ABA Urges Agencies to Implement Additional Changes to ESLR

In a letter to the Federal Reserve and the OCC today, the American Bankers Association expanded on its previous comments supporting the agencies’ recently proposed rule that would tailor the enhanced supplementary leverage ratio that applies to the largest U.S. banking organizations. ABA called on the agencies to exclude safe assets, such as central bank deposits from the definition of “leverage exposure” for all banks subject to the supplementary leverage ratio. “Such adjustments would ameliorate the likelihood that banks would be constrained from taking deposits in times of stress, but these changes would not diminish the operation of the Supplementary Leverage Ratio as a robust backstop,” ABA said.

“As currently calibrated, the ESLR rule creates incentives for banks to reduce participation in lower risk and lower return businesses by increasing the costs of participation — pressing against or exceeding the returns from such businesses. These include instruments such as secured repurchase financing, central clearing services for market participants, and even taking deposits,” the association added. “The proposed reformulation would operate to alleviate the unintended consequence of constraining the provision of these banking services.”

The association also advocated for a holistic review of the GSIB surcharge, which it noted “does not reflect significant post-crisis reforms that achieve the same intended policy purpose as the GSIB surcharge.” For more information, contact ABA’s Hugh Carney.