Federal Banking Regulatory Agencies Modify Capital Standards
The federal bank regulatory agencies have modified certain regulatory capital standards, saying they aim to reduce disincentives that may have kept banks from intermediating U.S. Treasury markets and engaging in other lower-risk activities.
They did so in a final rule released Tuesday (Nov. 25) by the Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB) and Office of the Comptroller of the Currency (OCC), according to a joint release issued by the regulators.
The agencies issued this final rule after seeking comment on their proposal to modify the enhanced supplementary leverage ratio (eSLR) capital standards for banks in June.
In their Tuesday joint release, they said the final rule is similar to the proposal when it comes to the leverage capital standards applicable to the largest banking organizations.
The final rule differs from the proposal for depository institution subsidiaries, though, in that the final rule caps the eSLR ratio standard at 1%, which makes the overall requirement for these institutions no more than 4%, according to the release.
“This treatment is intended to reflect differences in the capital requirements and systemic risk profile of the overall organization relative to its depository institution subsidiaries,” the release said. “This change would also help ensure that the leverage standard operates as a backstop to risk-based capital requirements for depository institutions, particularly during times of stress.”
The final rule will take effect on April 1, 2026, but banking organizations may choose to adopt the modified standards beginning on Jan. 1, 2026, per the release.
FDIC Acting Chairman Travis Hill said in a statement released Tuesday that the final rule recognizes that the previous leverage ratio disincentivized the largest institutions from engaging in significant low-risk activities.
“The final rule would provide more capacity for these institutions to engage in low-risk activities, such as U.S. Treasury market intermediation and repo financing, while continuing to support prudent levels of capital,” Hill said. “The final rule is estimated to reduce aggregate tier 1 capital at the holding company level by approximately $13 billion, a reduction of just less than 2%.”
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