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Tuesday, June 17, 2014

ABA Calls for Changes to Leverage Ratio Denominator

ABA and several trade groups urged the federal banking regulators to make several “carefully calibrated” changes to the supplementary leverage ratio’s denominator. In April — when they finalized the overall ratio — the agencies proposed to bring the denominator, or exposure measure, in line with the Basel Committee on Banking Supervision’s standard.

The groups said that the proposed treatment of exposures “diverges substantially from actual economic exposure — and would result in the [leverage ratio] becoming the constraining ratio for many banking organizations, rather than a backstop.” This could result in “perverse incentives to invest in higher-risk assets and reduce holdings of lower-risk assets,” the groups added.

Read the comment letter.

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