FDIC to Tighten Screws on Banks, Require 5% Leverage
The FDIC on Tuesday will propose a leverage rule requiring big banks to have common equity equal to at least 5 percent of their assets—stricter than the international banking regulations known as Basel III, sources told CNBC.
The asset number includes off-balance-sheet items and will not be adjusted for riskiness. The proposed rule for so-called "simple leverage" is 2 percent higher than the minimum simple leverage rule under Basel III.
The leverage rule is intended to ensure that banks have enough capital to weather a severe downturn, like the one in 2008. Banks have argued that the leverage rules will cut into their lending by limiting the amount they can borrow to fund loans. By piling off-balance-sheet items into the ratio, the regulators have made banks' capital burdens much heavier.
The FDIC has been pushing for months for a more restrictive leverage ratio. The Federal Reserve was dragging its feet on the issue, sources say. Now it seems the FDIC won out, although last week press reports indicated the number could be as high as 6 percent.
At an open board meeting last Tuesday, the Fed approved a Basel minimum leverage standard for U.S. banks. At that meeting, Fed Gov. Dan Tarullo said the regulators were very close to coming out with an additional leverage protocol.
(Read More: Fed Approves Key Capital Rules for Banks)
Judging by his comments, the FDIC appears to have won him over: "Despite its innovativeness in taking account of off-balance-sheet assets, the Basel III leverage ratio seems to have been set too low to be an effective counterpart to the combination of risk-weighted capital measures that have been agreed internationally."
Once the FDIC has approved the proposed rule, it will be put out for comment. The regulators could adjust the final rule based on these comments, as they did in the case of the capital rules it approved last week.
—By CNBC's Margaret Popper.