Modifications to the Enhanced Supplementary Leverage Ratio Standards for U.S. Global Systemically Important Bank Holding Companies and Their Subsidiary Depository Institutions: Final Rule

Summary

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) have adopted a final rule to modify the enhanced supplementary leverage ratio standards, which apply to the largest and most systemically important banking organizations in the United States. The final rule is intended to ensure that the enhanced supplementary leverage ratio standards will serve as a backstop to risk-based capital requirements, thus reducing potential disincentives for global systemically important bank (GSIB) holding companies and their depository institution subsidiaries to participate in low-risk, low-return businesses.

The final rule will become effective on April 1, 2026. Banking organizations subject to the final rule will be permitted to adopt the final rule as early as January 1, 2026.

Highlights

• The final rule reduces the enhanced supplementary leverage ratio standard for covered national banks and federal savings associations from the current 6 percent standard (3 percent supplementary leverage ratio requirement plus 3 percent) to 3 percent plus the lesser of
  • 1 percent; or
  • 50 percent of the method 1 risk-based capital surcharge¹ (expressed as a percentage) applicable to the GSIB holding company that controls the national bank or federal savings association.
• The final rule also modifies the form of the enhanced supplementary leverage ratio standard.
  • For covered national banks and federal savings associations, the final rule removes the enhanced supplementary leverage ratio standard from the definition of “well capitalized” under the prompt corrective action framework.
  • For covered national banks and federal savings associations, the revised enhanced supplementary leverage ratio standard will function as a capital “buffer” in the same manner that the enhanced supplementary leverage ratio applies to GSIB holding companies. If a covered national bank’s or federal savings association’s supplementary leverage ratio drops below the buffer amount, the institution will become subject to increasingly strict limitations on its ability to make certain capital distributions, including the issuance of dividends, and the payment of certain discretionary bonuses.

Background

The largest and most systemically important bank holding companies and their depository institution subsidiaries are subject to several capital regulations, including both risk-based and leverage standards.Risk-based requirements vary based on the risks of the individual exposure, treating differently, for example, a Treasury security with lower risk and a corporate bond with higher risk.Leverage ratios, by design, treat all exposures equally. A leverage ratio constraint that is more stringent than any applicable risk-based standards may discourage a bank from engaging in low-risk activities, such as Treasury market intermediation.

The final rule’s modifications to the enhanced supplementary leverage ratio regulations are intended to ensure that the standard will serve as a backstop to risk-based capital requirements rather than as a constraint that is frequently binding over time and through most points in the economic and credit cycle. In doing so, the final rule reduces potential disincentives for the largest bank holding companies and their depository institution subsidiaries to participate in low-risk, low-return businesses.

The agencies anticipate that the amount of overall capital that banking organizations maintain would not materially change as a result of this final rule. In aggregate, the proposal would reduce tier 1 capital standards for affected bank holding companies by less than 2 percent. While certain depository institution subsidiaries could see greater reductions, the vast majority of that capital would not be available for distribution to external shareholders given the bank holding company-level requirements.

Further Information

Please contact Carl Kaminski, Assistant Director, Chief Counsel’s Office, at (202) 649-5490, or Venus Fan, Risk Expert, or Benjamin Pegg, Technical Expert, Capital Policy, at (202) 649-6370.

Adam J. Cohen
Senior Deputy Comptroller and Chief Counsel

Related Link

• Regulatory Capital Rule: Modifications to the Enhanced Supplementary Leverage Ratio Standards for U.S. Global Systemically Important Bank Holding Companies and Their Subsidiary Depository Institutions (PDF)