In this report, we build on our analysis of the overall Treasury report (see Client Report REFORM136) and its approach to global regulation (see Client Report REFORM138) with an in-depth look at the capital regime Treasury recommends. This differs considerably from the leverage-based approach in H.R. 10 (see FSM Report REFORM137), arguing instead for a balance of leverage, risk-based, and stress-test capital standards that also reflects other rules (most notably those related to liquidity and stress-testing) and accounting standards. The scale of Treasury’s recommendations has led some analysts to conclude that as much as $2 trillion in new lending would result. This is not unreasonable if banks devote the capital improvement to lending. However, capital increases would also enhance the ability of large banks to accept cash deposits and retain large balances of high-quality liquid assets and build TLAC buffers without the added risks we highlighted in our assessment of the U.S. approach to this rule (see FSM Report TLAC6).
The full report is available to retainer clients. To find out how you can sign up for the service, click here.