Latest news with #G-SIB
The Age
26-06-2025
- Business
- The Age
Beware the doom loop: New bank rules raise debt fears
Yet at the urging of not just the banking sector, but the Trump administration, the Fed now wants to lower that ratio to levels similar to those of the largest non-US banks. Such a move would, on some calculations, release more than $US210 billion ($322 billion) of capital from the eight big US banks deemed to be of global systemic importance. Loading The proposal – it will be subjected to public comment – is supported by Fed chairman Jerome Powell and the new Trump-appointed vice chair, Michelle Bowman, who said it would help build resilience in the bond market, thus reducing the risk of market dysfunction and the need for the Fed to intervene in a future stress event. Bowman, who took up the role earlier this month, is the most senior US bank regulator. Her view is in stark contrast to her predecessor, Michael Barr, who said the move would reduce bank capital levels and significantly increase the risk that a G-SIB bank would fail and precipitate another crisis. The different stances reflect the differing priorities of those engaged in the debate about bank regulation. The proponents for lowering the leverage ratio, and also for excluding Treasury securities and bank deposits with the Fed from the calculations of leverage (which the US central bank is also considering), point to the periodic bouts of stress within the Treasury bond market. They argue that the leverage ratio has constrained the banks' ability to support that market in times of stress by limiting their capacity to buy bonds or fund other investors' trades. There have been bouts of limited liquidity in the market for Treasuries, most recently after Donald Trump's 'Liberation Day' announcement of tariffs, which have forced the Fed to intervene to shore up the market. Some recent auctions of Treasuries have also experienced weak demand, with the Trump administration's policies, particularly his tariffs, being blamed for what's been described as the 'Sell America' trade. The level of demand for Treasuries is about to become even more significant. If the Republicans can agree on the final form of Trump's One Big Beautiful Bill Act – their mega budget bill – they will add something around $US3.3 trillion to the US government's $US36.2 trillion of debt over the next decade. That makes the depth of demand for Treasuries critical because it will determine the prices at which the securities can be issued. The balancing item in the supply-demand equation is price, or the yield required for the market to absorb the issues. Treasury Secretary Scott Bessent has said lowering the leverage ratio and increasing banks' capacity to buy Treasuries could cut tens of basis points from the cost of government debt. On debt levels approaching $US40 trillion, that could mean very substantial savings. Loading Critics of the leverage ratio say it has kept bank balance sheets from potentially growing at the same rate as the supply of government debt, which exploded during the initial Trump administration and Joe Biden's term in the White House. There are at least two potential problems with looking at the leverage ratio as the solution to malfunctions within the government debt market. One is that the cause of the problem isn't the leverage ratio, but the rate at which the volumes of government debt have been pouring into the market - a rate that will only accelerate if the One Big Beautiful Bill Act passes. Cut the deficits and debt, and that would alleviate the perceived problem. Instead, the proponents of deregulation want to expand the balance sheet of the banks and raise their risk profiles, so that the deficits and debt can keep mounting. Both the government and bank balance sheets would be weakened. The second problem is that, if the regulators do free up more than $US200 billion of big bank capital, there is no certainty that the banks would use that to buy more Treasuries or prop up the market during times of stress. They could do what their shareholders would inevitably demand and buy back that suddenly-surplus capital, with no benefit to the Treasury market at all. The other measure being touted by the deregulation proponents, and being canvassed by the Fed, is whether Treasury securities and deposits with the Fed should be excluded from the banks' leverage calculations. The inclusion of supposedly 'risk-free' assets, like government bonds, from leverage calculations – even though they carry zero weighting in the core capital adequacy calculations – is based on the fact that they aren't risk-free. As the 2008 crisis demonstrated, if America's financial system teeters, it sends shockwaves throughout the world. The regional bank crisis in the US in 2023 started when a run on the Silicon Valley Bank forced the lender to sell its holding of government bonds at discounts to face value – incurring significant losses -- to generate liquidity to meet the calls on its deposits. Macro events like Trump's tariff announcements, or government inflation data, can move bond yields significantly and create paper losses that, if the bond had to be sold to raise cash, would become very real and reduce the capital levels of the bank involved. Carving Treasuries out of the ratio might free up even more bank balance sheet capacity to buy Treasuries (or return capital to shareholders), but it would make the biggest US banks even more vulnerable to external events, and render the US system more fragile. In Europe, that nexus between government bonds and banks was dubbed the 'doom loop,' or a vicious and circular relationship between levels of government debt and banking system risk. During the European debt crisis that followed the global financial crisis, banks hoovered up their country's sovereign debt. As concerns about the creditworthiness of governments, particularly the over-leveraged southern European countries, mounted, the balance sheets of the banks holding piles of their government's supposedly risk-free debt were weakened. There's a direct relationship between fiscal stability and financial stability. Loading The continuing explosion of US government debt on issue is undermining the fiscal stability of the US and increasing levels of financial system risk, even as the administration and its regulators propose weakening the levels of insurance against another banking and financial crisis. The shape of US bank regulation matters beyond America because of the dominance of the US dollar and the US financial markets within the global financial system. As the 2008 crisis demonstrated, if America's financial system teeters, it sends shockwaves throughout the world. No one wants history to repeat.
