(Bloomberg) -- Federal Reserve Chair Jerome Powell said that while U.S. banks are well capitalized, a temporary relaxation of their leverage ratios could help support credit in the economy.
“It would give us the ability to allow banks to grow their balance sheet,” Powell said at a press conference Wednesday, referring to potential legislation in Congress for a broader easing in capital standards. The Fed has already implemented a limited measure, temporarily removing holdings of Treasuries from the calculation.
Many regulators around the world have enacted leverage relief for their banks, from Switzerland and Japan to Canada and the euro region, Powell said.
“We would want it to be explicitly temporary,” the Fed chief said of any further U.S. move. “In other words, this will not be a permanent change in capital standards.”
Powell also said the Fed is sending a fresh round of stress-test scenarios to banks, taking account of the coronavirus hit to the economy.
“We used a provision that says we can say there’s been a material change, and we’re going to ask them to resubmit their capital plans,” he said. “ We also stopped share buybacks and limited dividends.”
The new stress scenarios will be sent on Sept. 30, Powell said.
©2020 Bloomberg L.P.
