CONTACT: Laura Peavey
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BankThink Op-Ed: Banks need relief from restrictive leverage capital requirements
“Current leverage-based requirements are outdated, counterproductive, and urgently need reform.”
Washington, D.C. – Financial Services Forum President and CEO Kevin Fromer published an opinion piece in American Banker’s BankThink discussing the urgent need to reform bank leverage capital requirements to better serve taxpayers, capital markets, consumers, businesses, and the economy.
Read the full op-ed here.
A lot has changed in the past four years: Taylor Swift has released six albums, Alex Ovechkin has scored more than 130 goals and even the Washington Commanders have made it to the NFL playoffs.
But one thing has not: leverage requirements.
In March 2021, the Federal Reserve pledged to adjust bank leverage capital requirements due to their impact on financial markets and the economy. The central bank promised change “shortly,” but four years later we’re still waiting, and the economic costs continue to mount.
Leverage capital requirements are insensitive to risk, forcing banks to choose higher-returning assets over low-risk assets, including U.S. Treasuries. That deters leading U.S. banks from helping the government meet its ever-increasing borrowing needs, harming market functioning and liquidity, and leading to higher interest rates across the country.
Fed Chair Jerome Powell in February told lawmakers “It’s time” to address the issue, while Treasury Secretary Bessent earlier this month said, “rigorous analysis” of these requirements was needed.
I agree.
Continue reading the op-ed in American Banker’s BankThink here.
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