Agencies to allow temporary change to SLR to expire, but will propose adjustments for future

The temporary change to the supplementary leverage ratio (SLR) for bank holding companies will be allowed to expire as scheduled at month’s end, federal banking agencies said Friday; however, measures to adjust the SLR will be proposed.

In a joint release (but in a separate, more detailed version from the Federal Reserve), the three agencies said they will take separate actions “to assure that any changes to the SLR do not erode the overall strength of bank capital requirements.”

Two days ago, in a press conference, the Federal Reserve Board Chair Jerome H. (“Jay”) Powell declined to answer a reporter’s question about the future of the SLR, telling her that the agency would have something to say about the ratio soon and instead to “ask another question.” Friday’s action is apparently the answer to the reporter’s question.

In March 2020, in response to the financial impact of the coronavirus crisis, the agencies announced a one-year easing in holding companies’ SLR requirements in an effort both to ease strains in the Treasury market resulting from the coronavirus crisis and to increase banks’ ability to provide credit to households and businesses.

The agencies said last year that the change approved – to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation in the SLR rule for holding companies – would temporarily decrease the institutions’ tier 1 capital requirements by approximately 2% in aggregate.

Although the Fed said it is letting the easing of the SLR requirements to expire on March 31, it noted that, because of recent growth in the supply of central bank reserves and the issuance of Treasury securities, it 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.

“To ensure that the SLR—which was established in 2014 as an additional capital requirement—remains effective in an environment of higher reserves, the Board will soon be inviting public comment on several potential SLR modifications,” the Fed said in its release. “The proposal and comments will contribute to ongoing discussions with the Department of the Treasury and other regulators on future work to ensure the resiliency of the Treasury market.”

Federal Reserve Board announces that the temporary change to its supplementary leverage ratio (SLR) for bank holding companies will expire as scheduled on March 31

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