Sydney Morning Herald
26-06-2025
- Business
- Sydney Morning Herald
Beware the doom loop: New bank rules raise debt fears
Yet at the urging of not just the banking sector, but the Trump administration, the Fed now wants to lower that ratio to levels similar to those of the largest non-US banks. Such a move would, on some calculations, release more than $US210 billion ($322 billion) of capital from the eight big US banks deemed to be of global systemic importance. Loading The proposal – it will be subjected to public comment – is supported by Fed chairman Jerome Powell and the new Trump-appointed vice chair, Michelle Bowman, who said it would help build resilience in the bond market, thus reducing the risk of market dysfunction and the need for the Fed to intervene in a future stress event. Bowman, who took up the role earlier this month, is the most senior US bank regulator. Her view is in stark contrast to her predecessor, Michael Barr, who said the move would reduce bank capital levels and significantly increase the risk that a G-SIB bank would fail and precipitate another crisis. The different stances reflect the differing priorities of those engaged in the debate about bank regulation. The proponents for lowering the leverage ratio, and also for excluding Treasury securities and bank deposits with the Fed from the calculations of leverage (which the US central bank is also considering), point to the periodic bouts of stress within the Treasury bond market. They argue that the leverage ratio has constrained the banks' ability to support that market in times of stress by limiting their capacity to buy bonds or fund other investors' trades. There have been bouts of limited liquidity in the market for Treasuries, most recently after Donald Trump's 'Liberation Day' announcement of tariffs, which have forced the Fed to intervene to shore up the market. Some recent auctions of Treasuries have also experienced weak demand, with the Trump administration's policies, particularly his tariffs, being blamed for what's been described as the 'Sell America' trade. The level of demand for Treasuries is about to become even more significant. If the Republicans can agree on the final form of Trump's One Big Beautiful Bill Act – their mega budget bill – they will add something around $US3.3 trillion to the US government's $US36.2 trillion of debt over the next decade. That makes the depth of demand for Treasuries critical because it will determine the prices at which the securities can be issued. The balancing item in the supply-demand equation is price, or the yield required for the market to absorb the issues. Treasury Secretary Scott Bessent has said lowering the leverage ratio and increasing banks' capacity to buy Treasuries could cut tens of basis points from the cost of government debt. On debt levels approaching $US40 trillion, that could mean very substantial savings. Loading Critics of the leverage ratio say it has kept bank balance sheets from potentially growing at the same rate as the supply of government debt, which exploded during the initial Trump administration and Joe Biden's term in the White House. There are at least two potential problems with looking at the leverage ratio as the solution to malfunctions within the government debt market. One is that the cause of the problem isn't the leverage ratio, but the rate at which the volumes of government debt have been pouring into the market - a rate that will only accelerate if the One Big Beautiful Bill Act passes. Cut the deficits and debt, and that would alleviate the perceived problem. Instead, the proponents of deregulation want to expand the balance sheet of the banks and raise their risk profiles, so that the deficits and debt can keep mounting. Both the government and bank balance sheets would be weakened. The second problem is that, if the regulators do free up more than $US200 billion of big bank capital, there is no certainty that the banks would use that to buy more Treasuries or prop up the market during times of stress. They could do what their shareholders would inevitably demand and buy back that suddenly-surplus capital, with no benefit to the Treasury market at all. The other measure being touted by the deregulation proponents, and being canvassed by the Fed, is whether Treasury securities and deposits with the Fed should be excluded from the banks' leverage calculations. The inclusion of supposedly 'risk-free' assets, like government bonds, from leverage calculations – even though they carry zero weighting