By Huw Jones
LONDON (Reuters) - Global banking regulators are expected to ease a new capital rule due in 2018 to rein in risky balance sheets after U.S. complaints, two regulatory and banking sources said on Tuesday.
It marks the latest move by regulators to ease up on bank capital rules in a bid to encourage lenders to keep credit flowing to companies and the broader economy.
The Basel Committee on Banking Supervision published a proposal in June to flesh out a leverage ratio that banks will have to introduce in January 2018.
It measures a bank's capital against all of its assets, without adjusting them for risk, and act as a backstop to a lender's core risk-weighted capital requirements.
The ratio has been set at 3 percent, meaning a bank must hold capital equivalent to 3 percent of its total assets.
A key issue for Basel was how to square accounting systems that vary in the way they treat derivatives.
U.S. accounting rules allow for estimating derivatives holdings on a net basis, while international standards used in Europe and elsewhere use gross positions, which can be much larger and push lenders to hit the 3 percent mark much more quickly.
Holdings of derivatives at Deutsche Bank
Basel opted for gross positions in its June proposal, to the dismay of U.S. lenders who would face having to raise more capital to comply.
The insistence on only gross positions is set to be scaled back by the Basel Committee, which is meeting in Hong Kong.
"There will be a sound compromise to allow an acceptable degree of netting for all banks, subject to good comparability and transparency," a European regulatory source involved in the negotiations said.
A banking industry source said he expected the Basel Committee to adjust its proposal to allow some netting of derivatives positions to reflect feedback from the market as it did with its liquidity coverage ratio rule earlier this year.
That would more appropriately reflect market risks, he said, and create more consistency.
"The Basel standard will yield consistency on the leverage ratio, but unfortunately there won't be consistency on the underlying accounting," he said.
Consultancy EY said the original proposal could significantly increase the leverage ratio of entities reporting under U.S. accounting rules.
Earlier this year the Basel Committee gave banks more flexibility over how they must build up buffers of cash and bonds - known as the liquidity coverage ratio (LCR) - that can be used to withstand short-term market shocks unaided.
Basel Committee officials could not be reached for comment.
(Additional reporting by Steve Slater; editing by David Evans)