Regulatory Capital Rules: Regulatory Capital, Revisions to the Supplementary Leverage Ratio

SUMMARY: In May 2014, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) issued a notice of proposed rulemaking (NPR or proposed rule) to revise the definition of the denominator of the supplementary leverage ratio (total leverage exposure) that the agencies adopted in July 2013 as part of comprehensive revisions to the agencies' regulatory capital rules (2013 revised capital rule). The agencies are adopting the proposed rule as final (final rule) with certain revisions and clarifications based on comments received on the proposed rule.

The final rule revises total leverage exposure as defined in the 2013 revised capital rule to include the effective notional principal amount of credit derivatives and other similar instruments through which a banking organization provides credit protection (sold credit protection); modifies the calculation of total leverage exposure for derivative and repo-style transactions; and revises the credit conversion factors applied to certain off-balance sheet exposures. The final rule also changes the frequency with which certain components of the supplementary leverage ratio are calculated and establishes the public disclosure requirements of certain items associated with the supplementary leverage ratio.

The final rule applies to all banks, savings associations, bank holding companies, and savings and loan holding companies (banking organizations) that are subject to the agencies' advanced approaches risk-based capital rules, as defined in the 2013 revised capital rule (advanced approaches banking organizations), including advanced approaches banking organizations that are subject to the enhanced supplementary leverage ratio standards that the agencies finalized in May 2014 (eSLR standards). Consistent with the 2013 revised capital rule, advanced approaches banking organizations will be required to disclose their supplementary leverage ratios beginning January 1, 2015, and will be required to comply with a minimum supplementary leverage ratio capital requirement of 3 percent and, as applicable, the eSLR standards beginning January 1, 2018.

EFFECTIVE DATE: The final rule is effective January 1, 2015.

FOR FURTHER INFORMATION CONTACT:

OCC: Margot Schwadron, Senior Risk Expert, (202) 649-6982; or Nicole Billick, Risk Expert, (202) 649-7932, Capital Policy; or Carl Kaminski, Counsel; or Henry Barkhausen, Attorney, Legislative and Regulatory Activities Division, (202) 649-5490, for persons who are deaf or hard of hearing, TTY (202) 649-5597, Office of the Comptroller of the Currency, 400 7th Street SW., Washington, DC 20219.

Board: Constance M. Horsley, Assistant Director, (202) 452-5239; Thomas Boemio, Manager, (202) 452-2982; Sviatlana Phelan, Supervisory Financial Analyst, (202) 912-4306; or Holly Kirkpatrick, Supervisory Financial Analyst, (202) 452-2796, Capital and Regulatory Policy, Division of Banking Supervision and Regulation; or April C. Snyder, Senior Counsel, (202) 452-3099; Christine E. Graham, Counsel (202) 452-3005; or Mark Buresh, Attorney, (202) 452-5270, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW., Washington, DC 20551. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.

FDIC: Bobby R. Bean, Associate Director, [email protected]; Ryan Billingsley, Chief, Capital Policy Section, [email protected]; Karl Reitz, Chief, Capital Markets Strategies Section, [email protected]; Capital Markets Branch, Division of Risk Management Supervision, [email protected] or (202) 898-6888; or Michael Phillips, Counsel, [email protected]; or Rachel Ackmann, Senior Attorney, [email protected]; or Grace Pyun, Senior Attorney, [email protected]; Supervision Branch, Legal Division, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) adopted the supplementary leverage ratio in July 2013 as part of comprehensive revisions to the agencies' regulatory capital rule (2013 revised capital rule). /1/ Under the 2013 revised capital rule, a minimum supplementary leverage ratio requirement of 3 percent applies to all banking organizations that are subject to the agencies' advanced approaches risk-based capital rule (advanced approaches banking organizations). /2/ The supplementary leverage ratio in the 2013 revised capital rule is generally consistent with the international leverage ratio introduced by the Basel Committee on Banking Supervision (BCBS) in 2010 (Basel III leverage ratio). Under the enhanced supplementary leverage ratio standards (eSLR standards) finalized by the agencies in May 2014, U.S. top-tier bank holding companies (BHCs) with more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody must maintain a leverage buffer greater than 2 percentage points above the minimum supplementary leverage ratio requirement of 3 percent, for a total of more than 5 percent, to avoid restrictions on capital distributions and discretionary bonus payments. /3/ Insured depository institution (IDI) subsidiaries of such BHCs must maintain at least a 6 percent supplementary leverage ratio to be considered "well-capitalized" under the agencies' prompt corrective action framework.

FOOTNOTE 1 The Board and the OCC published a joint final rule in the Federal Register on October 11, 2013 (78 FR 62018) and the FDIC published in the Federal Register a substantially identical final rule on April 14, 2014 (79 FR 20754). END FOOTNOTE

FOOTNOTE 2 12 CFR 3.10(a)(5) (OCC); 12 CFR 217.10(a)(5) (Board); and 12 CFR 324.10(a)(5) (FDIC). END FOOTNOTE

FOOTNOTE 3 The eSLR standards were finalized by the agencies on May 1, 2014 (79 FR 24528). END FOOTNOTE

On May 1, 2014, the agencies published in the Federal Register , for public comment, a notice of proposed rulemaking (NPR or proposed rule) to revise the definition of the denominator of the supplementary leverage ratio (total leverage exposure). /4/ The proposed rule would have revised the supplementary leverage ratio, consistent with the January 2014 BCBS revisions to the Basel III leverage ratio (BCBS 2014 revisions), to incorporate in total leverage exposure the effective notional principal amount of credit derivatives or similar instruments through which a banking organization provides credit protection (sold credit protection), modify the measure of exposure for derivative and repo-style transactions, and revise the credit conversion factors (CCFs) for certain off-balance sheet exposures. /5/ It would have required total leverage exposure to be calculated as the mean of total leverage exposure, calculated daily, and would have required public disclosure of certain items associated with the supplementary leverage ratio. In general, the proposed changes were designed to strengthen the supplementary leverage ratio by more appropriately capturing the exposure of a banking organization's on- and off-balance sheet items.

FOOTNOTE 4 79 FR 24596 (May 1, 2014). END FOOTNOTE

FOOTNOTE 5 See BCBS, "Basel III leverage ratio framework and disclosure requirements" (January 2014), available at http://www.bis.org/publ/bcbs270.htm. See also BCBS, "Revised Basel III leverage ratio framework and disclosure requirements--consultative document" (June 2013), available at http://www.bis.org/publ/bcbs251.htm. END FOOTNOTE

As discussed further below, the agencies are adopting the proposed rule as final (final rule) with certain revisions and clarifications based on comments received on the proposed rule. In addition, the agencies are revising the calculation of total leverage exposure to provide that the on-balance sheet portion of total leverage exposure will be calculated as the average of each day of the reporting quarter, but the off-balance sheet portion of total leverage exposure will be calculated as the average of the three month-end amounts of the most recent three months. Consistent with the 2013 revised capital rule, advanced approaches banking organizations will be required to disclose their supplementary leverage ratios beginning January 1, 2015, and will be required to comply with the minimum supplementary leverage ratio capital requirement and, as applicable, the eSLR standards, beginning January 1, 2018.

II. Summary of Comments on the NPR and Description of the Final Rule

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "12 CFR Part 3"

RIN Number: "RIN 1557-AD81"

Citation: "79 FR 57725"

Document Number: "RIN 3064-AE12"

Federal Register Page Number: "57725"

"Rules and Regulations"