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The Clearing House Highlights Concerns with U.S. Leverage Ratio Proposal

The Clearing House Association filed a comment letter with the OCC, Fed and FDIC in response to the leverage ratio notice of proposed rulemaking. TCH’s comment letter is supportive of a properly formulated leverage ratio as a backstop to risk based capital measures, but argues, among other things, that (i) the proposal is premature as the Basel Committee is currently working on changes to the exposure measure, which should be finalized before the calibration is increased; (ii) the leverage ratio should act only as a backstop to risk-based measures, which may not be the case if the U.S. and Basel proposals are both adopted; (iii) the leverage ratio is unsuited to be the binding constraint under ordinary circumstances; (iv) the leverage ratio’s exposure measure should be revised such that credit conversion factors that apply to off-balance sheet commitments more accurately reflect the measures of exposure from these commitments and assets such as bank deposits with central banks and government obligations securing public sector entity deposits should be excluded; and (v) imposing a supplementary leverage ratio that is more stringent than the leverage ratio requirement in other jurisdictions risks placing covered banks and U.S. markets at a competitive disadvantage.