Leverage, no mustard July 11, 2013 at 8:07 am

Citi Research point out, in an excellent short note US Leverage, European Read-through that while the US leverage ratio is set higher, at 5%, than Basel it is both smaller scope (bank holding companies with more than US$700bn in consolidated total assets or US$10trn in assets under custody) and on a different basis (full derivatives netting, inc. collateral vs. exposure netting). Moreover both the US and Basel 3 definitions are based on Tier 1 capital, not CET1.

Note first that both Barclays’ and Deutsche’s US operations fall below the size threshold, and that covered US institutions will have until 2018 to comply. All in all, it could have been a lot harsher. Still, it makes safer, balance sheet intensive businesses (repo?) look pretty unattractive – unless you can get it off B/S. Repo conduits anyone?

Update. Just in time, Bloomberg tells us about a Deutsche B/S (and so leverage) shrinkage game: see here, or here for Matt Levine’s amusing commentary.

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