U.S. regulators trying to force banks to maintain enough capital to survive a severe economic shock have signaled a shift in the tools they’re using to achieve that goal, Bloomberg News reported today. For months, banks have expected the overriding mandate from regulators to be a so-called leverage ratio — a minimum percentage of capital calculated against all assets. Now, under a change outlined by Federal Reserve Governor Daniel Tarullo, the dominant yardstick for big banks may be the capital buffer they would need based on the riskiness of their assets. To meet the tougher rules, banks might choose to stop growing some of their businesses or even sell them off — with Tarullo suggesting the big firms may want to shrink their “systemic footprint.” “The higher they are pulling the range for risk-based capital, the more likely that will be the governing constraint,” said Wayne Abernathy, executive vice president of the American Bankers Association. Tarullo told lawmakers Sept. 9 that the buffer will be higher for big banks than what was agreed to by the 27-nation Basel Committee on Banking Supervision.
