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Wednesday, October 23, 2013

ABA, Groups Oppose Supplementary Leverage Ratio Proposal

ABA and two other trade groups wrote that they oppose the supplementary leverage ratio proposed by the FDIC, OCC and Federal Reserve in July.

“We support the Agencies’ efforts to implement a leverage ratio as a supplemental, backstop measure to the risk-based capital requirements, particularly to respond to unknown risks,” the groups said. “However, we have very serious concerns about the timing and substance of the U. S. Proposal, and the negative consequences that will arise if the proposal is finalized in its current form.”

In particular, the groups said that the proposed ratio is higher than necessary—so high, in fact, that it might supersede the risk-based capital rules as the principal capital requirement for banks subject to it. They further urged the agencies to wait until the Basel Committee finalizes its own ratio and then to assess the effects of that measure. They also requested an empirical study of the potential effects of the leverage ratio before proceeding.

The agencies proposed doubling the supplementary leverage ratio for large, systemically significant financial firms, in addition to the Basel III capital requirements finalized earlier this year. The rule, which applies to bank holding companies with over $700 billion in assets (or with over $10 trillion in assets under custody) and their subsidiaries, would require banks to meet a 6 percent supplementary leverage ratio—double the ratio required under Basel III—in order to be considered “well-capitalized” for prompt corrective action purposes.

Read the letter.

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