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; Total Loss-Absorbing Capacity and Long-Term Debt Requirements for U.S. Global Systemically Important Bank Holding Companies

Federal RegisterDec 1, 2025

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3 and 6

[Docket ID OCC—2025-0006]

RIN 1557-AF31

FEDERAL RESERVE SYSTEM

12 CFR Parts 208, 217, and 252

[Regulations H, Q, and YY; Docket No. R-1867]

RIN 7100-AG96

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AG11

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; Total Loss-Absorbing Capacity and Long-Term Debt Requirements for U.S. Global Systemically Important Bank Holding Companies

AGENCY:

Office of the Comptroller of the Currency, Treasury; the Board of Governors of the Federal Reserve System; and the Federal Deposit Insurance Corporation.

ACTION:

Final rule.

SUMMARY:

The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and Federal Deposit Insurance Corporation (FDIC) are adopting a final rule to modify the enhanced supplementary leverage ratio standards applicable to U.S. bank holding companies identified as global systemically important bank holding companies (GSIBs), their subsidiary depository institutions that are Board- or FDIC-regulated, and national banks and Federal savings associations that are subsidiaries of a U.S. top-tier bank holding company with total consolidated assets of more than $700 billion or assets under custody of more than $10 trillion (together with Board- and FDIC-regulated subsidiary depository institutions of GSIBs, covered depository institutions). These modifications are intended to help ensure that the enhanced supplementary leverage ratio standards serve as a backstop to risk-based capital requirements rather than a frequently binding constraint, thus reducing potential disincentives for GSIBs and covered depository institutions to participate in low-risk, low-return activities. The Board is also finalizing conforming amendments to its total loss-absorbing capacity and long-term debt requirements. In addition, the Board is making conforming amendments to relevant regulatory reporting forms, and the Board and FDIC are making final certain technical corrections to the capital rule and the prompt corrective action framework. Banking organizations subject to the final rule may elect to early adopt the final rule as of January 1, 2026.

DATES:

The final rule is effective April 1, 2026.

FOR FURTHER INFORMATION CONTACT:

OCC:

Venus Fan, Risk Expert, Benjamin Pegg, Technical Expert, Capital Policy, (202) 649-6370; Carl Kaminski, Assistant Director, Ron Shimabukuro, Senior Counsel, Scott Burnett, Counsel, Chief Counsel's Office, (202) 649-5490, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

Board:

Juan Climent, Deputy Associate Director, (202) 872-7526; Brian Chernoff, Manager, (202) 731-8914; Missaka Nuwan Warusawitharana, Manager, (202) 452-3461; Akos Horvath, Principal Economist, (202) 452-3048; Nadya Zeltser, Lead Financial Institution Policy Analyst, (202) 452-3164; Anthony Sarver, Senior Financial Institution Policy Analyst, (202) 475-6317, Division of Supervision and Regulation; or Jay Schwarz, Deputy Associate General Counsel, (202) 731-8852; Mark Buresh, Senior Special Counsel, (202) 499-0261; Ryan Rossner, Counsel, (202) 430-1368; Isabel Echarte, Senior Attorney, (202) 945-2412, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. For the hearing impaired only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.

FDIC:

Benedetto Bosco, Chief, Capital Policy Section; Michael Maloney, Senior Policy Analyst; Kyle McCormick, Senior Policy Analyst; Keith Bergstresser, Senior Policy Analyst; Eric Schatten, Senior Policy Analyst; Soo Jeong Kim, Policy Analyst; Matthew Park, Financial Analyst; Capital Markets and Accounting Policy Branch, Division of Risk Management Supervision; Catherine Wood, Counsel; Merritt Pardini, Counsel; Kevin Zhao, Senior Attorney; Nicholas Soyer, Attorney, Legal Division;

regulatorycapital@fdic.gov,

(202) 898-6888; Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction

A. Overview of Leverage Capital Requirements for Large Banking Organizations

B. Objective of Rulemaking

C. Overview of the Proposed Rule and Summary of Comments

D. Overview of the Final Rule

II. Final Rule

A. Changes to the Enhanced Supplementary Leverage Ratio Standards

1. Proposed Calibration and Comments Received

2. Calibration of the Holding Company Standard

3. Calibration of the Depository Institution Standard

4. Modification to the Form of the Depository Institution Standard

B. Amendments to Total Loss-Absorbing Capacity and Long-Term Debt Requirements

C. Applicability Thresholds of the eSLR Standard for OCC-Supervised Institutions

D. Comments on Other Potential Modifications to the Supplementary Leverage Ratio Requirement and Other Elements of the Agencies' Regulatory Framework

E. Technical Corrections

III. Effective Date

IV. Economic Analysis

A. Introduction

B. Baseline

1. Role of Banking Organizations as Investors in U.S. Treasury Securities

2. Treasury Securities Held by Banking Organizations Subject to Category I to III Standards

C. Policy Change

D. Reasonable Alternatives

E. Changes in the Supplementary Leverage Ratio and Tier 1 Capital Requirements

F. Benefits

G. Costs

H. Additional Comments on the Economic Analysis

1. Requests To Consider Potential Future Developments

2. Requests To Consider Potential Interaction Effects

3. Requests To Consider Further Benefits and Costs

I. Analysis of TLAC and Long-Term Debt Requirement Changes

1. Baseline

2. Changes in Requirements

3. Anticipated Economic Effects

J. Conclusion

K. Appendix

1. Estimating the Available Capacity of Holding Companies for Additional Reserves and U.S. Treasury Securities Held as Investment Securities at Depository Institution Subsidiaries

