The Federal Reserve and the OCC today proposed a rule that would tailor the enhanced supplementary leverage ratio that applies to the largest U.S. banking organizations. Instead of the current fixed leverage standard, the agencies would apply the ratio to each firm’s risk-based capital surcharge, which itself is based on firm-specific characteristics.
“The proposed changes seek to retain a meaningful calibration of the enhanced supplementary leverage ratio standards while not discouraging firms from participating in low-risk activities,” the agencies said, noting that the proposal would align the ratio with recent changes proposed by the Basel Committee on Banking Supervision. Agency staff estimated that, if implemented, the proposed changes would reduce the required amount of tier 1 capital at covered firms by $400 million, or approximately 0.04 percent.
The proposal only applies to the eight financial companies designated as global systemically important banking companies and to their insured depository subsidiaries. Comments on the proposal are due within 30 days after it is published in the Federal Register. American Bankers Association staff will review the proposal closely and consult with affected banks throughout the process. ABA has been critical of the ESLR, arguing that safe assets, such as central bank deposits, should be excluded from the calculation. For more information, contact ABA’s Hugh Carney.