FED and OCC Propose to Further Tailor eSLR Requirements for G-SIBs
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.
Related Links
Comment Due Date: Federal Register + 30 days
Keywords: Americas, US, Banking, Leverage Ratio, eSLR, G-SIB, Risk-based Capital Surcharge, TLAC, OCC, FED
Previous Article
IMF Publishes Reports on the 2018 Article IV Consultation with KenyaRelated Articles
BIS Innovation Hub Sets Out Work Program for 2021
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
EC Plans to Consult on Crisis Management and EDIS Framework Revisions
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.