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July 12, 2013

Big Banks Will Game New Capital Rules, Lawmakers Fear

Lawmakers pressed regulators Thursday about the significance of new capital rules and a separate proposal to raise the leverage ratio on the largest banks, raising fears they could still allow institutions to effectively “game” the system.

Sen. Sherrod Brown, D-Ohio, praised regulators for suggesting an increase in the leverage ratio, but said it did not go far enough, citing media reports that said large institutions plan to use “optimization strategies,” instead of more capital, to comply with the new rules.

“‘I’m particularly concerned that banks can use risk weights and internal models to game their capital rules,’ Brown said during a Senate Banking Committee hearing on systemic risk.

He was seconded by Sen. David Vitter, R-La., who said the proposed supplemental ratio, which would boost requirements for holding companies to 5% while their insured subsidiaries face a 6% requirement, is insufficient.”


Read full American Banker article here

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