Prudential Regulation Authority Rulebook

1.

Institutions shall calculate their leverage ratio in accordance with the methodology set out in paragraphs 2, 3 and 4.

2.

The leverage ratio shall be calculated as an institution's capital measure divided by that institution's total exposure measure and shall be expressed as a percentage.

3.

For the purposes of paragraph 2, the capital measure shall be tier 1 capital (leverage).

4.

For the purposes of paragraph 2, the total exposure measure shall be the sum of the exposure values of:

1. (a) assets, excluding derivative contracts listed in Annex II of the CRR, credit derivatives and the add-ons for counterparty credit risk for securities financing transactions referred to in Article 429e of this Chapter, calculated in accordance with Article 429b(1) of this Chapter;
2. (b) derivative contracts listed in Annex II of the CRR and credit derivatives, including those contracts and credit derivatives that are off-balance-sheet, calculated in accordance with Articles 429c and 429d of this Chapter;
3. (c) add-ons for counterparty credit risk of securities financing transactions, including those that are off-balance- sheet, calculated in accordance with Article 429e of this Chapter;
4. (d) off-balance-sheet items, excluding derivative contracts listed in Annex II of the CRR, credit derivatives, securities financing transactions and positions referred to in Articles 429d and 429g of this Chapter, calculated in accordance with Article 429f of this Chapter; and
5. (e) regular-way purchases or sales awaiting settlement, calculated in accordance with Article 429g of this Chapter.

Institutions shall treat long settlement transactions in accordance with points (a) to (d) of the first subparagraph, as applicable.

Institutions may reduce the exposure values referred to in points (a) and (d) of the first subparagraph by the corresponding amount of general credit risk adjustments to on- and off-balance-sheet items, respectively, subject to a floor of 0 where the credit risk adjustments have reduced the tier 1 capital (leverage).

5.

Point (d) of paragraph 4 applies subject to the following provisions:

1. (a) an off-balance-sheet item in accordance with point (d) of paragraph 4 that is treated as a derivative in accordance with the applicable accounting framework shall be subject to the treatment set out in point (b) of that paragraph;
2. (b) where a client of an institution acting as a clearing member enters directly into a derivative transaction with a central counterparty and the institution guarantees the performance of its client's trade exposures to the central counterparty arising from that transaction, the institution shall calculate its exposure resulting from the guarantee in accordance with point (b) of paragraph 4, as if that institution had entered directly into the transaction with the client, including with regard to the receipt or provision of cash variation margin.

The treatment set out in point (b) of the first subparagraph shall also apply to an institution acting as a higher-level client that guarantees the performance of its client's trade exposures.

For the purposes of point (b) of the first subparagraph and of the second subparagraph of this paragraph, institutions may consider an affiliated entity as a client only where that entity is outside the regulatory scope of consolidation at the level at which the requirement set out in point (d) of Article 92(3) of the CRR is applied.

6.

For the purposes of point (e) of paragraph 4 of this Article and Article 429g of this Chapter, ‘regular-way purchase or sale’ means a purchase or a sale of a security under contracts for which the terms require delivery of the security within the period established generally by law or convention in the marketplace concerned.

7.

Unless otherwise expressly provided for in this Part, institutions shall calculate the total exposure measure in accordance with the following principles:

1. (a) physical or financial collateral, guarantees or credit risk mitigation purchased shall not be used to reduce the total exposure measure;
2. (b) assets shall not be netted with liabilities.

[Note: This rule corresponds to Article 429 of the CRR as it applied immediately before revocation by the Treasury.]