European Parliament Library

Back to the Future: The Nature of Regulatory Capital Requirements, Ralph Chami, Thomas Cosimano, Emanuel Kopp, Celine Rochon

This paper compares the current regulatory capital requirements under the Dodd-Frank Act (DFA) and the 10-percent leverage ratio, as proposed by the U.S. Treasury and the U.S. House of Representatives' Financial CHOICE Act (FCA). We find that the majority of U.S. banks would not qualify for an "off-ramp"option—where regulatory relief is offered to FCA qualifying banks (QBOs)—unless considerable amounts of capital are added, and that large banks are much closer to the proposed leverage threshold and, therefore, are more likely to stand to gain from regulatory relief. The paper identifies an important moral hazard problem that arises due to the QBO optionality, where banks are likely to increase the riskiness of their asset portfolio and qualify for the FCA “off-ramp” relief with unintended effects on financial stability
Table Of Contents
Cover -- Contents -- I. INTRODUCTION AND SUMMARY -- II. ANALYSIS OF REGULATORY REGIMES -- III. UNDERSTANDING DRIVERS OF CAPITAL GAPS -- IV. EXAMPLE -- V. CONCLUSION AND RECOMMENDATIONS -- REFERENCES -- Figures -- 1. DFA-FCA for a Small Bank -- 2. DFA-FCA for SIFI (B) -- 3. DFA = FCA (SIFI) -- 4. DFA vs FCA -- Tables -- 1. Shortfall to 10 Percent Tier 1 Leverage Ratio -- 2: Risk Weighted Assets/Total Assets for Selected SIFIs (12/31/2016) -- 3. RWA Density for Some Peer Groups of Banks -- 4. Leverage Ratios for Some Peer Groups of Banks -- 5. Scenario Parameters -- 6a. Marketable to Non-Marketable Securities Ratios, T/L -- 6b. Marketable to Non-Marketable Securities Ratios, T/L -- Annexes -- I: Leverage Ratios and Supplementary Leverage Ratios -- II: Comparing Peer Groups of Banks -- III: The Optionality Explained
Literary Form
non fiction
Physical Description
1 online resource (21 pages)
Specific Material Designation
Form Of Item

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