NEW YORK - BAC the largest bank in America by assets has fallen considerably over the last several months. CEO of BAC Brian Moynihan said BAC was in no rush to hit upper capital requirements which may be required by Basel regulators. Wells Fargo echoed those concerns at the Barclays Capital Americas Select Conference Investor Conference yesterday. CEO Joseph Stumpf said there was a cost of holding to much equity.
If we we examine the leverage of firms going into the financial crisis we can see that Wells Fargo survived perfectly and it had 7% leverage. Leverage is calculated as tangible assets / total assets - intangibles. PNC also flourished but with only 5.4% leverage in 2006. BAC nearly collapsed with 4.1% leverage. Comerica Bank stayed safe with 9.2% leverage but HBAN nearly collapsed with 7% leverage. U.S. Bancorp also prospered with leverage of 4.7%.
As can be seen by the numbers above there is not much correlation between companies with leverage of around 5% to 7%. It is certain that leverage increases risk and there must be minimum ratios of 4% to 5% but forcing banks to have exceedingly high ratios hurts the economy. Banks are able to make less loans since more money has to be kept sitting still.
Bank of America CEO's is echoing concerns felt by the entire banking sector regarding Basel III regulations.
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