2. Estimating the Available Capacity of Holding Companies for Additional U.S. Treasury Securities Held at Broker-Dealer Subsidiaries, Assuming Perfect Hedging

V. Administrative Law Matters

A. Paperwork Reduction Act

B. Regulatory Flexibility Act Analysis

C. Plain Language

D. Riegle Community Development and Regulatory Improvement Act of 1994

E. Executive Orders 12866, 13563, and 14192

F. OCC Unfunded Mandates Reform Act of 1995

G. Congressional Review Act

I. Introduction

On July 10, 2025, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) published in the

Federal Register

a notice of proposed rulemaking (the proposal)

that would modify the enhanced supplementary leverage ratio (eSLR) standards that apply to U.S. bank holding companies identified as global systemically important bank holding companies (GSIBs)

and their subsidiary depository institutions (covered depository institutions).

Following review of the comments received on the proposal, the agencies are finalizing the proposed changes, with certain adjustments discussed below.

See

“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; Total Loss-Absorbing Capacity and Long-Term Debt Requirements for U.S. Global Systemically Important Bank Holding Companies,” 90 FR 30780 (July 10, 2025).

See

12 CFR part 217, subpart H (GSIB surcharge framework). A bank holding company subject to the GSIB surcharge framework must determine whether it is a GSIB by applying a multifactor methodology based on size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity.

See

12 CFR 217.402.

This

SUPPLEMENTARY INFORMATION

uses the term “covered depository institutions” to refer to depository institutions that are subject to the eSLR standard under the current rule or final rule, as applicable. Under the current rule, the eSLR standard is made applicable to depository institutions under the prompt corrective action framework and therefore applies only to depository institutions the deposits of which are federally insured. The final rule changes the form of the eSLR standard applicable to depository institutions, as discussed in greater detail in section II.A.4 of this

SUPPLEMENTARY INFORMATION

, and as a result of this change, certain national bank subsidiaries, specifically, uninsured national banks chartered pursuant to 12 U.S.C. 27(a), are subject to the eSLR standard under the final rule. This change in scope is a result of the prompt corrective action framework's applicability to insured depository institutions and the capital rule's applicability to certain uninsured depository institutions.

A. Overview of Leverage Capital Requirements for Large Banking Organizations

Congress has authorized the agencies to establish leverage capital requirements and standards for banking organizations subject to this final rule. Section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act),

as amended by section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act,

requires the Board to establish leverage limits for bank holding companies with $250 billion or more in total consolidated assets.

The prompt corrective action framework in section 38 of the Federal Deposit Insurance Act (FDI Act) requires the agencies to prescribe capital standards for insured depository institutions that include a leverage limit and provides that the agencies may establish any additional relevant capital measures to carry out the purpose of that section.

Various statutory authorities provide the agencies with broad discretionary authority to set capital requirements and standards for banking organizations supervised by the agencies, including national banking associations, state-chartered banks, savings associations, and depository institution holding companies.

Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010).

Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-174, 132 Stat. 1296 (2018).

See

12 U.S.C. 5365(a)(1), (b)(1)(A)(i). Section 165 of the Dodd-Frank Act also provides that the Board may apply any prudential standard established under section 165 to any bank holding company with $100 billion or more in total consolidated assets to which the prudential standard does not otherwise apply, under certain circumstances. 12 U.S.C. 5365(a)(2)(C). Section 165, in relevant part, also applies to foreign banks or companies that are treated as a bank holding company for purposes of the Bank Holding Company Act.

See

12 U.S.C. 3106(a), 5311(a)(1).

see also

12 CFR 3.12 (OCC); 12 CFR 217.12 (Board); 12 CFR 324.12 (FDIC).

In 2019, the agencies adopted rules establishing four categories of capital standards for U.S. banking organizations with $100 billion or more in total consolidated assets and foreign banking organizations with $100 billion or more in combined U.S. assets. Under this framework, Category I standards apply to GSIBs and their depository institution subsidiaries. Category II standards apply to banking organizations with at least $700 billion in total consolidated assets or at least $75 billion in cross-jurisdictional activity and their depository institution subsidiaries. Category III standards apply to banking organizations with total consolidated assets of at least $250 billion or at least $75 billion in weighted short-term wholesale funding, nonbank assets, or off-balance sheet exposure and their depository institution

subsidiaries. Category IV standards apply to banking organizations with total consolidated assets of at least $100 billion that do not meet the thresholds for a higher category and their depository institution subsidiaries.

See

12 CFR 3.2 (OCC); 12 CFR 238.10, 252.5, (Board); 12 CFR 324.2 (FDIC); “Prudential Standards for Large Bank Holding Companies, Savings and Loan Holding Companies, and Foreign Banking Organizations,” 84 FR 59032 (Nov. 1, 2019); “Changes to Applicability Thresholds for Regulatory Capital and Liquidity Requirements,” 84 FR 59230 (Nov. 1, 2019).

