FED and OCC proposed a rule that would further tailor leverage ratio requirements to the business activities and risk profiles of the largest domestic firms. Firms that are required to comply with the enhanced supplementary leverage ratio (eSLR) are subject to a fixed leverage standard, regardless of their systemic footprint. The proposal would instead tie the standard to the risk-based capital surcharge of a firm, which is based on the individual characteristics of the firm. The resulting leverage standard would be more closely tailored to each firm. Comments on the rule will be accepted for 30 days after publication in the Federal Register.
The proposed changes seek to retain a meaningful calibration of the eSLR standards while not discouraging firms from participating in low-risk activities. The changes also correspond to recent changes proposed by BCBS. Taking into account supervisory stress testing and the existing capital requirements, the agency staff estimate that the proposed changes would reduce the required amount of tier 1 capital for the holding companies of these firms by approximately USD 400 million, or approximately 0.04% in aggregate tier 1 capital. eSLR standards apply to all U.S. holding companies identified as global systemically important banking organizations (G-SIBs), along with the insured depository institution subsidiaries of these firms.
In the United States, G-SIBs must maintain a supplementary leverage ratio of more than 5%, which is the sum of the minimum 3% requirement plus a buffer of 2%, to avoid limitations on capital distributions and certain discretionary bonus payments. The insured depository institution subsidiaries of G-SIBs must maintain a supplementary leverage ratio of 6% to be considered "well capitalized" under the agencies' prompt corrective action framework. At the holding company level, the proposed rule would modify the fixed 2% buffer to be set to one half of each firm's risk-based capital surcharge. For example, if a G-SIB's risk-based capital surcharge is 2%, it would now be required to maintain a supplementary leverage ratio of more than 4%, which is the sum of the unchanged minimum 3% requirement plus a modified buffer of 1%. The proposal would similarly tailor the current 6% requirement for the insured depository institution subsidiaries of G-SIBs that are regulated by FED and OCC.
Comment Due Date: Federal Register + 30 days
Keywords: Americas, US, Banking, Leverage Ratio, eSLR, G-SIB, Risk-based Capital Surcharge, TLAC, OCC, FED
Previous ArticleIMF Publishes Reports on the 2018 Article IV Consultation with Kenya
APRA is consulting on the reporting standard for credit risk management (ARS 220.0).
EC published draft of a delegated regulation amending liquidity coverage rules for covered bond issuers.
ESMA published an update to its March 2019 statement on the endorsement of credit ratings from UK.
PRA published Version 2 of the questions and answers (Q&A) on the Branch Return form.
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
ISDA launched the IBOR Fallbacks Supplement and the IBOR Fallbacks Protocol, with both becoming effective on January 25, 2021.
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).