The decision is seen as a setback for the banking industry, which had been pushing for and extension, and a win for Democrats, who have argued that a pandemic is no time for banks to be shedding capital.
The industry wants regulators to extend a temporary measure making it easier to satisfy the supplementary leverage ratio. But Democrats’ control of the White House and Congress has given a bigger platform to those who say banks have had enough relief.
Temporary policy responses have mitigated problems in the short-term funding markets related to the pandemic, but permanent fixes may be necessary in some areas, the agency said in a report.
Regulators said they will allow banks to deduct Treasury securities — a source of market volatility in the pandemic — from the net stable funding ratio on the same day they provided relief from auditing requirements.
The market was upended because the largest banks hold more liquid assets in Treasuries than at the Fed, limiting their ability to supply repo funding on short notice, according to a new analysis from the Bank for International Settlements.