in the core capital adequacy calculations – is based on the fact that they aren't risk-free. As the 2008 crisis demonstrated, if America's financial system teeters, it sends shockwaves throughout the world. The regional bank crisis in the US in 2023 started when a run on the Silicon Valley Bank forced the lender to sell its holding of government bonds at discounts to face value – incurring significant losses -- to generate liquidity to meet the calls on its deposits. Macro events like Trump's tariff announcements, or government inflation data, can move bond yields significantly and create paper losses that, if the bond had to be sold to raise cash, would become very real and reduce the capital levels of the bank involved. Carving Treasuries out of the ratio might free up even more bank balance sheet capacity to buy Treasuries (or return capital to shareholders), but it would make the biggest US banks even more vulnerable to external events, and render the US system more fragile. In Europe, that nexus between government bonds and banks was dubbed the 'doom loop,' or a vicious and circular relationship between levels of government debt and banking system risk. During the European debt crisis that followed the global financial crisis, banks hoovered up their country's sovereign debt. As concerns about the creditworthiness of governments, particularly the over-leveraged southern European countries, mounted, the balance sheets of the banks holding piles of their government's supposedly risk-free debt were weakened. There's a direct relationship between fiscal stability and financial stability. Loading The continuing explosion of US government debt on issue is undermining the fiscal stability of the US and increasing levels of financial system risk, even as the administration and its regulators propose weakening the levels of insurance against another banking and financial crisis. The shape of US bank regulation matters beyond America because of the dominance of the US dollar and the US financial markets within the global financial system. As the 2008 crisis demonstrated, if America's financial system teeters, it sends shockwaves throughout the world. No one wants history to repeat.
Reuters
23-06-2025
- Business
- Reuters
Fed's Bowman eyes broad set of bank capital reforms
WASHINGTON, June 23 (Reuters) - The Federal Reserve's top regulatory official said on Monday that an upcoming rewrite of bank leverage rules is just a "first step" in reviewing "distorted" bank capital requirements. Fed Vice Chair for Supervision Michelle Bowman said an upcoming meeting Wednesday to revisit bank leverage requirements is an initial foray in a broader set of reforms to ease bank capital requirements. Additional changes could include tweaks to a surcharge applied to large global banks, and what requirements should apply to larger regional banks. "This proposal takes a first step toward what I view as long overdue follow-up to review and reform what have become distorted capital requirements," she said in prepared remarks. "More work on capital requirements remains, especially to consider how they have evolved and whether changes in market conditions have revealed issues that should be addressed." The Fed is set to meet Wednesday to discuss a proposal to overhaul leverage requirements for banks that require them to set aside capital against assets regardless of their risk. The industry has argued it hinders their ability to intermediate Treasury markets, and was intended to serve as a backstop but has grown to become a binding constraint on some firms' activities. Discussing other future reforms, Bowman floated indexing some regulatory requirements, such as the so-called "G-SIB surcharge" for large global banks and various asset thresholds under which banks face stricter rules, to the overall economy. Such a change would allow banks to grow in size alongside the economy without necessarily bumping against stricter requirements, which had been a longstanding industry gripe. However, she cautioned that reforms to fine-tune regulatory requirements are not meant to undermine the importance of robust bank capital to ensure they can withstand shocks. "While issues around the use of leverage ratios require close examination, a solid capital foundation in the banking system is critical to support safety and soundness and financial stability," she said, adding the upcoming leverage tweaks "should not be interpreted as a critique of the role of capital in a robust regulatory and supervisory framework."
