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What if European Banks Have to Play Leverage Ratio Catch-Up? 

April 24, 2014
Ben Wright, MoneyBeat

Leverage ratios–which stipulate that a bank’s assets, regardless of how risky they are perceived to be, must be backed up by a strict minimum amount of equity–are fast becoming financial regulators’ favorite yardstick.

Earlier this month, federal regulators in the U.S. hiked the leverage ratio–technically defined as the proportion of a lender’s Tier 1 equity to its total assets–for their biggest banks to 5%. A number of other domestic watchdogs have made noises about copper-bottoming the Basel III requirement that banks should have a leverage ratio of 3% by 2019.

Last summer, the U.K.’s Prudential Regulation Authority put pressure on its charges to clear the 3% hurdle earlier than the Basel deadline, prompting Barclays into a nearly £6 billion ($10.0 billion) rights issue. There’s speculation the Bank of England, which oversees the PRA, might go further. One senior financial institutions group banker based in London says that all the chief executives he talks to believe that the ratio will be “four or more” per cent before the end of Mark Carney’s first term as Governor of U.K.’s central bank.

Read more: MoneyBeat

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