Banking Agencies Adopt Revisions to Supplementary Leverage Ratio

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency (collectively, the "Agencies") adopted a joint final rule modifying the definition of the denominator of the supplementary leverage ratio ("SLR"). The revisions to the SLR, which are consistent with recent changes agreed to by the Basel Committee on Banking Supervision, apply to all banking organizations subject to the advanced approaches risk-based capital rule. Generally, these are banking organizations with total consolidated assets of $250 billion or more, that have total consolidated on-balance sheet foreign exposure of $10 billion or more, that are a subsidiary of a depository institution that uses the advanced risk-based capital approaches framework, or that elect to use the advanced risk-based capital approaches framework. Today's revisions amend the SLR aspects of the Basel III capital regulations adopted in July 2013.

Generally speaking, the SLR is a non-risk-based (or leverage) ratio of tier 1 capital to assets, with certain off-balance sheet assets – in particular, derivative and repo exposures as well as unfunded credit commitments – required to be included in the denominator, and is referred to as "total leverage exposure." The final rule modifies the methodology for including these off-balance sheet items in the denominator of the SLR. The final rule revises total leverage exposure to include the effective notional principal amount of credit derivatives and other similar instruments through which a banking organization provides credit protection (sold credit protection), modifies the calculation of total leverage exposure for derivative and repo-style transactions, and revises the credit conversion factors applied to certain off-balance sheet exposures.

The final rule also changes the frequency with which certain components of the SLR are calculated, and requires institutions to calculate total leverage exposure using daily averages for on-balance sheet items and the average of three month-end calculations for off-balance sheet items. Certain public disclosures required by the final rule must be made starting in the first quarter of 2015. The minimum SLR requirement using the revised definition of "total leverage exposure" in the final rule's denominator calculations is effective January 1, 2018, as was originally scheduled.

For further information on this rule proposal, please contact Scott Cammarn.

See: FRB Press Release; FDIC Press Release; OCC Press Release.