Yahoo
23-06-2025
- Business
- Yahoo
Fed's Bowman eyes broad set of bank capital reforms
By Pete Schroeder WASHINGTON (Reuters) -The Federal Reserve's top regulatory official said on Monday that an upcoming rewrite of bank leverage rules is just a "first step" in reviewing "distorted" bank capital requirements. Fed Vice Chair for Supervision Michelle Bowman said an upcoming meeting Wednesday to revisit bank leverage requirements is an initial foray in a broader set of reforms to ease bank capital requirements. Additional changes could include tweaks to a surcharge applied to large global banks, and what requirements should apply to larger regional banks. "This proposal takes a first step toward what I view as long overdue follow-up to review and reform what have become distorted capital requirements," she said in prepared remarks. "More work on capital requirements remains, especially to consider how they have evolved and whether changes in market conditions have revealed issues that should be addressed." The Fed is set to meet Wednesday to discuss a proposal to overhaul leverage requirements for banks that require them to set aside capital against assets regardless of their risk. The industry has argued it hinders their ability to intermediate Treasury markets, and was intended to serve as a backstop but has grown to become a binding constraint on some firms' activities. Discussing other future reforms, Bowman floated indexing some regulatory requirements, such as the so-called "G-SIB surcharge" for large global banks and various asset thresholds under which banks face stricter rules, to the overall economy. Such a change would allow banks to grow in size alongside the economy without necessarily bumping against stricter requirements, which had been a longstanding industry gripe. However, she cautioned that reforms to fine-tune regulatory requirements are not meant to undermine the importance of robust bank capital to ensure they can withstand shocks. "While issues around the use of leverage ratios require close examination, a solid capital foundation in the banking system is critical to support safety and soundness and financial stability," she said, adding the upcoming leverage tweaks "should not be interpreted as a critique of the role of capital in a robust regulatory and supervisory framework." Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Finextra
28-05-2025
- Business
- Finextra
Standard Chartered and OKX launch collateral mirroring programme
Standard Chartered and OKX, a leading cryptocurrency exchange and global onchain technology company, today announced the launch of a ground-breaking, world-leading collateral mirroring programme, enabling institutional clients to utilise cryptocurrencies and tokenised money market funds as off-exchange collateral for trading. 0 This initiative significantly enhances security and capital efficiency for institutional clients by using a Globally Systemically Important Bank (G-SIB) as the custodian for their collateral. Margaret Harwood-Jones, Global Head of Financing and Securities Services at Standard Chartered said: 'We understand the critical importance of robust and secure custody solutions, especially in the evolving digital asset landscape, and our collaboration with OKX to enable the use of cryptocurrencies and tokenised money market funds as collateral represents a significant step forward in providing institutional clients with the confidence and efficiency they need. By leveraging our established custody infrastructure, we are ensuring the highest standards of security and regulatory compliance, fostering greater trust in the digital asset ecosystem.' The collateral mirroring capability has been launched as a Pilot within the Dubai Virtual Asset Regulatory Authority's (VARA) regulatory framework, and it allows clients to benefit from enhanced protection against counterparty risk, a significant concern in the current digital asset markets. Standard Chartered acts as the independent, regulated custodian in the Dubai International Financial Centre (DIFC), regulated by the Dubai Financial Services Authority, ensuring the safe storage of the assets used as collateral, while OKX through its VARA regulated entity, manages collateral and facilitates transactions. Franklin Templeton will be the first in a series of money market funds that will be offered under the OKX-SCB programme. Hong Fang, President of OKX, said: 'As the digital assets ecosystem becomes more ingrained within traditional finance, we strive to both drive growth and safeguard client assets in the most capital efficient manner. By leveraging Standard Chartered's position as a top custodian globally, as well as OKX's market leadership in cryptocurrency trading, the partnership sets an industry standard for current and potential institutional clients to deploy trading capital at scale in a trusted environment.' Franklin Templeton, a recognised leader in tokenisation and real world assets (RWA), continues to innovate by leveraging blockchain technology to deliver cutting-edge solutions to customers and clients. Through this collaboration, OKX clients will gain access to on-chain assets developed by Franklin Templeton's Digital Assets Team, seamlessly integrating them into their financial and operational structures. Roger Bayston, Franklin Templeton Head of Digital Assets, says: 'Leveraging blockchain technology, our platform is built to support the dynamic and ever-evolving financial ecosystem. We take an authentic approach, from directly investing in blockchain assets to developing innovative solutions with our in-house team. By ensuring assets are minted on-chain, we enable true ownership, allowing them to move and settle at blockchain speed - eliminating the need for traditional infrastructure.' Brevan Howard Digital, the dedicated crypto and digital asset division of Brevan Howard, a leading global alternative investment manager, is among the first few institutions to onboard onto this pioneering programme, highlighting the importance of such capabilities being offered by a leading international cross-border bank and a highly reputable global exchange. Ryan Taylor, Group Head of Compliance at Brevan Howard and CAO of Brevan Howard Digital, commented: 'This programme is the latest example of the continued innovation and institutionalisation of the industry. As a significant investor in the digital assets space, we are thrilled to partner with industry leaders to further grow and evolve the crypto ecosystem globally.'
