Banking Agencies Seek Comment on Proposal to Modify Capital Standards

The federal banking agencies said Friday (June 27) that they are requesting comment by Aug. 26 on a proposal to modify the enhanced supplementary leverage ratio (eSLR) capital standards for banks.

The proposal aims to reduce the current standards’ disincentives to engage in lower-risk activities, such as participating in the Treasury markets, the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB) and Office of the Comptroller of the Currency (OCC) said in a Friday (June 27) press release.

“The proposal would modify certain leverage capital standards applicable to the largest and most systemically important banking organizations so that they serve as a backstop to risk-based capital requirements and do not discourage these banking organizations from engaging in low-risk activities,” the release said.

“In particular, the proposal would set the enhanced supplementary leverage ratio for both bank holding companies and their depository institution subsidiaries so that it is based on a banking organization’s overall systemic risk,” the release added.

The FDIC said Friday that its board of directors approved the proposal in a notational vote, meaning an action taken without a meeting. The three members of the board voted for the proposal.

“The largest U.S. banking organizations, including their bank and dealer subsidiaries, are critical to financial market functioning and economic growth,” FDIC Acting Chairman Travis Hill said in a Friday statement. “I support the proposal, which will provide more capacity for institutions to engage in low-risk activities such as U.S. Treasury market intermediation.”

Acting Comptroller of the Currency Rodney E. Hood, who is also a member of the FDIC board, said in a Wednesday (June 25) press release that he approved the interagency notice of proposed rulemaking to modify the eSLR.

“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,” Hood said. “The proposal aligns with my commitment that the capital framework should support resilience but does not constrain growth.”

It was reported Wednesday that the Federal Reserve voted to advance the proposal to ease the eSLR that determines banks’ capital requirements by a vote of 5 to 2.