Fed: Leverage Ratio May be Excluded from Stress Test, “Volcker 2.0” Underway

Bloomberg reports that as part of planned changes at the Federal Reserve in their role of supervising banks, the leverage ratio may be removed from the stress test calculation. Randal Quarles, the Fed’s vice chairman for supervision, testified before the House Financial Services Committee on Wednesday, November 14, that such a move wouldn’t weaken regulation. “The leverage ratio is intended to be non-risk-sensitive and to serve as a backstop,” Mr. Quarles explained, “So when you put that into the stress test, you’re basically confusing those two things.” Additionally, Mr. Quarles stated that work on simplifying the Volcker rule is “proceeding very well”, with all five relevant rulemaking agencies engaged on the issue. Mr. Quarles also testified before the Senate Committee on Banking, Housing, and Urban Affairs on Thursday, November 15.

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