Easing some capital standards for large banks so the requirements don’t discourage those institutions from engaging in “low-risk” activities was proposed by the three federal banking agencies Friday.
In a joint release, the agencies said they were requesting comments on the proposal – due Aug. 26 – to modify certain leverage capital standards applicable to the largest and most systemically important banking organizations so that the standards serve as a backstop to risk-based capital requirements.
The proposal affects the enhanced supplementary leverage ratio (eSLR) standards for U.S. global systemically important bank (GSIB) holding companies and their subsidiary depository institutions. All three of the agencies adopted the proposal earlier this week in separate actions.
“Banking organizations are subject to both risk-based and leverage capital requirements,” the agencies said. “Risk-based capital requirements vary based on the risks of individual exposures, imposing lower capital requirements, for example, on a Treasury security with lower risk than on a corporate bond with higher risk. Leverage capital requirements, by design, treat all exposures equally. A leverage capital requirement that is generally higher than risk-based capital requirements can discourage banking organizations from engaging in low-risk activities, such as U.S. Treasury market intermediation.”
The agencies said the proposal would set the eSLR for both bank holding companies and their depository institution subsidiaries so that it is based on a banking organization’s overall systemic risk.
The impact of the proposal, the agencies maintained, would generally be limited on the amount of overall capital banks maintain. They asserted that, overall, the plan would reduce tier 1 capital standards for affected bank holding companies by less than 2%.
“Although certain depository institution subsidiaries could see greater reductions, that capital generally would not be available for distribution to external shareholders given the restrictions that apply at the bank holding company level,” the agencies said.
The proposal includes conforming changes to other rules that the agencies said are tied to the ESLR, such as total loss-absorbing capacity and long-term debt requirements.
Agencies request comment on proposal to modify certain regulatory capital standards
Leave a Reply