In an action that is likely to cause deep concern among America’s largest banks:

The Federal Reserve Board, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) on Tuesday proposed a rule to strengthen the leverage ratio standards for the largest, most systemically significant U.S. banking organizations.

Banks already have reacted badly. According to The Wall Street Journal:

“Ever-higher capital requirements, while a critically important element of safety and soundness, can become prohibitive and actually lead to reduced  capability to lend,” said Rob Nichols, president of the Financial Services Forum, which represents the chief executives of the nation’s largest financial firms.

And the new regulations would be stringent. The Fed statement went on to say:

Under the proposed rule, bank holding companies with more than $700 billion in consolidated total assets or $10 trillion in assets under custody (covered BHCs) would be required to maintain a tier 1 capital leverage buffer of at least 2 percent above the minimum supplementary leverage ratio requirement of 3 percent, for a total of 5 percent. Failure to exceed the 5 percent ratio would subject covered BHCs to restrictions on discretionary bonus payments and capital distributions. In addition to the leverage buffer for covered BHCs, the proposed rule would require insured depository institutions of covered BHCs to meet a 6 percent supplementary leverage ratio to be considered “well capitalized” for prompt corrective action purposes. The proposed rule would currently apply to the eight largest, most systemically significant U.S. banking organizations.

So, the Fed wants to attack Wall St. pay as leverage, a good idea since pay is the thing that most bank executives hold dear.

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