April 18, 2019

Banking Agencies Propose Supplementary Leverage Ratio Relief

The Federal Reserve Board, the FDIC and the Office of the Comptroller of the Currency proposed to amend a capital requirement for U.S. banking organizations engaged primarily in custodial activities, as mandated by the Economic Growth, Regulatory Relief and Consumer Protection Act (the "Relief Act"). The proposal implements Section 402 of the Relief Act, which directs the federal banking regulators to modify the capital rule to exclude from the supplementary leverage ratio ("SLR") certain custodial banks' central bank deposits. A custodial banking organization would be permitted to exclude deposits placed at a "qualifying central bank" (e.g., any Federal Reserve Bank, the European Central Bank, or a central bank of an Organization for Economic Cooperation and Development member country whose sovereign exposures qualify for a zero percent right weight) from the SLR denominator.

Section 402 of the Relief Act defined a custodial bank as any insured depository institution holding company that is "predominantly engaged in custody, safekeeping, and asset servicing activities," including any insured depository institution of such a holding company. To qualify under the proposal, the U.S. top-tier depository institution holding company would be required to maintain a ratio of assets under custody-to-total assets of at least 30:1. Based on public information, only The Bank of New York Mellon Corporation, Northern Trust Corporation and State Street Corporation (including their depository institution subsidiaries) would qualify.

Comments on the proposal must be submitted no more than 60 days following publication in the Federal Register.