Leverage ratios fall for most US bank categories

Most categories of US banks saw a modest decline in certain capital leverage ratios in 2020, according to a Kansas City Fed report issued on May 18.

Depending on the measure, US global systemically important banks (G-Sibs) had seen either a slight increase or a slight decrease in their leverage ratios as of December 31, 2020. This class reported a 0.84% increase in their weighted average supplementary leverage ratio (SLR) from the end of 2019, to 7.25% of assets.

However, this was mostly due to the SLR exemption, without which this measure would stand at 6.15%. The exemption allowed large banks to leave Treasuries and other safe assets out of their asset calculations, which permitted them to lend more during the pandemic. The exemption ended on March 31, three months after the period covered by the report.

US-owned G-Sibs’ weighted average Tier 1 leverage ratio declined 52 basis points to 7.5%, but Tier 1 risk-based capital ratios rose 65 basis points to 14.4%.

Foreign-owned G-Sibs boasted SLRs between 4.4% (Barclays) and 8.14% (Industrial and Commercial Bank of China). Asian-owned G-Sibs are generally better capitalised than European or Canadian ones.

Tier 1 leverage capital ratios for large, regional and community banks were considerably higher than for G-Sibs. However, these categories experienced declines of less than 1% over the preceding year, “due to balance sheet growth driven by participation in Covid-19 stimulus programmes”.

Large and regional banks had Tier 1 leverage ratios averaging 9.14% and 9.3%, respectively, and community banks carried capital of 10%.