Banking regulators have agreed to go liberal on a new rule that was meant to contain risky balance sheets starting in 2018. The measure was an effort to avoid tightening financing for the world’s economy. The Basel Committee for Banking Supervision took the decision which is indicative of the willingness to accommodate banks as the focus switches to helping economies recover. However, the measure will be temporary as the regulators signaled there is still no agreement on the final level of the new leverage ratio, which measures how much capital a bank must hold against its loans and other assets. The ratio was initially set at 3 percent of bank capital, but regulators from the United States, Britain and elsewhere are pushing for a higher number. The ratio acts as a backstop to a lender’s core risk-weighted capital requirements. A ratio of 3% means a bank must hold capital equivalent to 3% of its total assets. The rule is part of the Basel III accord endorsed by world leaders in response to the 2007-09 financial crisis, which forced taxpayers to bail out undercapitalized and failing banks. The Basel Committee’s oversight body, led by the European Central Bank’s president, Mario Draghi, backed key changes to the leverage ratio.
