ICYMI: Momentum Continues to Build for Bank Leverage Capital Requirements Reform
Washington, D.C. – Policymakers made clear this week that reforming bank leverage capital requirements is a top priority and should be addressed swiftly to better serve U.S. taxpayers, businesses, and the economy. Current leverage-based requirements are outdated and impair America’s leading banks’ ability to support financial stability and economic growth.
“I have previously raised concerns about whether the leverage capital restrictions are too frequently binding. The bank regulators are now hard at work to develop a proposal to ensure that leverage capital functions as an appropriate backstop,” said Treasury Secretary Scott Bessent.
“[Leverage ratio reform] is something that we are actively working on right now… and would expect action in the relatively near future. … One of the challenges of the leverage ratio over time, especially when we’re talking about the largest institutions, is that it has become increasingly binding whereas the initial intent … was this was intended as a backstop. … The leverage ratio, again especially for the largest institutions, it creates significant disincentives to sort of low-risk, low-margin businesses like Treasury market intermediation. … From our perspective the focus is trying to reduce the bindingness of the leverage ratio and trying to remove impediments to Treasury market intermediation,” said Acting Federal Deposit Insurance Corporation Chairman Travis Hill.
“I do believe the capital requirement that is not risk sensitive should be adjusted,” said former Undersecretary of the Treasury for Domestic Finance Nellie Liang.
“I continue to urge the regulators to permanently exclude U.S. Treasuries from the supplementary leverage ratio and the enhanced supplementary leverage ratio. Near-riskless assets, like Treasuries, should not be a balance sheet burden hold like our current regulatory regime treats them,” said Congressman Frank Lucas (R-O.K.).
“We must prioritize the identification and remediation of issues that may pose long-term structural problems to the banking system and the critical markets it supports, including addressing regulatory disincentives to Treasury market intermediation activities by banks and their affiliates,” said Federal Reserve Board Governor Michelle Bowman.
Read more on the urgent need to reform bank leverage capital requirements in a recent American Banker op-ed authored by Financial Services Forum President and CEO Kevin Fromer here. Read our bank leverage capital requirements fact sheet here.
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