Weekend Economists at War! January 10-12, 2014

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36. Debt Rule Faces Dilution as Regulators Heed Bank Warnings

http://www.bloomberg.com/news/2014-01-10/debt-rule-faces-dilution-as-global-regulators-heed-bank-warnings.html

Lenders are poised to win concessions from central bank chiefs and global regulators over a debt limit they criticized as a blunt instrument that would penalize low-risk activities and curtail lending.

A revised leverage-ratio plan is set to be laxer than a draft published last year by the Basel Committee on Banking Supervision, said a person familiar with the scope of a Jan. 12 meeting of the group’s oversight body at which the measure will be discussed.

Leverage ratios are designed to curb banks’ reliance on debt by setting a minimum standard for how much capital they must hold as a percentage of all assets on their books. A quarter of large global lenders would have failed to meet the draft version of the leverage limit had it been in force at the end of 2012, according to data published by the committee in September.

“I expect considerable change in the rule to defer to applicable national accounting systems,” Karen Shaw Petrou, managing partner of Washington-based research firm Federal Financial Analytics Inc., said in an e-mail. “If the rule in fact doesn’t do this, it will wreak tremendous havoc in securities financing, repo, and other capital-market activities and send them over to the shadows.”