Brown Vitter section-by-section guidance… April 30, 2013 at 7:24 am

…can be found here.

You might think that B-V is impossibly strict and hence impossible to pass, but there is the core of a good idea in this bill, and it would be dangerous to dismiss it entirely. A slightly gentler B-V with phased implementation (say, a simple leverage ratio rising from 3% to 12% by 1% a year starting 2015 for the mega-banks) is entirely feasible. (Whether it would be wholly positive for financial stability or not is another matter.)

3 Responses to “Brown Vitter section-by-section guidance…”

  1. Isn’t it a big problem that a “simple” leverage ratio is basically a decision to have risk-weights of either 100% or 0%, with the decision as to whether (say) an ABCP conduit or SIV should be weighted 0% or 100% to be taken by the accounting standard setters and auditors? I worry that some good ideas from Hellwig/Admati/Haldane/Miles on leverage levels have got mixed up with a really mindless hostility to modelling and risk-weighting, and to a very very naive belief that there is something “simple” about the number at the foot of a bank balance sheet.

  2. Agreed – the idea of regulation in the hands of accountants is terrifying. I see B-V as a negotiating tactic, though, not a legislative proposal. If the FED crumbles and goes for a simple leverage backstop of, say, 8% then B-V will probably declare victory and move on. Not that that will give JPMorgan much comfort mind you…

  3. The problem is that whoever does the risk weights can be wrong. How does anyone know that ABCP or an SIV has a risk of zero or 100? Some Citibank SIVs were merely means to game the system and were toxic. Financial life has gotten way more complicated in recent years, but the fact remains that a banker avid for high bonuses will pile into the lowest risk weighted assets irrespective of what damage this may involve. Having a simple 8% ratio or a higher one for big banks may obviate this. if this hurts overall growth, then so be it.