medium · Debt Capital Markets primary-issuance-syndication

Why is the 'Leverage Ratio' a critical constraint for bank dealers even when holding safe assets like government bonds?

1. It bars a bank from holding any positions in the 'Primary Dealer' system used for Treasury auctions.
2. It is a liquidity rule requiring banks to hold enough cash to cover thirty days of net deposit outflows.
3. It is a non-risk-weighted backstop that requires capital against the absolute size of the balance sheet, regardless of asset safety.
4. It mandates that banks devote a fixed share of their balance sheet to high-yield corporate bonds to diversify their credit risk.

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