Federal Reserve Chairman Ben Bernanke said the central bank is weighing additional measures to strengthen capital standards for the biggest banks, including a leverage ratio.
Capital standards at the biggest U.S. lenders would rise to 5 percent of assets for parent companies and 6 percent for their banking units under a July 9 proposal by U.S. officials that goes beyond rules approved by international regulators.
"The Federal Reserve is considering further measures to strengthen the capital positions of large, internationally active banks, including the proposed rule issued last week that would increase the required leverage ratios for such firms," Bernanke said today in testimony prepared for delivery at a House Financial Services Committee hearing.
Bankers and regulators are tangling over how high capital standards must be to prevent a repeat of the 2008 financial crisis. The Basel Committee on Banking Supervision set the floor for capital at a flat 3 percent of assets in 2010, regardless of how risky bankers consider their holdings.
The Fed "will propose capital surcharges on firms that pose the greatest systemic risk and will issue a proposal to implement the Basel III quantitative liquidity requirements as they are phased in over the next few years," Bernanke said.
The Office of the Comptroller of the Currency said last week that leverage ratios would be pegged 2 percentage points above the 3 percent international minimum for holding companies. Capital at U.S.-backed deposit and lending units must be twice the world standard at 6 percent, the OCC said.
"In coordination with other agencies, we have made significant progress on the key substantive issues relating to the Volcker rule and are hoping to complete it by year-end," Bernanke said, referring to a measure that would ban proprietary trading at banks.
Fed Governor Daniel Tarullo has said this leverage ratio is too low, and U.S. agencies have proposed doubling the amount for banking operations and a 5 percent threshold for their parent companies.
The leverage ratio is meant to be stricter and more transparent than existing standards. Those rules allow bankers to sort their assets according to risk and hold less capital to cover holdings they deem less dangerous, such as government debt.
The risk-weighted capital ratios were set at 7 percent of assets for all banks, plus another 1 percent to 2.5 percent for lenders whose failure might threaten the entire financial system.
Regulators became skeptical of the complex formulas behind risk weightings after the financial crisis and instead demanded a flat minimum amount of capital to back assets regardless of the perceived risk. Banks will still have to meet the risk-based standard, with the two capital gauges complementing each other, according to regulators.
The Basel rules were created by a committee of central bankers and regulators from 27 nations to improve and standardize safety guidelines that govern the world's lenders.