In light of the recent disruptions in economic conditions caused by COVID-19, FED issued an interim final rule that revises, on a temporary basis, the calculation of total leverage exposure, which is the denominator of the supplementary leverage ratio in the capital rule. The change would exclude the on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve banks from the calculation of the rule for holding companies. This exclusion has immediate effect and will remain in effect through March 31, 2021. The change would temporarily decrease tier 1 capital requirements of holding companies by approximately 2% in aggregate. The tier 1 leverage ratio is not affected by this rulemaking. This rule impacts the FR Y-9C and FR Y-15 reports. The amendments in the rule become effective on April 14, 2020. Comments on the interim final rule must be received no later than May 29, 2020. Additionally, FED is adopting a proposal to revise and extend for three years the FR Y-9 reports on the financial statements of holding companies. The revisions are applicable as of March 31, 2020, June 30, 2020, and March 31, 2021.
Interim Final Rule on Supplementary Leverage Ratio
The response to COVID-19 has notably increased the size of the FED balance sheet and resulted in a large increase in the amount of reserves in the banking system. Liquidity conditions in Treasury markets have deteriorated rapidly and financial institutions are receiving significant inflows of customer deposits. The regulatory restrictions that accompany this balance sheet growth may constrain the firms' ability to continue to serve as financial intermediaries and to provide credit to households and businesses. The change to the supplementary leverage ratio will mitigate the effects of those restrictions and better enable firms to support the economy. For reporting the supplementary leverage ratio as of June 30, 2020, banking organizations subject to this interim final rule must reflect the exclusion of Treasuries and deposits at Federal Reserve banks from total leverage exposure, as if this interim final rule had been in effect for the entire second quarter of 2020.
The interim final rule revises the measure of total leverage exposure on a temporary basis for the limited purposes of the capital rule and reporting the supplementary leverage ratio on FR Y-9C only. Currently, holding companies report their supplementary leverage ratios on Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101), Schedule A, and FR Y-9C report, Schedule HC-R.7 This rule does not affect the reporting of supplementary leverage ratio on the interagency FFIEC reporting schedules. FED is making conforming changes to the FR Y-9C to reflect the interim final rule’s revisions to the supplementary leverage ratio. FED also is revising the FR Y-15 to prevent the interim final rule’s temporary exclusions from total leverage exposure from impacting the measurement of the size systemic indicator. FED is seeking comment on all aspects of this interim final rule.
Federal Register Notice on FR Y-9 Reports
On December 27, 2019, FED proposed to revise and extend for three years the FR Y-9 reports. The comment period for this notice expired on February 25, 2020. After considering the comments received on the December 2019 notice as well as the comments on the recent proposed changes to the Call Report, FED is adopting the reporting changes proposed in the December 2019 notice with modifications. FED proposed revisions to the FR Y-9 reports that would have implemented, for regulatory reporting purposes, various recent changes to the regulatory capital rule of FED. The changes to the regulatory capital rule included in the December 2019 notice related to the capital simplifications rule, the community bank leverage ratio (CBLR) rule, the standardized approach for counterparty credit risk (SA-CCR) on derivative contracts, and the high volatility commercial real estate (HVCRE) land development rule. FED also proposed, in the December 2019 notice, instructional revisions for the reporting of operating lease liabilities and home equity lines of credit that convert from revolving to non-revolving status. FED has adopted final rules for all of the regulatory capital rulemakings addressed in the December 2019 notice. The capital-related reporting changes discussed in the December 2019 notice will be effective in the same quarters as the effective dates of the various final capital rules.
- Press Release
- Interim Final Rule in Federal Register
- Federal Register Notice on FR Y-9 Reports
- OMB Statement for FR Y-9 (PDF)
Comment Due Date: May 29, 2020
Effective Date: April 14, 2020
Keywords: Americas, US, Banking, COVID-19, Supplementary Leverage Ratio, Reporting, FR Y-9C, CBLR Framework, HVCRE, SA-CCR, Regulatory Capital, Capital Rules, Tier 1, FR Y-15, Dodd-Frank Act, FED
Previous ArticleEBA Publishes Annual Report on Functioning of Resolution Colleges
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.