As anticipated, the U.S. banking agencies have finalized with few changes the very controversial proposal released last year to impose a five percent leverage ratio on the on- and – off-balance sheet assets of U.S. BHCs deemed global systemically-important banks (G-SIBs) and a six percent ratio for their insured-depository subsidiaries.  These percentages are the numerator of the new enhanced supplementary leverage ratio.  They will apply on an interim basis to the measurement of on-and off-balance sheet assets included in the U.S. Basel III rules. However, the agencies also proposed a new denominator based on final Basel standards.  As finalized, the leverage rule could cost G-SIBs $70 billion, although this cost may well drop as covered firms redesign their business strategies and the new denominator is finalized.  Significant changes in market configuration could ensue, especially in asset categories that carry a low risk-based weighting and high leverage requirements, perhaps giving non-bank, “shadow” entities new risk-arbitrage and competitive advantages.  The agencies intend the leverage ratio to back up the risk-based ones, not to be a binding capital constraint.  It may, however, prove to be one for several G-SIBs at least until the FRB imposes a risk-based capital surcharge based in part on how many “runnable” liabilities covered firms hold. 

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