In case you were wondering how that "simpler-versus-better" debate  came out at the Salzburg Global Seminar last week in Austria, "simpler" narrowly lost to allegedly "better."

The debate was conducted under Chatham House rules so no speaker was identified by name, but Seminar editor Louise Hallman provided a summary.

(To see more posts from Barb Rehm's Blog, click here.)

The gathering of bankers, regulators, academics and other experts listened last week as two teams debated the pros and cons of both a risk-weighted system and a straight capital-to-assets ratio. Then the floor was opened up and eventually a vote was taken. Leverage lost to risk-weighted by a vote of 19-to-17, which shows just how dissatisfied folks have become with the opaque and inconsistent RWA system. If that same debate and vote had happened a few years ago, RWA would have trounced leverage. Back then everyone had a lot more faith in banks' ability to assess and manage their risks.

My favorite quotes on each side of the debate.

For leverage/anti-RWA:

"Do you want something simple that leaves bankers to do their job? ... Or do you want the regulators to intervene on a daily basis?"
"If a simple leverage ratio makes a good ‘back stop' for banks, why not use it as the ‘front stop'?"

For RWA/anti leverage:

"A simple leverage ratio could force banks out of high volume-low return banking, raising the price of credit."
"Banking is a complicated business… Leverage ratio is pursuing simplicity at the price of ignoring the risk. We're oversimplifying a complex thing!"

While this debate is worth having, as I argued in a recent column, we need capital rules that combine the absolute toughness of the leverage ratio with the customization that risk weights provide.