Bipartisan Members of the House have introduced legislation to revise the denominator of the U.S. leverage rule (LR) to eliminate from its denominator one asset: excess reserves held at central banks. This capital requirement is particularly costly for custody banks required by their business model to hold cash deposits from asset managers in large amounts of no- and low-risk assets. Excess reserves are preferred due to their liquidity and no-risk status in concert with the volatility and capital costs associated with sovereign bonds and other low-risk assets. However, many have argued that the concerns specific to custody banks with regard to the LR are evident in market changes in other areas where critical assets are covered by the costly LRs required in the U.S. for the very largest banks.
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