See

12 CFR 3.10(c) (OCC); 12 CFR 217.10(c) (Board); 12 CFR 324.10(c) (FDIC).

In 2014, the agencies adopted a final rule that required GSIBs and covered depository institutions to meet enhanced supplementary leverage ratio standards.

Specifically, this framework requires each GSIB to maintain a supplementary leverage ratio of at least three percent plus a leverage buffer greater than two percent to avoid limitations on the GSIB's capital distributions and certain discretionary bonus payments.

In addition, any insured depository institution subsidiary of a GSIB must maintain a supplementary leverage ratio of at least six percent to be “well capitalized” under the prompt corrective action framework of the Board, OCC, or FDIC, as applicable.

See

“Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and Their Subsidiary Insured Depository Institutions,” 79 FR 24528 (May 1, 2014). The eSLR standards were originally applicable to bank holding companies with more than $700 billion in total consolidated assets or $10 trillion in assets under custody and their subsidiary depository institutions. The Board revised the applicability of the eSLR standards in its rules to apply to GSIBs and their subsidiary depository institutions in connection with the GSIB surcharge rule.

See

80 FR 49082 (Aug. 14, 2015). The FDIC made an equivalent change in 2020, while the OCC retained the original applicability thresholds.

See

85 FR 74257 (Nov. 20, 2020).

The leverage buffer requirement follows the same general mechanics and structure as the capital conservation buffer requirement that applies to all banking organizations subject to the capital rule, though the capital conservation buffer requirement is calibrated differently. Specifically, a GSIB that maintains a leverage buffer of more than two percent of its total leverage exposure would not be subject to limitations on its distributions and certain discretionary bonus payments. A GSIB that maintains a leverage buffer of two percent or less would be subject to increasingly strict limitations on such payouts.

See

12 CFR 217.11.

See

12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR 208.43(b)(1)(i)(D)(2) (Board); 12 CFR 324.403(b)(1)(ii) (FDIC).

B. Objective of Rulemaking

Within the regulatory capital framework, leverage and risk-based capital requirements play complementary roles, with each addressing potential risks not addressed by the other.

Risk-based capital requirements that are commensurate with the risk profile of a banking organization's exposures help to encourage prudent behavior by requiring a banking organization to maintain higher levels of capital for activities and exposures that present greater risk. Historical experience, however, has demonstrated that risk-based measures alone may be insufficient to support loss-absorbing capacity at banking organizations through economic cycles. Leverage capital requirements, which do not take into account the risks of a banking organization's exposures, can help to mitigate underestimations of those risks by both banking organizations and risk-based capital requirements.

The regulatory capital framework is designed to help ensure that banking organizations maintain sufficient resources to absorb losses and prevent the distress or failure of a banking organization.

See

12 CFR 3.1 (OCC); 12 CFR 217.1 (Board); 12 CFR 324.1 (FDIC). The regulatory capital framework consists of both risk-based and leverage capital requirements. Risk-based capital requirements establish a minimum amount of regulatory capital a banking organization must maintain based on the risk profile of its on- and off-balance sheet exposures, whereas leverage capital requirements establish minimum risk-insensitive capital requirements.

See

12 CFR 3.10 (OCC); 12 CFR 217.10 (Board); 12 CFR 324.10 (FDIC).

Risk-based and leverage capital measures can also contain complementary information about a banking organization's condition.

See, e.g.,

Arturo Estrella, Sangkyun Park, and Stavros Peristiani, “Capital Ratios as Predictors of Bank Failure,”

Federal Reserve Bank of New York Economic Policy Review

(2000).

As discussed in the proposal, an appropriately calibrated leverage capital requirement sets a simple and transparent limit on a banking organization's leverage. In addition, leverage capital requirements can be useful to address cases where the level of risk at a particular banking organization or across the financial system is difficult to measure. However, when a leverage capital requirement is calibrated too high and becomes a banking organization's regularly binding capital requirement, it can create incentives for the banking organization to engage in higher-risk activities in search of higher returns and to reduce participation in lower-risk, lower-return activities. A banking organization that has a leverage capital requirement as its binding capital requirement can, on the margin, replace a lower-risk asset with a higher-risk asset without a corresponding increase in its overall regulatory capital requirement.

See section IV of this

SUPPLEMENTARY INFORMATION

for further discussion of the incentive effects of a binding leverage capital requirement.

The proposal discussed, as an example, concerns that a regularly binding leverage capital requirement could disincentivize large banking organizations from intermediating in the U.S. Treasury market. Market participants have suggested that such disincentives could, under certain circumstances, impede the orderly functioning of the U.S. Treasury market and of U.S. and global financial markets more broadly.

As discussed further below, some commenters on the proposal echoed this concern. The U.S. Treasury market is one of the deepest and most liquid markets in the world and serves as a source of safe and liquid assets that are used for a variety of purposes in the financial markets.

Confidence in the efficient functioning of the U.S. Treasury market, including during times of stress, is critical to the stability of the domestic and global banking and financial systems.

See, e.g.,

Zhiguo He, Stefan Nagel, and Zhaogang Song, Treasury Inconvenience Yields During the COVID-19 Crisis. 143 J. Fin. Econ. 57-79 (2022).

