On August 20, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the Agencies) announced that they are seeking comment on a notice of proposed rulemaking (NPR) to strengthen the leverage ratio standards for the largest, most systemically significant US banking organizations. The NPR was published in the Federal Register on August 20, 2013, with a 60-day comment period.
Under the revised capital regulations, which the OCC approved on July 9, 2013 (new capital rule), the agencies established a minimum supplementary leverage ratio of three percent (supplementary leverage ratio). The supplementary leverage ratio, which is different from the general leverage ratio, is the ratio of an institution’s tier 1 capital to its total leverage exposure, which includes all on-balance-sheet assets and many off-balance-sheet exposures. Under the new capital rule, banks subject to the supplementary leverage ratio requirement are required to calculate and report their supplementary leverage ratios beginning in the first quarter of 2015. The new minimum requirement, however, does not apply until 2018.
In this NPR, the Agencies propose to further increase the leverage capital requirements for the largest, most systemically significant US banking organizations. The NPR applies to any bank holding company (BHC) with more than $700 billion in consolidated total assets or $10 trillion in assets under custody (covered BHC) and any insured depository institution subsidiary of these BHCs (covered IDI). Using these asset thresholds, the NPR currently would apply to the eight largest, most systemically significant US banking organizations. The Agencies propose to establish a “well-capitalized” threshold of six percent for the supplementary leverage ratio under the Agencies’ respective prompt corrective action regulations for any covered IDI. In addition, the Agencies propose to establish a leverage buffer for covered BHCs, which would require them to maintain at least two percentage points above the minimum supplementary leverage ratio requirement of three percent, for a total of five percent. Failure to maintain this buffer would result in limitations on dividend distributions and discretionary bonus payments.
The proposal, if adopted, will take effect on January 1, 2018, concurrent with the three percent minimum supplementary leverage ratio requirement in the new capital rule.
Comments on the NPR are due by October 21, 2013.