ABSTRACT
This chapter summarizes the leverage ratio and a risk-based regulatory capital standard imposed upon US banks, and outlines the likely implications of the capital standards for bank lending and for the composition of the asset side of bank balance sheets. It offers a brief discussion of the risk-based standards in the process of implementation. To the extent that the capitalization standards are likely to constrain bank lending, it is important to ask whether the tighter credit market conditions will affect all firms and sectors proportionally, or whether some sectors are disproportionally dependent upon banks for credit. The risk-based standards provide incentives to shift assets toward categories carrying lower weights. The costliness of new equity for banks suggests that asset reduction will be a major means by which banks will adapt to the constraints imposed by the leverage ratio capital standard.
