Fed will temporarily remove Treasury securities, Reserve Bank deposits from calculation of supplementary leverage ratio

On-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks will – temporarily – no longer be counted in the calculation of the supplementary leverage ratio for the capital rule issued by the Federal Reserve, according to a filing published by the agency Monday.

The Fed said the interim final rule is effective immediately (that is, upon publication in the Federal Register, scheduled for Tuesday), and will remain effect through March 31, 2021. However, the agency plans a 45-day comment period on the action.

The Fed said it was taking the action “in light of recent disruptions in economic conditions caused by the coronavirus disease 2019 (COVID-19) and current strains in U.S. financial markets.”

The agency said the rule affects bank holding companies, savings and loan holding companies, and U.S. intermediate holding companies of foreign banking organizations.

Specifically, the temporary revision applies to the calculation of total leverage exposure, the denominator of the supplementary leverage ratio in the Fed Board’s capital rule, to exclude the on-balance-sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks. The tier 1 leverage ratio is not affected by the rulemaking, the agency said.

“The Board is adopting this interim final rule to allow bank holding companies, savings and loan holding companies, and intermediate holding companies subject to the supplementary leverage ratio increased flexibility to continue to act as financial intermediaries,” the Fed said.

Temporary Exclusion of U.S. Treasury Securities and Deposits at Federal Reserve Banks from the Supplementary Leverage Ratio