See

U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Reserve Bank of New York, U.S. Securities and Exchange Commission, and U.S. Commodity Futures Trading Commission, Enhancing the Resilience of the U.S. Treasury Market: 2023 Staff Progress Report (Nov. 6, 2023).

As discussed in the proposal, appropriate calibration of regulatory capital requirements involves a balancing of considerations. A banking organization should maintain sufficient capital to absorb losses and continue to serve as a financial intermediary over a range of conditions. In addition, it is important that the capital framework not create potential disincentives for a banking organization to prudently engage in low-risk activities or important market functions. The agencies regularly review the regulatory capital framework to help ensure requirements are appropriate in view of evolving risks and financial innovation and that the framework is functioning as intended. In reviewing the eSLR standards, the agencies considered factors such as alignment of requirements with risks; incentives for banking organizations to perform critical financial services over a range of economic conditions; and ways to enhance the efficiency of the framework.

C. Overview of the Proposed Rule and Summary of Comments

In light of the agencies' review of the eSLR standards and experience gained since their initial adoption, on July 10, 2025, the agencies published the proposal. The proposal would recalibrate the eSLR standards to reduce the likelihood and frequency of the eSLR standards becoming a binding capital requirement for GSIBs and covered depository institutions. The proposed recalibration of the eSLR standards sought to reduce disincentives for banking organizations to engage in lower-risk, lower-return activities, such as U.S. Treasury market intermediation, and reduce the need for temporary adjustments in the event of severe market stress, as occurred in 2020.

During the March 2020 economic turmoil, U.S. Treasury market liquidity rapidly deteriorated as a result of supply-demand imbalance, while primary dealers were reluctant to increase their holdings of U.S. Treasury securities, prompting market participants and regulators to consider enhancements to the resilience of the U.S. Treasury market. On April 1, 2020, the Board provided holding companies a temporary exclusion for U.S. Treasury securities and deposits at the Federal Reserve from the denominator of the supplementary leverage ratio through March 31, 2021. On May 15, 2020, the Board, OCC, and FDIC extended comparable treatment to depository institutions, which could elect this exclusion subject to capital action preapproval. Both interim final rules expired as scheduled on March 31, 2021.

See

“Temporary Exclusion of U.S. Treasury Securities and Deposits at Federal Reserve Banks from the Supplementary Leverage Ratio,” 85 FR 20578 (April 14, 2020) and “Regulatory Capital Rule: Temporary Exclusion of U.S. Treasury Securities and Deposits at Federal Reserve Banks from the Supplementary Leverage Ratio for Depository Institutions,” 85 FR 32980 (June 1, 2020).

Under the proposal, the Board proposed to recalibrate the eSLR buffer standard for GSIBs to equal 50 percent of a GSIB's method 1 surcharge calculated under the Board's GSIB surcharge framework, rather than the current leverage buffer standard of two percent.

Similarly, the agencies proposed to modify the eSLR standard for covered depository institutions from the current six percent “well capitalized” threshold under the prompt corrective action framework to an eSLR buffer standard equal to 50 percent of the parent GSIB's method 1 surcharge calculation, above the minimum supplementary leverage ratio requirement of three percent. The proposal also included conforming amendments to the leverage-based components of the Board's total loss-absorbing capacity and long-term debt requirements, and the OCC proposed changes to the criteria it uses to identify which national banks and Federal savings associations are subject to the eSLR standards. In addition, the Board and FDIC proposed to make certain technical corrections to the capital rule and prompt corrective action framework, and the Board proposed to make conforming amendments to relevant regulatory reporting forms.

The Board's capital rule requires a GSIB to calculate its GSIB risk-based surcharge in two ways, known as method 1 and method 2, and apply the higher of the two results.

See

12 CFR 217.403(a). The first method (method 1) is based on five categories that are correlated with systemic importance—size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity. The second method (method 2) uses similar inputs but replaces substitutability with the use of short-term wholesale funding and is calibrated in a manner that generally will result in surcharge levels for GSIBs that are higher than those calculated under method 1.

The proposal also requested comment on potential additional or alternative approaches that could help to achieve the objectives of the proposal, including a potential exclusion of Treasury securities held for trading at broker-dealer subsidiaries (and foreign equivalents thereof) of depository institution holding companies from the denominator of the supplementary leverage ratio (the narrow exclusion approach).

The agencies received approximately 40 comments on the proposal from a range of parties, including policy advocacy groups, banking organizations, banking and financial industry trade associations, other financial market participants, academics, members of Congress, research organizations, and individuals.

Some commenters, including nearly all trade associations, large banking organizations, and other financial market participants, along with some academics and other individuals, were broadly supportive of the proposal. These commenters stated that the current eSLR standards disincentivize banking organizations from participating in a range of low-risk activities, including U.S. Treasury market intermediation and holding customer deposits. These commenters stated that the proposed modifications to the eSLR standards would increase the capacity of banking organizations to serve their clients and the broader economy across a range of low-risk activities. Some of these commenters also stated that the proposed modifications may prove especially beneficial to U.S. Treasury market intermediation and other low-risk activities during episodes of financial stress, when, these commenters stated, supplementary leverage ratio requirements are more likely to become a binding capital constraint. Some of these commenters urged the agencies to promptly finalize and implement the proposal.

