Further tailoring leverage ratio rule proposed
12 April 2018 Washington DC
Image: Shutterstock
The US Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) have this week (11 April) proposed a rule that would further tailor leverage ratio requirements to the business activities and risk profiles of the largest domestic US firms.
Currently, firms that are required to comply with the "enhanced supplementary leverage ratio" are subject to a fixed leverage standard, regardless of their systemic footprint. The new proposal would instead tie the standard to a firm’s risk-based capital surcharge, which is based on a firm's own individual characteristics.
The Fed said that the proposed changes seek to retain a meaningful calibration of the enhanced supplementary leverage ratio standards while not discouraging firms from participating in low-risk activities. The changes also correspond to recent changes proposed by the Basel Committee on banking supervision.
Taking into account supervisory stress testing and existing capital requirements, agency staff estimate that the proposed changes would reduce the required amount of tier 1 capital for the holding companies of these firms by approximately $400 million, or approximately 0.04 percent in aggregate tier 1 capital.
Enhanced supplementary leverage ratio standards apply to all US holding companies identified as global systemically important banking organisations and to the insured depository institution subsidiaries of those firms, noted the Fed.
Recently appointed Fed chairman Jerome Powell and vice chairman Randal Quaries voted in favour of the proposal while governor Lael Brainard voted against. There were no abstentions. Comments on the rule will be accepted for 30 days after publication in the Federal Register.
Currently, firms that are required to comply with the "enhanced supplementary leverage ratio" are subject to a fixed leverage standard, regardless of their systemic footprint. The new proposal would instead tie the standard to a firm’s risk-based capital surcharge, which is based on a firm's own individual characteristics.
The Fed said that the proposed changes seek to retain a meaningful calibration of the enhanced supplementary leverage ratio standards while not discouraging firms from participating in low-risk activities. The changes also correspond to recent changes proposed by the Basel Committee on banking supervision.
Taking into account supervisory stress testing and existing capital requirements, agency staff estimate that the proposed changes would reduce the required amount of tier 1 capital for the holding companies of these firms by approximately $400 million, or approximately 0.04 percent in aggregate tier 1 capital.
Enhanced supplementary leverage ratio standards apply to all US holding companies identified as global systemically important banking organisations and to the insured depository institution subsidiaries of those firms, noted the Fed.
Recently appointed Fed chairman Jerome Powell and vice chairman Randal Quaries voted in favour of the proposal while governor Lael Brainard voted against. There were no abstentions. Comments on the rule will be accepted for 30 days after publication in the Federal Register.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
