Tougher leverage ratios for US banks

Ian Rogers
US banks will have to meet more stringent leverage ratios than international peers.

The Federal Deposit Insurance Corporation overnight proposed a leverage rule requiring big bank holding companies to have common equity equal to at least five per cent of their assets - and six per cent for their bank subsidiaries, or twice the norm pushed by the Basel Committee on Banking Supervision.

The asset number includes off-balance-sheet items and will not be adjusted for riskiness. The proposed rule for so-called "simple leverage" is two percentage points higher than the minimum simple leverage rule under Basel III.

The FDIC said in a discussion paper that "based on experience during the
financial crisis, staff believes that there could be benefits to financial stability and reduced costs to the deposit insurance fund by requiring these banking organisations to meet a well-capitalised standard or capital buffer in addition to the three percent minimum supplementary leverage ratio."

The bank regulator also said that "analysis suggests that a three percent minimum supplementary leverage ratio requirement would not have appreciably mitigated the growth in leverage among covered banking organisations in the years preceding the recent crisis."