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ECB fears softening of regulation of banks in the US

UNITED UNION (OBSERVATORY) –┬áVice President of the European Central Bank (ECB) Vitor Constancio said that he is concerned that the US can further soften the requirements for the capital of banks, reports Bloomberg.

The Federal Reserve System (FRS) of the United States said on Wednesday that it wants to abandon the existing method of measuring the limits of borrowing of each bank and instead limit the risks associated with specific firms. According to regulators, this step can free up $ 121 billion of capital.

Constantio fears that, in addition, regulators may be tempted to introduce exceptions to the so-called coefficient of financial leverage – the requirement that banks maintain a minimum level of capital for all of their assets. Such a step will undermine one of the key achievements in improving the safety of banks after the financial crisis, said the ECB Vice President at the event in Brussels on Thursday.

“The introduction of the leverage ratio … is very important, and I am anxiously watching certain movements and things that would undermine the role of the leverage coefficient,” said Constantino, whose term expires on May 31.

“For example, one of the things that cause me to fear the coefficient of leverage is a proposal or idea, which is also reflected in the report of the US Treasury on financial reform, about starting to grant exemption from things that will no longer be taken into account to calculate the leverage ratio, “said Constantino,” I certainly hope that this will not happen.”

Earlier this week the Fed proposed new rules allowing some large banks to reduce the amount of capital that they should keep as an airbag in the event of an economic shock.

The US Central Bank said that the proposed changes could slightly increase the amount of capital needed for 30 systemically important for the global financial system of banks (Global Systemically Important Banks, G-SIB). At the same time, measures should slightly reduce the amount of capital required for smaller banks than G-SIB.

Banks and other interested parties will have 60 days to comment on the proposed rules, which are likely to come into force next year, the Fed said.

This measure marks the first significant change in financial rules since the adoption of the Dodd-Frank Act in 2010.