The Bank for International Settlements has published an Occasional Paper finding that the Basel III leverage ratio and output floor are complementary rather than interchangeable backstops to risk based capital requirements. The leverage ratio constrains excessive leverage that risk measures may miss, while the output floor limits variability from internal models by linking effective risk weighted assets to standardized approaches, preserving capital buffer usability and some risk sensitivity. Data for 29 global systemically important banks from 2014 to 2025 show that the leverage ratio became the highest capital requirement for more than 55% of the sample by end 2025, up from less than 25% in 2014. Banks switched between leverage ratio and risk based constraints 55 times over the period, indicating that the binding requirement varies over time and across jurisdictions. None of the 13 banks disclosing output floor data was constrained by it at end 2025 because of transitional arrangements, but six would be bound under a fully phased in 72.5% floor. For three of those banks, the leverage ratio would not even partially reproduce the output floor’s constraint.
Bank for International Settlements finds leverage ratio and 72.5% output floor are complementary capital backstops
The Bank for International Settlements finds that the leverage ratio and output floor perform distinct, complementary roles in the Basel III capital framework. The leverage ratio bound more than 55% of 29 global systemically important banks at end 2025, while a fully phased in 72.5% output floor would bind six of the 13 banks disclosing relevant data. For three of those banks, the leverage ratio would not replicate the output floor’s constraint.