CONTACT: Laura Peavey
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lpeavey@fsforum.com
Forum Supports Implementation of Leverage Capital Proposal
Proposed change a “useful step” in broader regulatory review, would lead to continued capital strength of nation’s largest banks
Washington, D.C. – The Financial Services Forum today supported the adoption of a proposal to revise leverage-based capital requirements for U.S.-based Global Systemically Important Banks (GSIBs) as part of a larger effort to ensure U.S. capital requirements support economic growth and do not put American consumers and businesses at a competitive disadvantage.
The nation’s largest banks maintain approximately $1 trillion in capital. In its letter to regulators, the Forum emphasized the urgent need for leverage capital changes to support financial markets and the economy. Additionally, the Forum stressed that the proposed adjustment, which is not expected to have a material impact on GSIB capital levels, would ensure these banks remain strong, resilient, and better positioned to support the economy. Finally, aligning U.S. leverage-based requirements with those of foreign counterparts would create a more level playing field for customers of U.S.-based banks.
“We appreciate the Agencies’ efforts to enhance the U.S. capital framework through the Proposal and welcome it as a useful step in the Agencies’ previewed amendments to the broader regulatory capital framework,” the Forum told the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. “GSIBs will remain robustly capitalized while being able to more effectively allocate capital within their organizations. In turn, this flexibility will bolster U.S. GSIBs’ ability to intermediate financial markets and lend through the business cycle.”
The Forum advocated that the leverage capital change should become effective the beginning of next year while the agencies continue to revise the broader capital framework. The Forum also supported consideration of a “broader range of reforms to the bank regulatory and capital framework to improve Treasury market intermediation and make the capital rule more durable.”
The full letter can be found here.
Background:
Banks must maintain capital to withstand financial challenges and support the economy. Leverage-based capital requirements apply the same capital charge to all assets, regardless of risk. This means low-risk assets like cash and Treasuries receive the same capital charge as higher-risk assets like business loans or stocks, reducing demand and liquidity in the Treasury market.
The U.S. Treasury market underpins all other financial assets. Accordingly, problems there migrate broadly throughout the financial system, leading to increased interest rates for household and business loans and increasing costs for taxpayers throughout the economy.
For more information:
Factsheet: Bank Leverage Capital Requirements
Blog: The “Bank” Capital Shell Game: Would the Real Bank Capital Requirement Please Stand Up? Dispelling assertions that the proposed change would lead to a sharp decline in required capital.
OpEd: Banks need relief from restrictive leverage capital requirements, by Forum President and CEO Kevin Fromer, American Banker
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The Financial Services Forum is an economic policy and advocacy organization whose members are the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.
Visit our website: fsforum.com