Big Banks Get Fed Blessing to Extend Leverage
- Fed relaxes key limit on level of debt Wall Street can take on
- Fundamental leverage ratio was part of response to 2008 crisis
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The Federal Reserve will let Wall Street banks take on more leverage so they can absorb a severe lack of liquidity for Treasuries and a surge in customer deposits amid the coronavirus pandemic.
A key limit on big banks’ indebtedness -- the so-called leverage ratio -- will be temporarily relaxed with lenders getting “significant inflows of customer deposits,” the Fed said in a Wednesday statement. For one year, the biggest U.S. banks will no longer have to add their Treasuries and reserves into the basket of assets they’re required to maintain capital for -- significantly reducing capital requirements.