Leverage rumpus: Banks protest impact of ratio revisions

Client clearing, repo markets, credit derivatives – the leverage ratio casts a shadow over them all. But the overarching complaint is that the ratio should remain a backstop, and it’s a point on which many regulators agree. Lukas Becker and Tom Newton report

In modern cars, the airbag is the backstop – a safety measure that deploys when everything else has failed. In modern banks, the leverage ratio is intended to do something similar. But revisions proposed to the ratio in June would turn it from backstop into binding constraint, banks claim – overwhelming a battery of more sensitive safeguards, such as internally modelled risk-weighted assets (RWAs), and potentially making banks harder to manage. A bit like a car in which the airbag is permanently