FDIC’s split with Fed, OCC over leverage capital ratio gets attention in Senate hearing with Quarles

The division among federal banking regulators over last week’s proposed leverage capital rule change for banks was questioned by Senate Democrats during a Senate Banking Committee hearing Thursday with Federal Reserve Board Vice Chairman for Supervision Randal Quarles.

The proposed rule change, released jointly last week by the Fed and Office of the Comptroller of the Currency (OCC), would reduce the enhanced supplementary leverage ratio (eSLR) capital requirements applicable to the eight global systemically important banking organizations (GSIBs) headquartered in the United States. This, according to the FDIC’s top regulator, would apply at both holding companies and their insured depository institution subsidiaries.

According to FDIC Chairman Martin Gruenberg – whose nominated replacement (as chairman), Jelena McWilliams, still awaits Senate confirmation – the amount of tier 1 capital required of the lead insured depository institution subsidiaries under the proposal would be about $121 billion less to be considered well-capitalized. “Given these reductions in capital requirements, the FDIC did not join the Federal Reserve and the OCC in issuing the proposed rule,” Gruenberg said in a statement.

According to Thursday’s hearing discussion, Fed Gov. Lael Brainard also voted against issuing the proposal.

Quarles was asked about the proposal’s impact by Sens. Sherrod Brown, D-Ohio, and Elizabeth Warren, D-Mass. Both noted the FDIC’s decision to not be part of this rulemaking; Brown questioned whether Quarles thought the FDIC numbers were off.

In response to that, Quarles pointed to a $400 million decrease – what he termed the “actual cap effect” – expected from the rulemaking. In their joint release, the Fed and OCC said that’s the amount by which affected holding companies’ tier 1 capital would decline.

The Fed-OCC proposal is out for comment until May 21.

April 19 Testimony of Federal Reserve Board Vice Chairman for Supervision Randal Quarles

April 11 Statement of FDIC Chairman Martin Gruenberg

Federal Reserve, OCC Proposed Rule