Bank Leverage Regulations Sample Clauses

Bank Leverage Regulations. ‌ The steep decline in asset prices and the impairment of inter-bank lending that marked the 2008 financial crisis made almost all large US banks insolvent and unable to meet the short term borrowing needs of their customers. Shortly thereafter, the US Congress passed a set of financial market reform measures known as Xxxx-Xxxxx and the Bank for International Settlements finalized the Basel III version of its bank regulatory guidelines12. A key aim of the reforms was to reduce the risk of bank insolvency (i.e. liabilities exceeding assets) by limiting the amount of leverage a bank is allowed assume. There are several regulatory rules that place limitations on bank leverage. The SLR represents a departure from previous leverage limits in that it does not weight assets in terms of risk. For example, a US Treasury bond and a Greek sovereign bond with the same coupon, payoff amount and maturity date each increase the denominator of the SLR leverage ratio by the same amount. The SLR places a lower bound on the ratio of bank capital to unweighted balance sheet assets and certain off balance-sheet exposures (BIS (2014 (1) (6)). The SLR lower bound is 3% with an additional 2% for large globally systemically important banks (“GSIB”’s). We denote the SLR lower bound L as follows. 13 SLR: equity/assets ≥ 3% + 2% for GSIB’s = L An opinion expressed by many financial industry participants, academics and xxxx- xxxxxx is that the SLR is limiting the intermediation capacity of BD’s in the cash and treasury repo markets. This is reflected in the approximate 1.5% increase in the capital to asset ratio for US banks from the period that preceded the 2008 financial crisis to 202214. The Board of Governors of the Federal Reserve System made the 11For a brief history of changes to repo accounting rules over time see [Xxxxxxxx (2016)]. For an example of the difference between a repo transaction accounted for as a final sale versus a secured financing, see [Xxxxxxx, Xxxxx and Xxxxx (2016)].‌ 12See Xxxxxx (2019) (37). 13This is a simplification. The SLR denominator is actually “exposures”, which include balance sheet assets plus other of-balance sheet items that represent contingent obligations of the bank. The SLR numerator actually includes convertible debt. 14World Bank, Bank Capital to Total Assets for United States [DDSI03USA156NWDB], re- trieved from XXXX, Federal Reserve Bank of St. Louis; xxxxx://xxxx.xxxxxxxxxx.xxx/series/ following statement in the Congressional Record in...