Related Topics
Regulatory Updates
Currently, all U.S. banks are subject to a balance sheet leverage ratio, which requires them to maintain a ratio of tier 1 capital to balance sheet assets at a minimum level of 4%. In order to be well-capitalized, banks must achieve a 5% minimum leverage ratio.
In July 2013, the U.S. bank agencies adopted the U.S. Basel III Final Rule, which requires (among many other things) that Advanced Approaches Banks maintain a supplementary leverage ratio of at least 3%. This is consistent with the Final BCBS Basel III Rule.
In January 2014, BCBS published its leverage ratio framework and disclosure requirements. Under the BCBS leverage ratio, a bank must maintain Tier 1 capital at least equal to 3% of its exposures, which include its balance sheet exposures and certain off-balance sheet exposures, including unfunded credit and liquidity commitments in securitization transactions.
In April 2014, the U.S. bank agencies adopted an additional supplementary leverage ratio, “Final Supplementary Leverage Ratio.” For large interconnected U.S. banking organizations consistent with the U.S. bank agencies’ proposed rule released in August 2013, the U.S. Final Supplementary Leverage Ratio requires bank holding companies that have been identified as globally systemically important banks (G-SIBs) to maintain a supplementary leverage ratio of at least 5%. It would also require their bank subsidiaries to hold a supplementary leverage ratio of at least 6%. The final rule is effective on January 1, 2018.
In September 2014, the U.S. bank agencies adopted final rules implementing revisions to the denominator measure for the supplementary leverage ratio. The rules apply graduated credit conversion factors ("CCFs") to off-balance sheet commitments that would reduce the portion of total leverage exposure associated with these commitments. More specifically, off-balance sheet exposures would be multiplied by the appropriate CCF under the standardized approach for risk-weighted asset as set forth in Section 33(b) of the U.S. Basel III Rule. Under Section 33(b) of the U.S. Basel III Rule, commitments with an original maturity of one year or less that are not conditionally cancelable by the bank are assigned a 20% CCF and commitments with an original maturity of more than one year are assigned a 50% CCF. The rules do not distinguish between unfunded securitization credit and liquidity commitments and other types of commitments in applying these CCFs.
REGULATORY MATERIALS
United States
Final Rules:
- Final Rule: Revisions to the Supplementary Leverage Ratio - September 3, 2014
- Final Rule: Enhanced Supplementary Leverage Ratio - May 1, 2014
Proposed Rules:
- Proposed Rule: Revisions to the Supplementary Leverage Ratio - April 8, 2014
- Proposed Rule: Enhanced Supplementary Leverage Ratio - August 20, 2013
