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    FED Revises Supplementary Leverage Ratio Rule and FR Y-9 Reports

    April 14, 2020

    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.

     

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    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

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