Question 1: Is the starting point for the leverage ratio exposure calculation total on-balance-sheet assets as reported in the financial statements?
Yes, total assets are the correct starting point, with adjustments as specified in the Standards, and with additions for off-balance-sheet exposure as required under the Standards.

Question 2: Should aspects of derivatives exposures or SFT exposures that are on the balance sheet be included as part of on-balance-sheet exposure, or as part of derivatives or SFT exposure?
Certain exposures related to derivatives may appear on the balance sheet; the same is true for SFTs. Those exposures related to derivatives or SFTs should be excluded from the on-balance-sheet component of the leverage ratio exposure calculation, and instead included with either derivatives exposure or SFT exposure, as appropriate.

Question 3: Why is collateral on the bank’s balance sheet part of the exposure measure for the leverage ratio calculation?
The leverage ratio framework as developed by the Basel Committee treats all assets on a bank’s balance sheet as creating equal risk. If the bank holds collateral on its balance sheet, the collateral is an asset of the bank, and changes in the value of that collateral affect the bank’s total assets and capital. In this sense, the leverage ratio calculation treats collateral as an additional source of risk exposure to the bank, even though the purpose of taking the collateral may be credit risk mitigation. The leverage ratio treats most types of secured exposures the same way, on a gross basis without taking into account the effects of collateral.

Question 4: Is the calculation of counterparty credit risk exposure the same as the calculation used in the SA-CCR standards of the Central Bank?
Not quite – the CCR exposure calculation for the leverage ratio is similar, but with some differences. Potential Future Exposure is different because the PFE multiplier is set equal to 1, rather than possibly being less than 1 as under the CCR Standards. Replacement Cost also differs, due to some differences in the treatment of eligible collateral. The requirements are covered in para 44 to 46 of the Leverage Ratio Standards.

Question 5: Why is the PFE multiplier set to 1 for derivatives in the calculation of the leverage ratio exposure measure?
The PFE multiplier is set to 1 because unlike the SA-CCR calculation, there is no “credit” given to the bank for overcollateralization for the leverage ratio. This is in the spirit of other aspects of the leverage ratio exposure calculation, which strictly limits the recognition of various forms of credit risk mitigation.

Question 6: What types of commitments can qualify for a CCF less than 40%?
Commitments that are unconditionally cancellable at any time by the bank without prior notice, or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness, without observed constraints on the bank’s ability to cancel such commitments. As noted in the Standards, such commitments are subject to a 10% CCF.

Question 7: The Standards states “general provisions or general loan loss reserves which have reduced Tier 1 capital may be deducted from the leverage ratio exposure measure.” Does this imply that for banks under the standardised approach all general provisions held on the balance sheet are permitted to be deducted from the exposure measure?
Yes, that interpretation is correct.

Question 8: The Standards does not mention interest in suspense; are bank’s allowed to deduct this from the leverage ratio exposure measure?
No, interest in suspense should be included as an exposure. However, specific provisions for interest in suspense can be deducted.