South Korea received the highest grade in the Basel Committee on Banking Supervision's Regulatory Consistency Assessment Programme for leverage ratio rules.
The Financial Supervisory Service said on Oct. 14 that the Basel Committee rated Korea's leverage ratio framework as "compliant," the top grade. RCAP ratings have four levels: compliant, largely compliant, materially non-compliant and non-compliant.
The Basel Committee conducts RCAP reviews of how member jurisdictions implement Basel standards, with the aim of ensuring consistency in international banking regulation. The latest assessment began in the fourth quarter of last year and covered six countries, including Korea, Britain, Japan, Australia, Canada and Switzerland. It was the first time the committee used a group review format, in which a single assessment team evaluates several countries at once.
The leverage ratio is a prudential rule requiring banks to hold Tier 1 capital equal to at least 3% of total exposure, a limit intended to curb excessive borrowing. Korean banks have calculated and disclosed the ratio quarterly since 2015 and have been subject to the 3% supervisory guidance level since 2018.
Korea was rated "compliant" in every subcategory: definition, scope and calculation; exposure measurement; and disclosure requirements. Assessors noted that Korea applies a 20% credit conversion factor to unconfirmed letters of credit, compared with 50% under the Basel standard, but the gap was not reflected in the rating because its market impact was judged to be limited.
Korea faces an RCAP assessment of risk-weighted assets next year. "This assessment officially confirmed that Korea's prudential framework for banks is consistent with international standards," an FSS official said. "We will continue to monitor changes to Basel standards and further strengthen the international consistency of domestic prudential rules."