The Fed is fiddling with bank capital ratios to make it easier for banks to hold Treasury securities and make more loans. This is expansionary. It may also be a way to dress up banks’ balance sheets. From Mike Maharrey at Money Metals via zerohedge.com:
If a formula spits out a number you don’t like, just change the formula so you get a better number!
That’s exactly what the Bureau of Labor Statistics did to the Consumer Price Index formula in the 1990s. Because the CPI kept indicating price inflation was too high, the BLS tweaked the formula to spit out a lower inflation number.
Now the International Swaps and Derivatives Association (ISDA) is trying to talk the Federal Reserve into changing the formula for the supplementary leverage ratio (SLR) to make bank balance sheets look better.
This proposal sends some alarming messages about the stability of the banking system and confidence in U.S. government debt.
What Is the SLR and Why Do They Want to Change It?
The SLR is calculated by dividing the bank’s tier 1 capital (capital held in a bank’s reserves and used to fund business activities for the bank’s clients) by all assets on the bank’s balance sheet, including U.S. Treasuries and deposits at Federal Reserve Banks.
Banks use the SLR to calculate the amount of equity capital they must hold relative to their total leverage exposure. Regulations imposed after the 2008 financial crisis require category I, II, and III banks to maintain an SLR of 3 percent. “Globally Systemically Important Banks” are required to keep an extra 2 percent SLR buffer.
2001 and 2008 are why we are here.
1973 is the answer to 1984.
Make Helicopter Rides Great Again.
This just in from Dwight Yoakam:
Sorry You Asked?