On January 12, the Committee, following a consultation process, made adjustments to rules on derivatives and repo agreements, allowing netting with the same counterparty under certain circumstances, something which reduces the so-called "exposure measure" used to calculate leverage.

The rule changes are a boon for banks, which could consequently see a boost to supplementary leverage ratios of around 40bp, according to Nomura analysts. But while the industry may have won this battle, it may still lose the war, with senior bankers remaining fearful of a hike in the headline leverage number.

They have good reason to worry, according to a Basel Committee member who declined to be named. "If you compare what was approved to what we had pre-crisis, the standard was far weaker than what adopted. So we're not bothered by the changes," the Committee member said.

"The main task [now] is to look at the 3% figure and there are members who think 3% is not high enough. It's not outside the realm of possibility that it will be raised, but that will be based on a consultation period and data analysis."

The concessions announced on January 12 boosted bank share prices - Deutsche Bank and Barclays both saw their share's increase by 3%. But their relief could be short lived. Many bankers said they had expected that the derivative and repo rules would be modified and that they were now preparing for the possibility of a higher ratio or tougher modifications to the rules.

As it stands, Basel's 3% leverage ratio is merely a minimum floor - it is thought many local regulators will raise requirements beyond this. The US Federal Reserve is thought to be contemplating a 5% ratio at the operating company level and 6% leverage hurdle at the holding company.

"The leverage ratio is massively problematic. This is just a tweak, which will provide some small relief, but we still have to see how the overall measure will be finalised," said the head of rates trading at a major European bank.

"Regulators could come back and say the leverage rate is not 3%, but 5% or 6%. We still don't have good visibility on the final rules and we continue to hear mixed things from regulators."

BANKS BLINDSIDED

Proposals for a stricter-than-expected leverage ratio blindsided many European banks - which tend to be more leveraged than their North American peers - when the Basel Committee released its consultation paper in June 2013.

RBS analysts estimated European banks would have to cut a further EUR2.9trn of assets to meet the requirements, having already reduced their balance sheets by EUR3.2trn since May 2012.

Barclays and Deutsche Bank were among the hardest hit. The two banks unveiled plans in June to slash EUR400bn in assets between them. However, they failed to raise their leverage ratios over the third quarter, still languishing on 2.2% and 2.3% respectively despite shedding over EUR100bn in assets each.

Shortly afterwards, Credit Suisse announced cuts to its rates business, which gets hit particularly hard by the leverage ratio rules.

These restructurings coincided with a dire quarter for fixed income trading across the industry, with revenues falling by almost 50% in some cases. As such, analysts do not expect banks which made cuts following the June proposals to go back into any areas they had left.

The latest amendments to the leverage ratio rules came as little surprise to bankers. The original proposal on securities-financing transactions would effectively have killed off repo markets in highly-rated government bonds such as Bunds, Gilts and US Treasuries, traders had warned.

"Common sense has prevailed. It was a consultation document and we had expected some pullback with Basel III so far away," said Kieron Power, global co-head of repo at Nomura. "The market hadn't priced in an increase in repo costs due to a more stringent leverage ratio, so the relief this news provides will be limited."

The walk-backs from the Committee on derivatives had also been expected. These will allow the collateral posted against derivatives exposure to reduce, rather than increase, the ratio; some tweaks to avoid double-counting of cleared trades; and capping the exposure of credit derivatives at the maximum potential loss. These changes principally look to avoid rubbing up against other aspects of the Basel reforms, which encourage central clearing and collateralisation of derivatives contracts.

The leverage ratio does not come into place until 2018 and Basel regulators expect to finalise the rules in the first half of 2017, meaning there is ample time to get more changes put in. Public disclosure of fully loaded leverage ratios will begin in January 2015.

(Reporting By Spencer Anderson, Christopher Whittall; editing by Matthew Davies, John Mastrini)

By Christopher Whittall and Spencer Anderson