United States: Financial Regulatory Developments Focus - Apr 19, 2018 Issue 15/2018

Bank Prudential Regulation & Regulatory Capital

Two US Banking Regulators Propose Amendments to Supplementary Leverage Ratio Calculations for GSIBs and Their Insured Depository Institution Subsidiaries

On April 11, 2018, the U.S. Board of Governors of the Federal Reserve System and U.S. Office of the Comptroller of the Currency published a joint notice of proposed rulemaking and request for comment that would modify the calculation of the enhanced supplementary leverage ratio for U.S. global systemically important bank holding companies and certain of their insured depository institutions subsidiaries regulated by the Federal Reserve and OCC. The proposal would also make certain conforming changes to the Federal Reserve Board's total loss-absorbing capacity (TLAC) requirements. Under the current framework, in order to avoid constraints on distributions and certain discretionary bonus payments, covered institutions are required to maintain a supplementary leverage ratio of Tier 1 capital against an institution's total leverage exposure of at least three percent, plus an additional leverage buffer of two percent. The proposal retains the three percent minimum SLR requirement, but amends the buffer requirement from two percent to a percentage equal to 50 percent of an institution's GSIB surcharge, which had not been proposed at the time the original enhanced SLR rule was promulgated. The joint release notes that this recalibration will make the requirements serve more as a backstop, rather than a binding constraint, and may incentivize GSIBs to reduce their footprint or undertake more low-risk activities. The joint proposal highlights that this change will result in only a .04 percent ($400 million) reduction in the amount of Tier 1 capital currently held by GSIBs.

The proposal also seeks to modify the prompt corrective action framework for certain insured depository institution subsidiaries of GSIBs regulated by the Federal Reserve and OCC. Currently, insured depository institutions that are subsidiaries of GSIBs must maintain an SLR of 6 percent to be considered "well capitalized" under the PCA framework. The proposal would amend this standard to require an SLR of 3 percent plus 50 percent of the GSIB surcharge applicable to the depository institution's GSIB holding company. The proposal notes that this will lead to an estimated $121 billion reduction in Tier 1 capital among subsidiary insured depository institutions, as compared to the current requirement. The U.S. Federal Deposit Insurance Corporation did not join the Federal Reserve and OCC in issuing this notice. In a separate statement, FDIC Chairman Martin Gruenberg was critical of the proposed reduction, noting that "[s]trengthening leverage capital requirements for the largest, most systemically important banks in the United States was among the most important post-crisis reforms."

The proposal would also amend the Federal Reserve's TLAC rule to replace each GSIB's 2 percent TLAC leverage buffer with a buffer set to 50 percent of the firm's GSIB surcharge, and make certain other conforming changes to Federal Reserve Board rules. Comments on the proposal are due by May 21, 2018.

The full text of the proposed rule is available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180411a2.pdf?_sm_au_=iVVpJHbpFfNfr7D7

US Federal Reserve Board Proposes to Integrate its Regulatory Capital and Stress Test Rules for Large Banks

On April 10, 2018, the Federal Reserve published a notice of proposed rulemaking and request for comment intended to integrate its capital and stress rules and thereby simplify the capital regime applicable to bank holding companies with $50 billion or more in total consolidated assets and to the U.S. intermediate holding companies of foreign banking organizations. Currently, the standardized approach imposes a static capital conservation buffer of 2.5% of risk-weighted assets. The proposal would replace that with a stress capital buffer equal to the decrease in common equity Tier 1 capital under the severely adverse stress testing scenario plus four quarters of common stock dividends (expressed as a percentage of risk-weighted assets).

The stress capital buffer for an institution, however, cannot be lower than 2.5 percent of an institution's risk-weighted assets. This buffer would apply in addition to the surcharge applicable to GSIB holding companies that are subject to the Federal Reserve's GSIB surcharge, and any applicable countercyclical capital buffer amount. The proposal is intended to streamline the existing regulatory capital regime and would result in a reduction of the total number of requirements applicable to the largest bank holding companies from 24 to 14, while maintaining the overarching objectives of stress testing and capital rules. Failure to maintain the minimums subjects a firm to restrictions on capital distributions and discretionary bonus payments.

The proposal would also create a stress leverage buffer requirement that would be based upon certain capital action assumptions currently used in the Comprehensive Capital Analysis and Review program's supervisory post-stress capital assessment. The proposal seeks to make a number of changes to the Federal Reserve Board's CCAR program itself, as well. This includes replacing the assumption that a firm will carry out all nine quarters of its planned capital actions, with a requirement that firms fund four quarters of common stock dividends; replacing an assumption that results in a firm's balance sheet growing under stress with one that requires that it remain constant; removing the 30 percent dividend ratio that has been used as a threshold for heightened supervisory scrutiny; and eliminating the quantitative objection (i.e., under current rules the Federal Reserve may restrict capital distributions if a firm does not demonstrate an ability to maintain capital levels above minimums under stressful conditions). The proposal notes that had these amendments been in effect during the most recent CCAR exercises, and given the current capital levels of participating firms, no firm would have been required to raise additional capital to avoid limitations on capital distributions. In addition, Federal Reserve Board staff expects the changes to reduce the amount of capital required of non-GSIBs that are subject to CCAR and maintain, or slightly increase, the capital required for GSIBs. Comments on the proposal are due 60 days from the date the notice is published in the Federal Register.

The full text of the proposed rule is available at: https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180410a2.pdf?_sm_au_=iVVpJHbpFfNfr7D7.

To view the full article, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions