US Agencies (FDIC, FED, and OCC) finalized changes to the capital requirement for banking organizations predominantly engaged in custodial activities, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The agencies are required under section 402 of the EGRRCP Act to amend the capital rule to exclude from the supplementary leverage ratio certain central bank deposits of banking organizations predominantly engaged in custody, safekeeping, and asset servicing activities. Based on current data, only The Bank of New York Mellon Corporation, Northern Trust Corporation, and State Street Corporation, together with their depository institution subsidiaries, would qualify for the rule. The final rule will be effective April 01, 2020.
The supplementary leverage ratio is one of many tools used by the federal bank regulatory agencies to determine minimum required capital levels and ensure financial stability in the event of stress in the banking system. It applies only to large or complex internationally active banking organizations. In April 2019, the agencies proposed to implement section 402. The agencies collectively received six comment letters on the proposal (from banking organizations and other interested parties). Some respondents were supportive of the proposal while others raised concerns about the potential effect that implementation of section 402 would have on other aspects of the banking sector. The agencies have considered all the comments received on the proposal and are adopting the proposal as a final rule without modification.
Section 402 of the EGRRCP Act defines a custodial bank as any depository institution holding company predominantly engaged in custody, safekeeping, and asset-servicing activities, including any insured depository institution subsidiary of such a holding company. As stated in the proposal, a depository institution holding company would be considered predominantly engaged in custody, safekeeping, and asset-servicing activities if the U.S. top-tier depository institution holding company in the organization has a ratio of assets under custody (AUC)-to-total assets of at least 30:1. Such a banking organization would have been termed a “custodial banking organization.”
Additionally, as per the proposal, a custodial banking organization would exclude deposits placed at a “qualifying central bank” from the denominator of the supplementary leverage ratio. A qualifying central bank would include a Federal Reserve Bank, ECB, or a central bank of a member country of the Organisation for Economic Co-operation and Development (OECD) if the member country meets certain criteria. The amount of central bank deposits that could have been excluded from total leverage exposure would have been limited by the amount of deposit liabilities of the custodial banking organization that are linked to fiduciary or custody and safekeeping accounts.
Effective Date: April 01, 2020
Keywords: Americas, US, Banking, Supplementary Leverage Ratio, EGRRCP Act, Regulatory Capital, Leverage Ratio, Basel III, US Agencies
Previous ArticleFINMA Identifies Key Risks in the Financial Sector in Switzerland
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),