The belt and suspenders approach of the new capital standards and leverage ratios establishes two tests for the maximum amount of assets that financial institutions may hold relative to equity. At issue is which of these should typically bind first. The leverage ratio was initially conceived as a backstop. Risk-weighted assets would normally be the binding constraint.
It is therefore not without a sense of vindication that some politicians from Southern Europe will see that the former economic adviser to Chancellor Merkel is now also training his sights on his ex-colleagues in Berlin.