Oct 23 - The Independent Community Bankers of America has expressed its support for a proposed rule to require higher supplementary leverage ratio capital standards on the largest financial institutions. In a comment letter to federal financial regulators, ICBA wrote that the proposal to apply a 6 percent supplementary leverage ratio to the eight largest insured banking organizations and a 5 percent standard on their bank holding companies would help rein in the nation’s too-big-to-fail problem.
“This proposal is a big step in requiring these too-big-to-fail megabanks to have sufficient capital available to absorb the losses that will accompany any future financial crisis and shift the burden of megabank bailouts from taxpayers to shareholders,” ICBA Vice President of Accounting and Capital Policy James Kendrick wrote in a comment letter. “Introducing these higher capital measures properly addresses the risks associated with these oversized financial institutions and their global interconnected dependencies.”
The higher capital levels, proposed by regulators in July, would apply to bank holding companies with $700 billion or more in total consolidated assets or more than $10 trillion in assets under custody, which would affect the nation’s eight largest financial institutions. The proposal requires a minimum 2 percent leverage buffer on top of the current 3 percent supplementary leverage ratio requirement for certain institutions. Additionally, the proposal would require subsidiary banks to maintain a 6 percent supplementary leverage ratio to be considered “well capitalized.”
In its comment letter, ICBA wrote that raising supplemental leverage ratio requirements will make these large institutions less likely to fail and less interested in growing even bigger. Including off-balance-sheet instruments in the capital ratios also would help account for the kinds of derivatives exposures that affected many financial institutions and exacerbated the last economic crisis, ICBA wrote. Further, implementing higher leverage standards would help offset the taxpayer-subsidized funding advantages that too-big-to-fail financial firms enjoy.
To read ICBA’s comment letter and to learn more about the association, visit www.icba.org.