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yesterday

Fed Advances Plan to Lower Major Banks’ Leverage Ratio

The Fed plans a July conference to explore wider capital rule revisions after complaints that current safeguards constrain Treasury market activity.

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo
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Chairman of the US Federal Reserve Jerome Powell speaks with Fed vice chair for supervision Michelle Bowman (L), as he chairs a Federal Reserve Board open meeting

Overview

  • The proposal would reduce the enhanced supplementary leverage ratio for the largest banks from 5 percent to between 3.5 percent and 4.5 percent.
  • Fed Chair Jerome Powell and Vice Chair for Supervision Michelle Bowman have backed the measure as a way to ease constraints on trading in the U.S. Treasury market.
  • Senator Elizabeth Warren criticized the proposal as reckless, warning it could leave banks with dangerously thin capital buffers and elevate the risk of another financial crisis.
  • Regulators argue the change could free up capital for banks such as JPMorgan Chase, Bank of America, Goldman Sachs and Morgan Stanley to increase lending and support Treasury market liquidity.
  • The Fed will host a July 22 conference to examine broader capital framework reforms, including potential tweaks to global systemically important bank surcharges and asset threshold rules.