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March 6, 2014

Why the Bank Leverage Ratio Is Important

“In speaking about the leverage ratio, an extremely important bank capital requirement, Thomas Hoenig, vice chairman of the Federal Deposit Insurance Corporation, said: ‘I think we’ve got the details worked out. Now it’s just getting the schedule.’”

“His comments on Monday at a National Association for Business Economics conference are the biggest hint that United States banking regulators have finalized and will soon announce a proposed leverage ratio for banks that was released for comment last July.”

“The Federal Deposit Insurance Corporation has proposed the ratio at 5 percent for bank holding companies and 6 percent for insured bank depositories, Most important, only high quality capital such as common equity and retained earnings would count for the numerator.”

“While the United States has long had a leverage ratio of 4 percent, the denominator covered only on-balance sheet assets; the new leverage ratio’s denominator would cover all assets and off-balance sheet transactions such as derivatives. For banks like JPMorgan Chase, which have about $2 trillion in assets but $70 trillion in notional amount of off-balance sheet derivatives, the impact of the new leverage ratio will be significant.”


Read full New York Times DealBook article here.

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