As we noted in our assessment of the ground-breaking proposal to rewrite the GSIB leverage ratio, the big-bank regulatory framework has also been upended by a companion Fed proposal to rewrite its capital rules and, as a result, redesign the CCAR stress test that is now usually the biggest banks’ most binding capital constraint. Based on our recent in-depth analysis of this proposal, we here go into detail on how it interacts with the new leverage approach and what the sum total of these rules would mean for U.S. residential finance. In short, the proposed approach reverses key regulatory disincentives to big bank mortgage origination, credit enhancement and securitization.
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