Other commenters, including advocacy groups, members of Congress, a trade group for community banking organizations, academics, and individuals, objected to the proposal. These commenters generally asserted that the proposal would significantly weaken the existing capital framework for GSIBs and covered depository institutions and increase risks to the safety and soundness of banking organizations, the banking system, and overall financial stability. Some of these commenters also asserted that the agencies should not adopt the proposal because, in these commenters' view, the proposed changes would not aid U.S. Treasury market intermediation. Instead, these commenters asserted that banking organizations would choose to allocate extra capital capacity created by the proposal to other higher-risk activities or to distribute extra capital to shareholders, thereby putting banking organizations and the Deposit Insurance Fund at greater risk while not improving Treasury market intermediation. Additionally, one commenter argued that the proposal would give preferential treatment to GSIBs relative to other banking organizations and undermine the competitive position of smaller banking organizations.

The agencies also received comments regarding specific aspects of the proposal discussed further below.

D. Overview of the Final Rule

The agencies are finalizing the proposal, with some modifications. The final rule recalibrates the eSLR standard for GSIBs as proposed. For covered depository institutions, the final rule includes a change from the proposal based on comments received. Specifically, the final rule adopts an eSLR buffer standard equal to 50 percent of a covered depository institution's parent GSIB's method 1 surcharge, capped at 1 percent. The eSLR buffer standard will apply in addition to the three percent supplementary leverage ratio minimum requirement.

The final rule also implements the proposed changes to the leverage-based components of the total loss-absorbing capacity and long-term debt requirements for GSIBs without modification. The final rule does not adopt the proposed criteria that the OCC would have used to determine applicability of the eSLR standard for OCC-supervised institutions. Further, the agencies are not including in the final rule any additional modifications to the supplementary leverage ratio

requirement, such as the narrow exclusion approach discussed in the proposal, or changes to other elements of the agencies' regulatory framework requested by some commenters. The final rule adopts technical corrections to the capital rule and changes to the prompt corrective action framework consistent with the proposal. The final rule includes an effective date of April 1, 2026, with the optional early adoption of the final rule's modified eSLR standards beginning January 1, 2026. This

SUPPLEMENTARY INFORMATION

also presents the economic analysis of the final rule's changes and discusses administrative law matters.

II. Final Rule

A. Changes to the Enhanced Supplementary Leverage Ratio Standards

1. Proposed Calibration and Comments Received

The proposal would have recalibrated the eSLR buffer standard for GSIBs to equal 50 percent of a GSIB's method 1 surcharge calculated under the Board's GSIB surcharge framework, rather than the current leverage buffer standard of two percent. Similarly, the proposal would have modified the eSLR standard for covered depository institutions from the current six percent “well capitalized” threshold under the prompt corrective action framework to an eSLR buffer standard equal to 50 percent of the parent GSIB's method 1 surcharge calculation.

As a result, the eSLR standards would have been the same in both form and calibration at the bank holding company and subsidiary depository institution levels.

As a result of this change, certain national bank subsidiaries, specifically, uninsured national banks chartered pursuant to 12 U.S.C. 27(a), would have become subject to the eSLR standard.

See supra

n. 3.

The agencies received a number of comments on the proposed modifications to the eSLR standards. Many commenters strongly supported recalibrating the eSLR standards to help ensure that this requirement serves as a backstop to risk-based capital requirements, rather than a frequently binding constraint. These commenters stated that a regularly binding leverage ratio requirement disincentivizes banking organizations from participating in low-risk, low-return activities, such as intermediation in the U.S. Treasury market, and more broadly decreases the capacity of banking organizations to perform critically important functions across a range of low-risk activities, particularly in periods of stress. Some of these commenters further stated that recalibrating the current eSLR buffer of two percent to a buffer that is equal to 50 percent of a GSIB's method 1 surcharge would help ensure that the eSLR standards serve as a backstop to risk-based capital requirements and increase the capacity of GSIBs to engage in low-risk activities, including U.S. Treasury market intermediation. Some of these commenters also asserted that GSIBs would continue to have strong levels of capital, while being more capable of effectively allocating capital within their organizations.

Conversely, many commenters opposed the proposed modifications to the calibration of the eSLR standards, with some commenters stating the agencies should withdraw the proposal. Some of these commenters argued that the proposal did not provide sufficient justification or rationale for the recalibration. Some commenters also asserted that the proposed changes would reduce the eSLR standards by too much relative to risk-based capital requirements, such that supplementary leverage ratio requirements would not serve as a meaningful backstop to risk-based requirements, or disagreed with the idea that the eSLR standards should serve as a backstop rather than a regularly binding constraint. In these commenters' views, the eSLR standards should serve a more primary or equal role relative to risk-based capital requirements, in order to better address risks not well addressed by risk-based capital requirements. For example, some commenters asserted that the risk-based capital framework has many shortcomings and does not sufficiently capture credit and interest rate risks of U.S. Treasury securities or risks related to off-balance sheet exposures. Therefore, in these commenters' view, the supplementary leverage ratio requirement serves as a simple and important requirement to help mitigate such risks, which, in turn, promotes the safety and soundness of the banking system and the financial system more broadly. Additionally, one commenter asserted that leverage capital requirements must be binding in some cases to ensure such requirements are effective.

