You might not know it, but there’s another SLF “cliff” upcoming at the end of this year’s first quarter. This Supplementary Leverage Ratio seeks to impose liquidity and capital charges on especially the largest banks because institutions like Bear Stearns and Lehman Brothers had figured out how to manipulate the SLF’s predecessor capital ratios. Disguising otherwise risky assets as “safe”, using perfectly legal means, including instruments like credit default swaps, global banks everywhere managed to make the most efficient use of balance sheet space.
Because they wanted to.
In the pre-crisis era, they had come to see this as uncontroversial in one sense because of how the Basel Rules had been sold to the public. It was this latter framework of bank regulation which had brought the capital ratio into the mainstream; a standardized mathematical calculation that was meant to quickly expose the full nature of any large bank’s activities.
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