Wall Street Given More Leeway on Leverage Amid Virus Crisis
Wall Street Given More Leeway to Boost Lending Amid Virus Crisis
(Bloomberg) -- Wall Street firms’ banking units will be able to temporarily redeploy tens of billions of dollars in capital as two key bank regulators join the Federal Reserve in easing limits on bank leverage.
The Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. agreed to relax the so-called leverage ratio to help banks do more lending during the coronavirus crisis, the agencies said Friday. The change is optional, the regulators said in announcing their interim final rule.
The Fed had already made a similar concession to bank holding companies last month. The other agencies didn’t initially join in, leaving the industry wondering whether the lack of oversight unity would complicate compliance.
The leverage ratio -- put in place after the 2008 financial crisis -- is a limit on a bank’s debt meant to represent the minimum amount of capital needed to protect its assets.
Under the interim rule that will be in effect through March 2021, depository banks that are part of Wall Street firms won’t have to count Treasuries and reserve deposits when tallying their assets. That could relax capital demands by as much as $55 billion dollars, according to the regulators’ estimates, enabling lenders such as Chase Bank and Citibank to move capital to other parts of the company.
The agencies say they hope the move will encourage big banks “to expand their balance sheets in order to provide credit to households and businesses in light of the challenges arising from the coronavirus response.”
The catch: Each bank will need to get approval from regulators before redeploying capital.
The interim rule will be open for public comment for 45 days and is set to expire on March 31 of next year.
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