Overview
On June 25, 2025, the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) (collectively, the "Agencies") released a joint proposed rule that, if finalized, would adjust the enhanced supplementary leverage ratio (eSLR) applicable to global systemically important bank holding companies (GSIBs) and their depository institution subsidiaries.1
The Agencies intend for this "recalibration" of the eSLR to "reduce disincentives for GSIBs and their depository institution subsidiaries to participate in low-risk, low-return businesses, such as US Treasury market intermediation conducted by broker-dealer subsidiaries of GSIBs."2 If finalized, the rule will ease capital requirements for the largest financial institutions and their subsidiaries.
According to the Agencies, excessively high "binding"3 leverage capital requirements can create incentives for banking organizations to engage in higher-risk activities, since such actions would not result in a corresponding increase in the organization’s capital requirement.4 The Agencies' goal for the proposed rule is to reduce the likelihood and frequency of the eSLR's creating a binding capital requirement for GSIBs and depository institution subsidiaries.5 They aim to do so by adjusting the eSLR buffer for GSIBs to equal 50% of the GSIB's Method 1 surcharge under the FRB surcharge framework, replacing the current 2% leverage buffer standard.6
For depository institution subsidiaries, the rule would modify the eSLR standard from the current 6% "well-capitalized" threshold under the prompt corrective action framework to 50% of the parent GSIB's Method 1 surcharge calculation.7 Use of the Method 1 surcharge will generally produce a lower requirement than the higher of the Method 1 or Method 2 surcharge.8 The shift to a buffer framework would also enable depository institutions to use the buffer in times of financial stress, which, the Agencies noted, could decrease the likelihood that the banking organization reduces its lending during such times.9
The Agencies estimate the proposed rule would lead to an aggregate reduction of less than 2% to the Tier 1 capital requirement for GSIBs, and an approximately 27% reduction in the Tier 1 capital requirement for GSIB depository institution subsidiaries.10
The Federal Reserve Board is also seeking comment on a proposal to exclude Treasury securities from the total leverage exposure calculation for depository institution holding companies, when the securities are reported as trading assets on the organizations' balance sheets and are held at broker-dealer subsidiaries that are not subsidiaries of a depository institution.
Finally, the Federal Reserve proposes to amend total loss absorbing capacity (TLAC) and long-term debt (LTD) requirements to conform to the changes to the eSLR standard. The changes to the TLAC standard would replace the current two percent TLAC buffer standard with the eSLR buffer standard, which would continue the practice of aligning the TLAC buffer with the applicable eSLR.11 Similarly, the LTD standard is currently calculated by reference to the eSLR; the Federal Reserve’s proposal would amend the calculation of the LTD standard.12
Public comments on the proposal will be accepted for a period of 60 days from its publication in the Federal Register.
1 Office of the Comptroller of the Currency, Federal Reserve System, & Federal Deposit Insurance Corporation, Regulatory Capital Rule: Modifications to the Enhanced Supplementary Leverage Ratio Standards for U.S. Global Systemically Important Bank Holding Companies and Their Depository Institutions; Total Loss-Absorbing Capacity and Long-Term Debt Requirements for US Global Systemically Important Bank Holding Companies, proposed June 25, 2025 (to be codified at 12 C.F.R. Parts 3 and 6; 12 C.F.R. Parts 208, 217, and 252; 12 C.F.R. Part 324) https://occ.gov/news-issuances/news-releases/2025/nr-occ-2025-57a.pdf ("Proposing Release").
2 Id. at 10.
3 The term used in the proposed rule for the highest of the bank's tier 1 capital requirements.
4 Id. at 17.
5 Id. at 20.
6 Id. at 20-21.
7 Id. at 21.
8 Id. at 25.
9 Id. at 36.
10 Id. at 22.
11 Id. at 40.
12 The proposed minimum LTD requirement would be: total leverage exposure multiplied by 2.5 percent plus the eSLR buffer standard. Id. at 41.
