##ibration is likely to be more conservative than the current measures of leverage in place in some countries. the new definition of capital and the inclusion of off - balance - sheet items in the calculation of the leverage ratio are the main factors. the reform measures described above radically transform the regulatory capital framework. the committee ’ s proposed liquidity framework will have as profound an effect since a global liquidity standard does not currently exist. during the crisis, funding remained in short supply for an extended period. in response, the committee has proposed global minimum liquidity standards to make banks more resilient to potential short - term disruptions in access to funding and to address longer - term structural liquidity mismatches in their balance sheets. the liquidity coverage ratio ( lcr ) will require banks to have sufficient high - quality liquid assets to withstand a 30 - day stressed funding scenario that is specified by supervisors. this is complemented by the net stable funding ratio ( nsfr ), which is a longer - term structural ratio designed to address liquidity mismatches. introducing a new set of standards is a complex process. unlike the capital framework, for which extensive experience and data help inform calibration, there is no similar track record for liquidity standards. the committee is therefore taking a carefully considered approach to the design and calibration and will review the impact of these changes to ensure that they deliver a rigorous overall liquidity standard. it will introduce the lcr as a minimum standard in 2015 after thoroughly assessing its behaviour. in a similar way, the committee will also carry out an “ observation phase ” to address any unintended consequences across business models or funding structures before finalising and introducing the revised nsfr as a minimum standard by 1 january 2018. the committee will revise the nsfr by the end of this year and will test it during the observation phase. these initiatives – higher and better quality capital, improved risk coverage, introduction of a leverage ratio and new global liquidity standards – are the foundation for the basel committee ’ s response to the crisis. but they are not the whole story. the committee has also developed supervisory guidance on other important bank - specific initiatives. these include stress testing, valuation, corporate governance, compensation, supervisory colleges, and high level principles for financial instruments accounting. addressing systemwide risks while stronger individual banks typically lead to a stronger banking system, this firm - specific approach by itself may not be sufficient. broader macroprudential measures to address procycl

##ity. many banks relied excessively on wholesale funding to finance securitised, illiquid assets. in addition, there were poor incentives and governance at the firm level along with a lack of transparency, which made it nearly impossible to understand a bank ’ s exposures or the quality of the capital backing them. so what has the committee done in response? first, we have strengthened the capital base. raising the quality, consistency and transparency of the capital base has been one of the primary objectives of the committee ’ s reform programme. overall, these rules that will govern the capital structure represent a substantial strengthening of the definition of capital. by itself, the new definition of capital is a significant improvement to the global capital regime, which will be enhanced further by better risk coverage, the introduction of buffers and higher minimum capital requirements. on top of this comes the higher level of capital. in addition to raising the quality of the capital base, the committee has improved risk coverage of the regulatory framework and more improvements are on the way. our goal is to ensure that all material risks are captured. during the crisis, many risks were not reflected in the risk - based regime. the committee has substantially strengthened the rules that govern capital requirements for trading book exposures as well as for complex securitisations and exposures to off - balance - sheet vehicles. the revised trading book framework, on average, requires banks to hold around three to four times the old capital requirements. we are now finalising rules that will strengthen the capital requirements and risk management standards for counterparty credit risk. an additional element to the regulatory capital framework is a leverage ratio, which will serve as a backstop to the risk - based capital requirement. in the lead - up to the crisis, many banks reported very strong tier 1 risk - based ratios while, at the same time, managed to build up high levels of on - and off - balance sheet leverage. the use of a supplementary leverage ratio will help contain the build - up of excessive leverage in the system. it will also serve as an additional safeguard against attempts to “ game ” the risk - based requirements and will help address model risk. in july, the committee ’ s oversight body of governors and heads of supervision agreed on an indicative calibration of 3 % as a minimum for the leverage ratio to be tested during the parallel run period, with a view to be implemented on january 1st, 2015. for global banks with significant capital markets activities, this 3 % cal