Debate continues over the effectiveness of leverage ratios as a tool in banking regulation, with some experts challenging calls to ease these requirements. Andy Thompson, writing from Worcester Park, Surrey, offered a detailed defense of leverage ratios as an essential complement to risk-weighted capital measures in ensuring banks maintain sufficient capital buffers.

Leverage ratios are part of the "belt and braces" approach to capital adequacy, serving as a simpler, though cruder, counterpart to risk-weighted capital ratios. Thompson emphasized that while leverage ratios apply uniform risk treatment to all assets—including sovereign bonds and UK banks’ reserve balances at the Bank of England, as well as riskier exposures such as nonprime residential mortgages and unsecured consumer credit—this simplicity is intentional. He noted such a method avoids underestimating risk by treating highly rated assets as equally risky compared to riskier lending categories.

Responding indirectly to critiques by David Aikman of the National Institute of Economic and Social Research, who has advocated for relaxing leverage ratios, Thompson argued that the primary regulatory failure during the 2007-2008 financial crisis was not rooted in the risk weighting system itself but rather in the inadequacy of capital ratios applied to risk-weighted assets. Since then, these capital requirements have been significantly strengthened, particularly for globally systemically important banks, through a phased implementation of the Basel III regulatory framework, largely completed by 2016.

In addition to capital rules, liquidity regulations have also been tightened. These liquidity requirements ensure banks hold sufficient liquid reserves relative to their deposit liabilities, providing a separate layer of prudential supervision aimed at safeguarding stability beyond capital adequacy measurements.

While leverage ratios remain a point of contention in regulatory debates, Thompson’s analysis underscores their role as a complementary safeguard alongside enhanced risk-weighted capital standards and liquidity measures. The ongoing discussion reflects broader challenges in balancing simplicity, risk sensitivity, and resilience in banking regulation.