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US Financial Regulators Put Forth 6 Percent Leverage Ratio Requirement

U.S. regulators on Tuesday are set to propose a plan that would force the country’s largest banks to hold twice as much equity capital than required by the global Basel III bank capital standards.

The eight largest banks would be subject to a leverage ratio of 6 percent, the three regulators said, representing a hard cap on how much a bank can borrow to fund its business.

Moreover, the eight biggest bank holding companies would be subject to a 5 percent leverage ratio, the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency and the U.S. Federal Reserve said.

Forcing banks to draw more of their funding from equity capital and rely less on debt has been a key pillar of regulators’ efforts to make banks sturdier after the 2007-2009 financial crisis.

Many reform advocates favor a leverage ratio because it measures bank borrowing without allowing banks to weigh the riskiness of their assets with their own mathematical models, a system that critics say can easily be gamed.

via Reuters [1]

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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