SIFMA, the American Bankers Association and the Financial Services Forum (collectively, the "Agencies") urged the Federal Reserve Board ("FRB") to extend a temporary interim final rule ("IFR") amending the Supplementary Leverage Ratio ("SLR"). The IFR is set to expire on March 31, 2021.
As previously covered, the FRB adopted the IFR in April 2020, which allowed bank holding companies to increase their leverage by excluding (i) U.S. Treasury securities and (ii) deposits at Federal Reserve Banks from the SLR.
In a comment letter, the Agencies stated that an extension of the IFR would enable banking organizations to continue to accept deposits and act as intermediaries in the U.S. Treasury market. The Agencies cited the "unprecedented expansion" of the FRB balance sheet - projected to top $10 trillion by the end of 2021 - as the harbinger to the substantial growth of deposits at large domestically chartered banks. The Agencies explained that the "deposit surge has occurred without meaningful loan demand" and argued that the mismatch between deposits and asset generation is cause to extend the IFR's relief.
With regard to U.S. Treasury holdings, the Agencies explained, the most recent trends indicate an upward trajectory in U.S. Treasury holdings, suggesting that the dip since July 2020 in holdings by banks is only temporary. The Agencies said that in 2021, holdings will likely exceed the 2020 high watermark. The Agencies also argued that an extension of the IFR would enable banking organizations to retain the "utmost capacity to manage this unprecedented issuance."
The Federal Reserve Board adopted an interim final rule amending the calculation of total leverage exposure within the supplementary leverage ratio of the FRB's regulatory capital rule.