Bank regulators should target higher minimum leverage ratios to get an accurate picture of risk in big banks, according to an influential conservative think-tank. In a meeting on Monday, the conservative American Enterprise Institute said the Federal Reserve should set the leverage ratio higher than the 3 percent proposed by the Basel Committee on Banking Supervision. The group also said the calculation of the leverage ratio (the relationship between a bank's core capital or Tier 1 capital and its total assets) did not reflect a bank's ability to absorb losses during a crisis. "By focusing on tier 1 capital, the Fed is overstating the ability to withstand loss," said Richard Herring, professor of international banking at the Wharton Financial Institutions Center at the University of Pennsylvania. Herring said the calculation for Tier 1 capital included hybrid instruments (such as debt and trust preferred securities), which many observers say contributed to the failure of
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