U.S. Weighs Doubling Leverage Standard for Biggest Banks

By Yalman Onaran

U.S. regulators are considering doubling a minimum capital requirement for the largest banks, which could force some of them to halt dividend payments.

The standard would increase the amount of capital the lenders must hold to 6 percent of total assets, regardless of their risk, according to four people with knowledge of the talks. That’s twice the level set by global banking supervisors.

U.S. regulators last year proposed implementing the 3 percent international requirement for what’s known as the simple leverage ratio. Now the Federal Reserve and Federal Deposit Insurance Corp., under pressure from lawmakers, are weighing increasing that figure for some of the biggest banks, according to the people, who asked not to be identified because the discussions are private.

“The 3 percent was clearly inadequate, nothing really,” said Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist for the International Monetary Fund. “Going up to five or six will make the rule be worth something. Having a lot of capital is crucial for banks to be sound. The leverage ratio is a good safety tool because risk-weighting can be gamed by banks so easily.”

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