also lowered bank capital requirements, which drew criticism.
As a result, the debate over whether to extend the exemptions had been a heated one.
Bank lobbyists and some market analysts have argued that the Fed needed to keep the exemption in place to prevent banks from pulling back from both lending and their role as key bond buyers and sellers. But lawmakers and researchers who favor stricter bank oversight argued that the exemption chipped away at the protective cash buffer that banks had built up in the wake of the financial crisis, leaving them less prepared to handle shocks.
The decision the Fed made took a middle road: It both ended the exemption and opened the door to future changes to how the leverage ratio, which banks have long opposed, is calibrated. The goal is to keep capital levels stable, but also to make sure that growth in government securities and reserves on bank balance sheets — a natural side effect of government spending and the Fed’s own policies — does not prod them to pull back.
“Because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time,” the Fed said in its release, adding that the goal would be “to prevent strains from developing that could both constrain economic growth and undermine financial stability.”
The Fed said that it would “shortly seek comment” on measures to adjust the leverage ratio. And it said that it would make sure that any changes “do not erode the overall strength of bank capital requirements.”