Japanese rules omit an explicit requirement that banks meet the minimum leverage ratio at all times. Other findings concerned cash pooling, the exemption of trade exposures to central counterparties when a bank is a clearing member, and the treatment of securities financing transactions. None was assessed as material.
The leverage requirement in Japan applies to internationally active banks, bank holding companies, cooperative financial institutions and final designated parent companies of investment banks such as Nomura and Daiwa that have foreign branches or subsidiaries. The JFSA and the Bank of Japan said their framework reflects the Basel standard “through an integrated deployment of regulations, questions and answers, and guidelines for supervision”, which is their answer to the “at all times” point.
Korea fixed its gaps before the cut-off
Korea’s leverage ratio has applied since January 2015 and covers all Korean banks, a wider scope than Basel requires. The Korea report rates all three applicable components compliant; the G-SIB buffer component does not apply because no G-SIB is headquartered in Korea. The assessors credit the Financial Supervisory Service with amendments to exposure measurement and disclosure issued before the 30 June 2026 cut-off date, which took immediate effect. In its formal response, the FSS said the review gave it an objective check of its leverage framework against the Basel standards.
All three assessments were led by Arthur Yuen, Deputy Chief Executive of the Hong Kong Monetary Authority. The Korea team also included experts from the central banks of Brazil, India, Sweden and Spain.
Australia, Japan, Korea and Switzerland were assessed as compliant with the Committee’s global standards, the highest overall grade.
Basel Committee on Banking Supervision, 13 October 2026
Daily averages are becoming the Basel test
The Australian finding is the one with consequences beyond Australia. Allowing month-end or estimated values where the standard expects daily averages is exactly the kind of gap that lets a bank show a lower exposure on reporting dates than it carries through the month. The assessors treat that as a window-dressing risk, and the Committee has previously called window-dressing by banks unacceptable. Averaging removes the incentive, because a bank cannot improve a daily average by shrinking its balance sheet for a few days around the reporting date. Banks in any jurisdiction that relies on period-end figures for leverage disclosure should expect the question to come up in their own reviews.
The Committee began jurisdictional assessments of the Basel III revisions to risk-weighted assets in the first half of 2026, and continues to assess the leverage ratio.
What to watch
- APRA’s response to the disclosure finding on securities financing transaction averages.
- RCAP assessments of the Basel III risk-weighted asset revisions, started in H1 2026.
- Changes to APS 110, which was updated in December 2025 with changes effective 1 January 2027.
Primary sources
- Basel Committee on Banking Supervision, Basel Committee finds Australia, Japan, Korea, Switzerland compliant, and Canada, United Kingdom largely compliant with its leverage ratio framework, 13 October 2026
- Basel Committee, RCAP: Assessment of Basel Committee’s leverage ratio framework, Australia, 13 October 2026
- Basel Committee, RCAP: Assessment of Basel Committee’s leverage ratio framework, Japan, 13 October 2026
- Basel Committee, RCAP: Assessment of Basel Committee’s leverage ratio framework, Korea, 13 October 2026
Photo (cropped): Ymblanter, CC BY-SA 4.0 via Wikimedia Commons