Some commenters asserted that declines in capital requirements resulting from the proposed changes to the eSLR standards would undermine banking organizations' ability to lend during economic downturns or periods of financial stress, particularly if the agencies also reduce risk-based capital requirements in the future. Some commenters also stated that reductions in capital at GSIBs as a result of the proposal would increase the risks of bank failures and financial crises. Several commenters expressed concerns that the proposal would advantage the largest banking organizations over community and regional banking organizations.

Some commenters suggested alternative approaches to the proposal that the agencies should consider that, in these commenters' views, would help ensure the safety and soundness of banking organizations, alter the incentives arising from capital requirements, or achieve other objectives of the proposal. One commenter suggested that agencies should increase risk-based capital requirements to address the incentive concerns, rather than lowering the eSLR standards, and some commenters stated that the agencies should generally increase capital requirements, including leverage capital requirements. Some commenters suggested that the agencies could make the eSLR buffer standards more countercyclical, such as by adopting a mechanism that would temporarily lower the eSLR buffer standards in periods of stress.

Several commenters supported the proposal because, in these commenters' view, it would reduce regulatory disincentives for GSIBs to participate in low-risk, low-return businesses, such as U.S. Treasury market intermediation, and welcomed the agencies' proposed modifications to the eSLR standards as a change that would reduce costs of intermediating in the U.S. Treasury market. These commenters expressed concerns with the current bindingness of the eSLR standards and its effects on U.S. Treasury market intermediation, other low-risk activities, and the broader financial system. Commenters supportive of the proposal stated that a binding supplementary leverage ratio requirement has an adverse impact on intermediation in the U.S. Treasury market by constraining the activities of GSIBs' broker-dealers, particularly during periods of stress, when GSIBs may face additional balance sheet constraints due to such factors as deposit inflows, increased demand for Treasury market intermediation, and changes in the aggregate level of deposits at Federal Reserve Banks.

Some commenters stated that lower-risk assets have increased proportionally with banking organizations' balance sheets over the past decade, driven in

part by increased overall levels of Treasury security issuance and deposits at Federal Reserve Banks; these commenters stated these developments have caused the supplementary leverage ratio requirement to become more binding over time. One commenter asserted that, when the agencies originally calibrated the eSLR standards, the agencies underestimated growth in the supply of these assets, resulting in supplementary leverage ratio requirements becoming regularly binding in a manner that was not intended.

These commenters cited research in support of their statements on the adverse incentives of a regularly binding supplementary leverage ratio requirement on U.S. Treasury markets functioning, discussed in section IV.F of this

SUPPLEMENTARY INFORMATION

In contrast, some commenters asserted that the agencies should not adopt the proposed changes because, in the view of these commenters, there is not sufficient evidence that the supplementary leverage ratio is a binding requirement that constrains GSIBs' U.S. Treasury market intermediation or that the proposal would support U.S. Treasury market intermediation. These commenters asserted that banking organizations have sufficient capacity under the current supplementary leverage ratio requirement to engage in Treasury market intermediation and can, in periods of stress, use their buffers to absorb any increased demand for Treasury market intermediation. One commenter stated that insured depository institutions and primary dealers have more than doubled their exposure to U.S. Treasury securities relative to other assets in the last decade, which, in the view of this commenter, indicates that the proposed changes to the eSLR standards are not necessary.

Some commenters asserted that the agencies should not adopt the proposed changes because other measures could help promote Treasury market intermediation, such as increased central clearing of U.S. Treasury security-related transactions, improvements to data quality, enhancements to market transparency, and examination of the effects of risk management practices. Some commenters also asserted that increased central clearing of U.S. Treasury security-related transactions could provide additional balance sheet capacity for banking organizations due to netting benefits, which some of these commenters asserted would reduce the need for the proposal, whereas another commenter saw the proposal as beneficial to Treasury market intermediation notwithstanding developments in central clearing. Several commenters asserted that large holdings of U.S. Treasury securities could pose risks to banking organizations because the risks of these assets may not be sufficiently captured by risk-based capital requirements. Another commenter suggested that recent issues in U.S. Treasury markets relate primarily to the sustainability of fiscal deficits rather than the capital framework for banking organizations. Certain commenters expressed concern that the objective of the proposal was to reduce government borrowing costs, rather than the objectives stated in the proposal. Some commenters expressed concerns that banking organizations would elect not to use available capital to facilitate Treasury market intermediation, and some asserted that banking organizations would instead increase capital distributions to shareholders or engage in riskier activities, such as lending to hedge funds.

The agencies also received comments on the proposed use of the Board's GSIB surcharge framework to determine eSLR buffer standards. Several commenters supported using the GSIB surcharge framework to calibrate the eSLR buffer standard and more specifically supported the use of a GSIB's method 1 surcharge. These commenters stated that this calibration methodology would appropriately achieve the proposal's objective to help ensure that the supplementary leverage ratio requirement serves as a backstop to risk-based capital requirements, rather than a binding constraint. Some commenters also noted the benefit of consistency in the eSLR standards for GSIBs with the leverage ratio framework published by the Basel Committee on Banking Supervision (Basel Committee) and with the implementation of these requirements in other jurisdictions.

