Bank investors would be able to evaluate which lenders are too reliant on debt under proposed plans from global regulators to manage financial firms' affinity for borrowing.
The Basel Committee on Banking Supervision proposed revamping standards for a leverage ratio on bank debt to ensure that the rule would be applied consistently by lenders across the world, Stefan Ingves, the Basel group's chairman, told Bloomberg.
"Investors and other stakeholders will have a comparable measure of bank leverage, regardless of domestic accounting standards," Ingves said.
Under the Basel plan, banks would have to hold Tier 1 capital equivalent to 3% of their assets, effectively capping a lender's debt at no more than 33 times those capital reserves. The plans set out rules for how banks should take into account repurchase agreements, derivatives trades and other activities that aren't easily quantifiable. The group said it would seek views on the draft rules until Sept. 20, and also carry out an impact study on the measures.
Industry professionals are split over the usefulness of leverage ratios. Some believe that the ratios are a way to tame risk-taking by banks, but other regulators warn that this simplicity could be a disadvantage.
U.S. regulators are considering setting a leverage ratio at 6% for some of the country's largest banks — twice the Basel level, according to reports by Bloomberg.
While the leverage ratio won't be binding until 2018, lenders would be obliged to start publishing how well they measure up to it by the start of 2015.