Tabs

Bank/Thrift Supervision   |    Capital    |    CFPB    |    Deposit Insurance    |    Interchange    |    Mortgage Finance
Municipal Advisors   |    OCC-OTS Merger   |    Preemption    |    QM - QRM    |    Swaps   |    Volcker Rule    |    Full Topics List
 
Qualified Mortgage - Qualified Residential Mortgage
Swaps
Consumer Financial Protection Bureau - CFPB
Bank/Thrift Holding Company Supervision
Capital
Deposit Insurance
Interchange
Mortgage Finance
Municipal Advisors
OCC-OTS Merger
Preemption
Volcker Rule
Corporate Governance
Financial Stability Oversight Council (FSOC)
Appraisals
Office of Financial Research (OFR)
Systemic Risk
Supervision and Oversight
Payment, Clearing and Settlement
Prudential Supervision
Trust & Securities
Asset-Backed Securities
Resolution Authority

Monday, July 1, 2013

Higher Leverage Ratio Would Hurt Liquidity

Proposals to increase bank leverage ratios would hurt bank liquidity, ABA VP Hugh Carney wrote in an American Banker op-ed Friday. To mitigate this, he said, proposals should carve safe assets out of the leverage ratio.

Carney pointed out that a higher leverage ratio complicates risk management practices during flights to safety -- times when deposits surge and leverage ratios correspondingly drop. Normally, he said, banks would “continuously go in and out of the capital markets to manage their capital levels.”

A higher ratio would prevent this approach; instead, banks would be required to shed assets -- and in a crisis, their most liquid assets. “Any incentive to reduce highly liquid assets by including them in a leverage ratio would severely undercut the ability of banks to manage liquidity when under stress,” Carney said.

Instead, regulators should “carve out” safe, liquid assets from the leverage ratio. “Capital is not a substitute for robust risk management,” he wrote, “and the type of leverage ratio currently being considered could endanger banks’ reputations, undermine prudent risk management, and weaken liquidity.”

Read the op ed.

No comments:

Post a Comment

Please read our comment policy before making a comment.