FDIC Proposes Enhanced Leverage Requirements for Large Banks | Practical Law

FDIC Proposes Enhanced Leverage Requirements for Large Banks | Practical Law

The FDIC issued a proposed rule implementing a supplementary leverage ratio requirement for systemically important bank holding companies and their depository institution subsidiaries.

FDIC Proposes Enhanced Leverage Requirements for Large Banks

Practical Law Legal Update 9-534-6285 (Approx. 3 pages)

FDIC Proposes Enhanced Leverage Requirements for Large Banks

by Practical Law Finance
Published on 16 Jul 2013 • USA (National/Federal)
The FDIC issued a proposed rule implementing a supplementary leverage ratio requirement for systemically important bank holding companies and their depository institution subsidiaries.
On July 9, 2013, the FDIC issued a notice of proposed rulemaking implementing an enhanced supplementary leverage ratio requirement for:
  • Bank holding companies (BHCs) that have:
    • total consolidated assets of more than $700 billion; or
    • assets under custody of more than $10 trillion (Covered BHCs).
  • Depository institution subsidiaries of Covered BHCs.
Under these criteria, the eight US banking organizations that have been designated as global systemically important banks (G-SIBs) by the Financial Stability Board would be subject to the enhanced supplementary leverage ratio.
The enhanced supplementary leverage ratio would require:
  • Covered BHCs to maintain a supplementary leverage ratio of at least 5% (the sum of the 3% minimum supplementary leverage ratio requirement under Basel III plus an additional 2% buffer). Covered BHCs that fail to meet this requirement would be subject to restrictions on their ability to make capital distributions and discretionary bonus payments.
  • Depository institution subsidiaries of Covered BHCs to meet a 6% enhanced leverage ratio requirement in order to be considered "well-capitalized" for prompt corrective action (PCA) purposes (for information on PCA, see Practice Note, US Banking Law: Overview: Reporting, Examination, Enforcement and Approval Issues).
The enhanced supplementary leverage ratio calculation includes:
  • Tier 1 capital as the numerator.
  • Total leverage exposure, including on-balance sheet and many off-balance sheet exposures, as the denominator.
The new requirements would take effect on January 1, 2018. The comment period on the proposed rule is open for 60 days following the rule's publication in the Federal Register.