Regulators Struggle for Way Forward on Basel III Leverage Ratio
By Donna Borak
Regulators are closely examining whether to lift a proposed leverage ratio as part of a deal to finalize the implementation of Basel III’s package of capital and liquidity requirements. The agencies appear to be at loggerheads over a final deal, according to observers, with the Federal Deposit Insurance Corp. pushing for a higher leverage ratio but facing resistance from the Federal Reserve Board and the Office of the Comptroller of the Currency. Both FDIC Vice Chairman Thomas Hoenig and Jeremiah Norton have made the case in recent speeches against what they see as the current proposal’s overreliance on a risk-based system, endorsing a push for a tougher leverage ratio. Observers said Fed officials are weighing whether to agree to raise the ratio in order to salvage interagency talks. “The FDIC has the Fed and the OCC over a barrel on Basel III,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc. “This comes at a point in which the simmering disputes between the Fed and the OCC, on the one hand, are strongly supportive of a risk-based weighted capital framework and at least two of the three key members of the FDIC Board strongly opposed to it. It has to be settled. I think what you are seeing is the Fed trying to come up with a compromise.”