Banking agencies adopt final ratio
28 April 2014 Washington DC
Image: Shutterstock
The Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency have adopted a final rule to strengthen the leverage ratio standards for the largest, most interconnected US banks.
The final rule, which becomes effective on 1 January 2018, applies to US top-tier bank holding companies with more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody (covered BHCs) and their insured depository institution (IDI) subsidiaries.
Under the final supplementary leverage ratio, covered BHCs must maintain a leverage buffer greater than 2 percentage points above the minimum supplementary leverage ratio requirement of 3 percent, for a total of more than 5 percent, to avoid restrictions on capital distributions and discretionary bonus payments.
IDI subsidiaries of covered BHCs must maintain at least a 6 percent supplementary leverage ratio to be considered 鈥榳ell capitalised鈥� under the agencies' prompt corrective action framework.
The final rule currently applies to eight large US banks that meet the size thresholds and their IDI subsidiaries. The final rule is substantively the same as the rule proposed by the banking agencies in July 2013.
In a statement, Federal Reserve board of governors chair Janet Yellen commented: 鈥淭he financial crisis showed that some financial companies had grown so large, leveraged, and interconnected that their failure could pose a threat to overall financial stability. [This] action is another step in the Federal Reserve's efforts to address those risks.鈥�
鈥淭he final rule 鈥� would implement enhanced supplementary leverage ratio standards for the largest and most systemic US banking organisations. Under this framework, these banking organisations would have to hold substantially increased levels of high-quality capital as a percentage of their total on- and off-balance sheet exposures to avoid restrictions on capital distributions and discretionary bonus payments."
"Thus, the framework provides incentives to such firms to maintain capital well above regulatory minimums."
The final rule, which becomes effective on 1 January 2018, applies to US top-tier bank holding companies with more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody (covered BHCs) and their insured depository institution (IDI) subsidiaries.
Under the final supplementary leverage ratio, covered BHCs must maintain a leverage buffer greater than 2 percentage points above the minimum supplementary leverage ratio requirement of 3 percent, for a total of more than 5 percent, to avoid restrictions on capital distributions and discretionary bonus payments.
IDI subsidiaries of covered BHCs must maintain at least a 6 percent supplementary leverage ratio to be considered 鈥榳ell capitalised鈥� under the agencies' prompt corrective action framework.
The final rule currently applies to eight large US banks that meet the size thresholds and their IDI subsidiaries. The final rule is substantively the same as the rule proposed by the banking agencies in July 2013.
In a statement, Federal Reserve board of governors chair Janet Yellen commented: 鈥淭he financial crisis showed that some financial companies had grown so large, leveraged, and interconnected that their failure could pose a threat to overall financial stability. [This] action is another step in the Federal Reserve's efforts to address those risks.鈥�
鈥淭he final rule 鈥� would implement enhanced supplementary leverage ratio standards for the largest and most systemic US banking organisations. Under this framework, these banking organisations would have to hold substantially increased levels of high-quality capital as a percentage of their total on- and off-balance sheet exposures to avoid restrictions on capital distributions and discretionary bonus payments."
"Thus, the framework provides incentives to such firms to maintain capital well above regulatory minimums."
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