US Financial Regulators Put Forth 6 Percent Leverage Ratio Requirement

U.S. regulators on Tuesday are set to propose a plan that would force the country’s largest banks to hold twice as much equity capital than required by the global Basel III bank capital standards.

The eight largest banks would be subject to a leverage ratio of 6 percent, the three regulators said, representing a hard cap on how much a bank can borrow to fund its business.

Moreover, the eight biggest bank holding companies would be subject to a 5 percent leverage ratio, the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and the U.S. Federal Reserve said.

Forcing banks to draw more of their funding from equity capital and rely less on debt has been a key pillar of regulators’ efforts to make banks sturdier after the 2007-2009 financial crisis.

Many reform advocates favor a leverage ratio because it measures bank borrowing without allowing banks to weigh the riskiness of their assets with their own mathematical models, a system that critics say can easily be gamed.

via Reuters

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