Agencies Allow Temporary SLR Exclusion for Treasury Securities, Reserve Bank Deposits

In an effort to enable banks to safely expand their balance sheets to meet the needs of customers during the coronavirus pandemic, federal banking regulators on Friday issued an interim final rule allowing depository institutions to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio.

FDIC Chairman Jelena McWilliams noted that the since the coronavirus pandemic began, “the flight to liquid assets has resulted in dramatic deposit inflows since the beginning of March. This balance sheet expansion, in turn, has contributed to insured depository institutions making substantial deposits in their accounts at Federal Reserve Banks and acquiring significant amounts of U.S. Treasury securities. These trends may continue while ongoing financial market volatility persists.” She added that “absent these adjustments, the increase in IDIs’ balance sheets may cause a sudden and significant spikes in the regulatory capital needed to meet the SLR requirement.”

The agencies noted that any institution making changes to its SLR calculation must request approval from its primary federal banking regulator before making capital distributions until the exclusion sunsets on March 31, 2021. The rule takes effect upon publication in the Federal Register and comments will be accepted for 45 days.