Reserving judgement: the BoE’s divisive leverage ratio plan
Central bank reserves exemption may squeeze interbank liquidity, raise capital requirements
It all sounded so easy. Amid growing industry complaints about rising capital requirements, the Bank of England (BoE) decided to pull a rabbit out of the hat, and exempt central bank reserves from the leverage ratio, offering an estimated £11 billion ($13.4 billion) capital saving for the seven UK banks that are subject to the rules. The argument was that charging capital for money parked at a central bank would deter the industry from using central bank liquidity facilities, potentially
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