February 12, 2015 / 7:51 PM / 3 years ago

U.S. regulators to discuss leverage ratio market concerns

WASHINGTON, Feb 12 (Reuters) - U.S. rules to bolster banks' ability to withstand shocks could dampen derivative markets, the head of the Commodity Futures Trading Commission said on Thursday, an issue regulators would meet to discuss.

The so-called leverage ratio forces banks to hold a fixed percentage of their total assets in equity capital, a measure designed to prevent costly taxpayer bail-outs such as those during the 2007-09 credit crisis.

Securities held by banks on behalf of their clients to post as collateral in derivative trades also count towards the leverage ratio, making such trades more expensive, CFTC Chairman Tim Massad said in a meeting with lawmakers.

"I'm very concerned that this could have a significant negative effect," he said in a hearing for the House Committee on Agriculture, which oversees the futures and swaps regulator.

Last week, Rep. Mike Conaway, the Texas Republican who chairs the committee, and Collin Peterson, the highest-ranking Democrat in the group, raised the issue with Federal Reserve Chair Janet Yellen in a letter.

The bank regulators - the Fed, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation - adopted a version of the leverage ratio that was stricter than the global standard last year.

Massad said that staff at his agency would now meet people at the three agencies to address the concerns. The Fed, the OCC and the FDIC all declined to comment.

The leverage ratio applies to the largest banks such as JPMorgan chase and Citigroup, which are also large dealers of futures and swaps.

The House Agriculture committee looks at the interests of farmers and ranchers, who use derivatives to protect the value of their harvests against price swings. (Reporting by Douwe Miedema; Editing by Chris Reese)

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