![]() ![]() banks, according to analysts at Morgan Stanley. “For a number of EU banks the leverage ratio will increasingly become the governing constraint.”ĭeutsche Bank has a leverage ratio of 2.1 percent, UBS and Credit Suisse stand at about 2.2 percent (excluding contingent capital) and Barclays is at 2.8 percent, compared to an average of 3.7-4 percent at the big U.S. “Leverage is clearly a major issue for banks’ investors - credit and equity,” Huw van Steenis, analyst at Morgan Stanley, said in a note. Regulators say banks hit by the leverage requirements have other options: cut or delay dividends or reduce pay for staff. Or they could simply cut back on lending. They could also pull back in government bond trading, as high volume, low-risk and low-margin businesses become more costly. “We can’t call for a return to horse-drawn carriages every time an automobile component doesn’t function properly,” he said in an interview with German newspaper Boersen-Zeitung.Īnalysts reckon most banks should be able to meet the new leverage rules without having to turn to investors for more cash, something many banks have done to meet the capital regime.īut they may take steps to reduce the impact, and could shrink the liquidity buffers they have been encouraged to build up, shift assets to other parts of their group, shorten the duration of derivatives contracts or cut repo activity. Supporters of the leverage rules say it is a welcome return to a simple a measure, which is harder for banks to manipulate.Ĭritics say the leverage ratio is too blunt a measure of danger and should be just a backstop to more complex risk-based capital requirements.ĭeutsche Bank finance chief Stefan Krause said the leverage ratio was too simplistic. “Inevitably it was going to be the next shoe to drop, and the question is how far it is pushed by the regulators.” ![]() “The leverage ratio has come up the pecking order and could now be a big constraint on the banks,” said Chris Wheeler, analyst at Mediobanca in London. And regulators are worried that banks may be gaming the system. Now excessive leverage is their sights because the capital rules rely on banks’ own assessments of the riskiness of their lending. Until now, regulators had focused mainly on getting banks to hold more capital and liquidity to prevent a repeat of the taxpayer bailouts of the industry during the 2007/2009 crisis. Britain and Switzerland have also demanded their banks “gold-plate” a global rule for this leverage cap or ratio. Bank regulators in the United States this week set out plans to impose a leverage ratio on banks that caps their lending based on a simple assessment of their equity. ![]()
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