Monday, 15 July 2013

U.S. Proposed Basel Leverage Ratio Tough but Manageable

By Fitch Ratings

The U.S. banking regulators' proposal to double the minimum Basel III leverage ratio, referred to as the supplementary leverage ratio, is likely to be manageable for affected banks, Fitch Ratings says. But the 6% standard is onerous for bank subsidiaries covered by the proposal and may encourage banking groups to conduct certain activities, such as derivatives, from their broker-dealer subsidiaries.

We believe three of the eight U.S. global systemically important banks (G-SIBs) already have supplementary leverage ratios close to or above the 5% threshold set for bank holding companies (BHC). This threshold is made up of the 3% minimum requirement under Basel III and an additional 2% buffer. Based on our preliminary estimates, we see Wells Fargo as the leader in the group of eight and Morgan Stanley as below average in terms of the leverage ratio.

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