See

Basel Committee, “Basel III: Finalising post-crisis reforms” (Dec. 2017), available at:

https://www.bis.org/bcbs/publ/d424.pdf;

Basel Committee, “Basel III leverage ratio framework and disclosure requirements” (Jan. 2014) available at

http://www.bis.org/publ/bcbs270.htm.

The Basel Committee is an international coordinating committee of banking supervisory authorities, established by the central bank governors of the G-10 countries in 1975, and comprised of representatives from supervisory authorities of 28 jurisdictions. More information regarding the Basel Committee and its membership is available at

https://www.bis.org/bcbs/about.htm.

Documents issued by the Basel Committee are available through the Bank for International Settlements website at

https://www.bis.org.

Several commenters supportive of the proposed recalibration also recommended capping the eSLR buffer at the current level of two percent to help ensure that the supplementary leverage ratio requirement continues to appropriately function as a backstop to risk-based capital requirements should a banking organization's method 1 surcharge increase in the future. Specifically, these commenters asserted that the proposed approach might result in an eSLR buffer standard that, in the view of these commenters, could be inappropriately high, which these commenters stated would be contrary to the intent of the proposed recalibration. According to these commenters, capping the eSLR buffer standard at a fixed amount, such as two percent, would mitigate the potential for constraints in U.S. Treasury market and other intermediation activities if increases over time in the method 1 surcharge calculation flow through to the eSLR calibration. Conversely, one commenter asserted that it is important that GSIBs with surcharges above four percent would be subject to the eSLR buffers above two percent to reflect their higher risk profiles.

Other commenters opposed the proposed use of the Board's GSIB surcharge framework to calculate the eSLR buffer standards. Some of these commenters asserted that using the GSIB surcharge framework to establish a firm's eSLR buffer standard would undermine key features of the eSLR standard as a leverage requirement, such as its relative simplicity and its insensitivity to risk. In these commenters' view, leverage capital requirements are designed to operate independently of risk assessments and therefore integrating the risk-based GSIB surcharge methodology into a risk-insensitive leverage capital requirement would not be prudent. Some commenters also asserted that the proposed calibration based on a GSIB's method 1 surcharge would introduce unnecessary complexity because this approach would differ from the Board's GSIB risk-based surcharge framework, which uses the higher of a GSIB's method 1 or method 2 surcharges. One commenter asserted that use of a GSIB's method 1 surcharge would not be appropriate because potential variations in the method 1 surcharge could be driven by changes to aggregate global indicator amounts used in the method 1 calculation, which incorporate data provided to the Basel Committee by foreign banking organizations. This commenter stated that the relevance of certain foreign banking organization indicators in measuring the riskiness of U.S. banking organizations is unclear.

One commenter asserted that setting the eSLR buffer annually based on a GSIB's most recent GSIB surcharge could introduce unnecessary volatility. This commenter suggested calculating simple averages for the last two years and phasing in any change equally over two consecutive quarters to mitigate any

volatility in the GSIB surcharges. Some commenters suggested alternative methodologies for the calibration of the eSLR buffer, such as using the higher of a GSIB's method 1 or method 2 surcharge, only using a method 2 surcharge with a multiplier, developing a new methodology, or establishing a one percent minimum floor to ensure that the eSLR buffer would not fall below one percent of total leverage exposure. One commenter suggested that the agencies should apply a distinct calibration to GSIBs that are heavily involved in custody activities, to reflect the exclusions applicable for deposits at the Federal Reserve and certain other central banks that are linked to fiduciary or custodial and safekeeping accounts from the denominator of the supplementary leverage ratio.

These exclusions were added to the capital rule to implement section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

See

Public Law 115-174, at section 402(b)(2)(B), 132 Stat. 1359 (codified as amended at 12 U.S.C. 1831o note).

Some commenters raised concerns regarding the agencies' statutory authority to implement the proposed changes, including assertions that the agencies were not permitted to consider burden, efficiency, or U.S. Treasury market functioning when establishing capital requirements. In addition, another commenter asserted that the proposed changes would result in the eSLR standards becoming less stringent than requirements applicable to banking organizations with a lesser systemic risk profile, which the commenter asserted was not permitted under provisions of the Dodd-Frank Act. Another commenter asserted that provisions of the Dodd-Frank Act and FDI Act require the agencies to ensure that their risk-based and leverage capital requirements are both binding and effective.

As discussed in section I.A of this

SUPPLEMENTARY INFORMATION

, Congress has granted the agencies with authority to establish leverage capital requirements and standards for banking organizations subject to this final rule. The agencies regularly review and may implement changes to improve the effectiveness of their regulations, including to minimize unintended, adverse consequences or interactions, while continuing to achieve the intended effects. The agencies note that the eSLR standards exceed leverage capital requirements applicable to less systemically important firms, as the eSLR buffer standard is additive to the supplementary leverage ratio minimum requirement of three percent that also applies to banking organizations subject to Category II and III capital standards. Moreover, GSIBs and covered depository institutions will remain subject to tier 1 leverage ratio requirements. Both risk-based and leverage requirements will continue to have an impact on decision making. For example, there are business models and market conditions that could result in the eSLR standards and supplementary leverage ratio, along with the tier 1 leverage ratio, becoming binding constraints for certain banking organizations. Indeed, as discussed in section IV.E of this

SUPPLEMENTARY INFORMATION

, the agencies estimate that some covered depository institution subsidiaries are still expected to have higher supplementary leverage ratio requirements than risk-based requirements.

