How US 5% leverage ratio could catch foreign banks

Author: Danielle Myles | Published: 23 Jul 2013

  • Under a US interagency proposal, US G-Sibs would be subject to leverage ratios which are significantly higher than the three percent Basel III minimum;
  • It imposes a five percent ratio on bank holding companies and a six percent ratio on their banking subsidiaries;
  • A separate Federal Reserve proposal, from December 2012, requires certain foreign banks to establish a US intermediate holding company to house their operations. If these holding companies’ asset value is significantly high, they would have to comply with the higher leverage ratios;
  • This is exacerbated by the fact foreign banks are the biggest dealers in US treasuries, which are penalised by un-weighted measures such as leverage ratio;
  • It’s also possible that branches could have to comply with US leverage ratios, depending on how the Federal Reserve construes its comparability test

Speculation is growing over whether US proposals for a leverage ratio that doubles the Basel III...



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