With the acute phase of the coronavirus crisis past and a return to normal economic activity in sight, the federal banking agencies today said they would let a temporary change to the supplementary leverage ratio expire as scheduled on March 31. In May 2020, the agencies allowed depository institutions to temporarily exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio, which facilitated banks increasing their balance sheets to support consumers and businesses.
While the Treasury market has stabilized, the Federal Reserve noted that as a result of “recent growth in the supply of central bank reserves and the issuance of Treasury securities, the Board may need to address the current design and calibration of the SLR over time to prevent strains from developing that could both constrain economic growth and undermine financial stability.” The Fed said it would “shortly seek comment on measures to adjust the SLR” for an environment with higher reserves and “take appropriate actions to assure that any changes to the SLR do not erode the overall strength of bank capital requirements.”
The American Bankers Association continues to encourage agencies to consider extending their pandemic response measures, including the SLR and community bank leverage ratio, that make bank balance sheets more flexible during times of stress. The association welcomes a review of potential leverage ratio improvements that will enable banks to remain a source of strength.
