Proposal puts to work reg relief law’s provisions excluding custodial deposits from leverage ratio calculation

Financial institutions mostly engaged in custody banking would be able to exclude those deposits from the supplementary leverage ratio calculation in a proposal issued Friday by the Federal Deposit Insurance Corp. (FDIC) Board.

The proposal – issued for a 60-day comment period – implements a portion of last year’s regulatory relief legislation (the Economic Growth, Regulatory Relief, and Consumer Protection Act, EGRRCPA, S.2155), which directed the federal banking agencies to exclude funds deposited with certain central banks from the supplementary leverage ratio calculation for custodial banking organizations.

In a statement, FDIC Chairman Jelena McWilliams said the supplementary leverage ratio requires banks to hold a minimum level of Tier 1 capital based on total leverage exposures. However, she noted, unlike the risk-based capital requirements, the leverage ratio does not take into account the riskiness of assets.

McWilliams noted that the custodial deposits are especially low risk, and tend to increase during times of market stress. “While maintaining robust capital requirements is a key priority of mine, this proposal recognizes the distinctive activities of custodial banks,” she said.

Statement by Jelena McWilliams, Chairman, Federal Deposit Insurance Corporation, Notice of Proposed Rulemaking: Revisions to the Supplementary Leverage Ratio to Exclude Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in Custody, Safekeeping, and Asset Servicing Activities