The Dodd-Frank Act, Mike Konczal points out on washingtonpost.com (5/6/13), left it to regulators to decide how much capital banks must set aside. And U.S. regulators have ceded much of the task to the international panel of bank overseers working on the standards known as Basel III.

But some in Congress have begun to regret their failure to write leverage limits into the law. As Konczal notes, the Senate bill co-introduced by Sherrod Brown and David Vitter (D-Ohio and R-La., respectively) requires a safety cushion of at least $15 in equity capital for every $100 of assets. Moreover, the bill leaves no room for the practice of “risk weighting” assets, which allows banks to hold less capital against assets considered less risky.

Critics say this blanket approach could encourage riskier lending. “The counter-argument is that risk-weighting incentivizes banks to hide risk or juke their statistics, giving everyone a false sense of security,” Konczal writes. “Risk-weighting was letting the market decide capital, as it was believed that banks’ internal monitors were better than the blunt, simple categories of leverage ratios. That argument is less popular now that it was in the go-go finance era.”

The biggest problem with Basel III is that it doesn’t do enough to restrain leverage, he adds, quoting AFR’s Marcus Stanley: “The 3 percent leverage ratio in Basel III is far too low to keep banks in check… [I]f a bank ran up against the 3 percent leverage ratio, that would be a terrible sign! It would mean that the bank had far too much leverage, no matter what their assets looked like.”