Regardless of the level of risk at a bank, global regulators are recommending the institution be subject to a floor that would limit excessive drops in capital levels, the Financial Stability Forum said Thursday.
That would run counter to central goals of the Basel II capital rule, which sought to align a bank's capital with its risk; as the risk at a bank declined, so too would its capital requirements.
But the regulators, spooked by capital holes uncovered by the financial crisis, said they are seeking a measurement that is not so closely tied to risk. They did not specify which kind of measurement should be used, except to say the tool should "limit the buildup of leverage in the banking system."
The announcement could be the first step toward an international leverage ratio. The Federal Reserve Board had argued in the past that the United States should eliminate its leverage ratio, but it was rebuffed by the Federal Deposit Insurance Corp., among others, which argued a capital floor was necessary.
Also Thursday, the forum recommended Basel II revisions that would reduce the rule's reliance on value-at-risk models. The regulators suggested that supervisors instead expand the role of stress testing.
