Felix Salmon and I were on the radio a few days ago and we agreed (I think) on the need for as-simple-as-possible stronger limits on bank leverage. I browsed the web to see how this struggle was going and ran across the following, from March:
A planned cap on bank leverage would not make the sector safer, said a German banking lobby on Friday, adding heavyweight support to a growing campaign.
This is scary for at least two reasons. First, it may be difficult to implement a leverage restriction in the United States, as supposedly this would be happening through an international agreement, namely Basel III. This is a major (the major?) problem with the current banking bill. There is then this:
France does not want a fixed numerical cap, preferring to give national regulators discretion in supervising leverage.
Deutsche Bank (DBKGn.DE), a member of the BDB, says a ratio is simplistic, while Sweden wants a carve-out for its banks.
The BDB said a study from the WHU Otto Beisheim School of Management concluded a ratio would likely force banks to scale back on lending and threaten recovery.
Might I go out on a limb and suggest that some of these European banks are…excessively leveraged? In theory the Basel III reforms will adjust the leverage restrictions for the risk of bank assets. It's been the case for a long time that many German banks have higher measured degrees of leverage. But are they more leveraged, all things considered? If they're worried about Basel III, maybe the answer is yes.