March 19 (UPI) — The Federal Reserve announced Friday that it will not extend an emergency order given a year ago that eased the amount of capital banks were required to keep to counter potential economic hardship brought on by COVID-19.
The Fed said it will allow the rule to expire at the end of March. Ordered in the early weeks of the crisis last year, the rule permitted U.S. banks to exclude Treasurys and deposits with Fed banks from the calculation of its leverage ratios.
The move was intended to prevent large-scale financial disruption in the bond market and on Wall Street.
“Because of the recent growth in the supply of central bank reserves and the issuance of Treasury securities, the board may need to address the current design and calibration of the [supplementary leverage ratio] over time to prevent strains from developing that could both constrain economic growth and undermine financial stability,” the Fed said in a statement Friday.
The U.S. central bank said it will take public comment on leverage ratio possibilities, but will allow the emergency rule to expire as planned.
The Federal Reserve said the largest U.S. banks maintain about $1 trillion in cash and they are not expected to be seriously affected by the expiration.
