The leverage ratio buffer requirement for a G-SIB is set at 50% of its risk-weighted higher-loss absorbency requirement. This is a measure put in place to mitigate the potential ripple effects associated with the failure of G-SIBs. Therefore, if a G-SIB has a 5% risk-weighted higher-loss absorbency requirement, it would be subject to a leverage ratio buffer of 2.5%. This requirement is part of the Basel III reforms, which aim to improve the banking sector's ability to absorb shocks arising from financial and economic stress, improve risk management and governance, and strengthen banks' transparency and disclosures.

Things to Remember

• Risk-weighted higher-loss absorbency requirement is a measure of the capital that banks need to hold to cover potential losses on their assets.
• G-SIBs (Global Systemically Important Banks) are banks whose distress or failure could cause significant disruption to the global financial system and economy.
• The leverage ratio is a measure of a bank's capital to its exposure, providing a simple measure of capital adequacy without adjusting for risk.
• The Basel III reforms aim to strengthen the regulation, supervision, and risk management within the banking sector to promote financial stability.
• Capital conservation buffer is an additional capital requirement that banks must hold to ensure they have enough capital to continue lending during periods of financial stress.