Acting Comptroller of the Currency Rodney E. Hood issued the following statement today following his approval of an interagency notice of proposed rulemaking to modify the enhanced supplementary leverage ratio:
I strongly support the notice of proposed rulemaking to modify the leverage ratio standard applicable to the largest and most systemically important banking organizations. The proposal would better tailor our capital requirements for banks to ensure the enhanced supplementary leverage ratio functions as a true backstop—not a primary constraint that limits lending unnecessarily. The proposal aligns with my commitment that the capital framework should support resilience but does not constrain growth.
The proposal would reduce tier 1 capital for depository institution subsidiaries of global systemically important bank holding companies (GSIBs) to allow for more efficient allocation of capital throughout a banking organization, while ensuring that the amount of overall capital that banking organizations maintain would not materially change. Overall, the proposal would provide the largest and most systemically important banking organizations significant flexibility and capacity to engage in low-risk, low-return activities. Additionally, the proposal is expected to support increased lending and economic activity. This increased competition in lending and capital markets could lead to more favorable terms for consumers and businesses.
The proposal would rely on a GSIB’s risk profile to set the enhanced supplementary leverage ratio for both the bank holding company and its depository institution subsidiary. The Federal Reserve’s GSIB surcharge framework takes into consideration the size, complexity, and interconnectedness of the banking organization as a whole. Using the GSIB’s risk profile would provide tailoring of the enhanced supplementary leverage ratio standard. Instead of a one-size-fits all add-on, the enhanced supplementary leverage ratio standard would range from 3.5 percent to 4.25 percent depending on a banking organization’s risk profile. This would be lower than the current 5 percent standard at the holding company and 6 percent standard at the depository institution.
Additionally, for covered depository institutions, the proposal would modify the enhanced supplementary leverage ratio to be a buffer standard instead of the well-capitalized threshold under the prompt corrective action framework. This will provide flexibility to covered depository institutions as the buffer will serve as an “early warning” threshold instead of triggering automatic limitations under the prompt corrective action framework. In addition, a buffer approach may have less pro-cyclical effects because a banking organization may choose to use its buffer during times of economic stress, which could lessen the likelihood that the banking organization would reduce lending and other activities during such times.
This proposal will not only reduce burden but will also help promote the smooth functioning of U.S. Treasury markets. The proposed modifications would help ensure that the enhanced supplementary leverage ratio standards generally serve as a backstop to risk-based capital requirements rather than as a regularly binding constraint.
I support the issuance of the NPR and encourage all stakeholders to submit comments on the proposal. We will carefully review and consider all comments. Additionally, I will continue to look for appropriate opportunities to calibrate regulatory requirements to be effective, not excessive, while ensuring the safety, soundness and fairness of the federal banking system.
