SLRs were never set up 2 accommodate QE infinity or Deposits & $XLF Cash to $3T w Fed Sheet up to $7Trillion. $XLF safer but SLR as tangible leverage w QE5. Non Risk Based gr8 4 most of Cycle & CET1 RWAs actually Backward looking, Pro Cyclical & 2 Punitive in Deep Recession. https://twitter.com/sheilabair2013/status/1280548702428499970

In fairness... Basel III was set up with Gold Plating back in 2010 with Dodd Frank.. this wasn’t an issue back then? Agreed SLRs are the best.. but have to be recalibrated with QE5..(QE started back in GFC).. Risk Weights were all wrong going into GFC.. Agreed

In fairness...US GSIBs all had 6-8% Supplementary Leverage Ratios (SLRs) with 65% Risk Density going into Covid19 Crisis.. the highest in the world by far...& it’s not even close with any other country in the world.. e.g. Europe has Sub 4.5% SLR with 20-30% risk density....

So..when u add all the QE5 cash on the $XLF Balance Sheet (safe cash assets/reserves w zero % risk weights.. SLR = Tier 1 Cap/Leverage Exposure (On + Off B/S Assets) looks lower than it should..Not coz of higher risk but coz of Cash via Increased Deposits..gives more $DXY safety.

There’s very little chance that Banks will free up Sheet by being bound in a Deep Recession with -50% GDP if you bind them by SLR that counts cash multiple times.. moreover...the new Risk Based Stressed Capital Buffer (SCB) is super pro cyclical.. & overly zealous..

In fact the new SCB takes the old “Spot Capital” requirements & injects dynamic (CCAR adverse case recession) stressed capital peak 2 trough losses to the Capital stack.. so if Min Pillar 1 is 4.5% CET1 + SCB + CCyB + GSIB Surcharges.. everyone’s min capital requirements..

... just unnecessarily jumped higher.. & actually GSIB Surcharge is calculated on “Gross” Balance Sheet size..not “Net” or not a “Risk Based” concept.. so now you have the Risk Based Elevated minimums meld in a Non Risk Based Concept...this is way too much Capital retained imho.

... the irony of it all? In a Deep Recession..Lower Capital Hurdles.. are inversely proportional to the size of QE & the Fed’s Balance Sheet required.. you could use more Bank Sheet (less Regs) to siphon across real economy at least on supply side... & less need 4 Fed & TGA imho.

Plus new Dividend Calculation is on LTM earnings.. with worst earnings of the Cycle.. in 1H20 with provisions hitting earnings -44% in 1Q20 & -52% in 2Q20..& still most are gonna overcome hurdles..SCB resubmitted.. & goes into effect on Oct 1...CCAR is 2 Rigorous by 1/2 imho.