In addition to the comments discussed above, the agencies also received comments that specifically discuss proposed changes to covered depository institutions, as discussed in more details in section II.A.3 of this

SUPPLEMENTARY INFORMATION

As discussed below, the agencies are finalizing the proposal with some modifications to the calibration of the eSLR standards for covered depository institutions.

2. Calibration of the Holding Company Standard

After reviewing the comments, the Board is adopting as final the recalibration of the eSLR buffer standard for GSIBs to equal 50 percent of a GSIB's method 1 surcharge. This recalibration is important to help mitigate potential disincentives for GSIBs to engage in low-risk, low-return, balance-sheet-intensive activities, such as intermediation by GSIBs' broker-dealer subsidiaries in markets for Treasury securities, and from holding low-risk assets in general. As many commenters observed, a regularly binding supplementary leverage ratio requirement can create disincentives for banking organizations to engage in low-risk, low-return activities and may contribute to increased volatility and reduced liquidity in U.S. Treasury markets during periods of stress. GSIBs play a key role in supporting market liquidity and providing financing in Treasury markets, as discussed in section IV of this

SUPPLEMENTARY INFORMATION

Section IV.F of this

SUPPLEMENTARY INFORMATION

discusses the expected impact of the final rule on U.S. Treasury market activities.

As noted above, many commenters stated that the agencies should not change the eSLR standards to create additional demand for U.S. Treasury securities, or that the agencies should not adopt the proposed changes to enhance U.S. Treasury market functioning when, in the view of the commenters, other regulatory changes or measures could directly achieve such an outcome. While the agencies expect the final rule to reduce unintended disincentives for GSIBs to intermediate in the U.S. Treasury market,

the primary purpose of the final rule is not to support increased U.S. Treasury market issuance or substitute for other regulatory or private sector efforts that more directly seek to target U.S. Treasury market structure or functioning, as some commenters suggested. Rather, the final rule seeks to calibrate the eSLR standards such that they serve as a backstop to risk-based capital requirements, rather than a regularly binding capital constraint, to address the potential negative incentive effects that can occur when a leverage requirement is too frequently binding or near-binding. Furthermore, and importantly, while the final rule seeks to reduce regulatory disincentives for low-risk activities, the final rule does not create preferences for certain low-risk activities over others.

See

Section IV.F of this

SUPPLEMENTARY INFORMATION

As some commenters noted, the use of method 1 to calculate the eSLR buffer standard for GSIBs would incorporate the use of a risk-based indicator methodology to determine the calibration of a risk-insensitive leverage requirement. Such an approach, however, results in the application of more stringent requirements to banking organizations that present the greatest systemic risks. It is also consistent with the methodology used in the Board's existing regulatory framework to determine whether a bank holding company is a GSIB, and therefore whether it is subject to the eSLR standards under both the current and final rule.

The use of a risk-based measure to determine application of a leverage requirement is also consistent with other parts of the agencies' regulatory tailoring framework, which, for example, uses indicators of risk to determine the application of the supplementary leverage ratio requirement.

Importantly, the GSIB surcharge is risk-based in the sense that it is based on the risks that the failure of a systemically important bank

holding company could present to the stability of the financial system, which is different from the risk-based capital requirements' differentiation of exposures by risk presented to the banking organization by each exposure.

The final rule determines a GSIB's eSLR buffer standard based on its systemic footprint and therefore subjects such systemically important banking organizations to more stringent capital requirements.

See

12 CFR 217.402.

Under the regulatory tailoring framework, banking organizations subject to Category I-III capital standards are subject to the supplementary leverage ratio requirement. 12 CFR 3.2, 3.10(c) (OCC); 12 CFR 217.10(c), 252.5 (Board); 12 CFR 324.2, 324.10(c) (FDIC).

80 FR 49082, at 49083 (Aug. 14, 2015).

The final rule's calibration of the eSLR standard based on the GSIB surcharge framework also helps promote consistency in the eSLR standards for large, complex, and internationally active banking organizations across jurisdictions, as it is consistent with the leverage ratio framework published by the Basel Committee. International consistency can enhance the resilience of the U.S. financial system by limiting the potential for a global “race to the bottom” on prudential standards and reduce the likelihood of financial distress in foreign jurisdictions having negative effects in the United States.

In addition, international consistency of banking regulations, in general and where appropriate, can help to reduce compliance costs and barriers to market entry for banking organizations that operate across jurisdictions.

For example, the Basel Committee was originally formed after the failure of Herstatt Bank in Germany in 1974, which contributed to serious disruptions to foreign currency and banking markets within and beyond Germany, demonstrating the need for better coordination among bank regulators in different jurisdictions.

See

History of the Basel Committee, available at

https://www.bis.org/bcbs/history.htm. See also, e.g.,

12 U.S.C. 1828 note, 3901, 3907, 3911, and 5373; 22 U.S.C. 9522 note; Federal Deposit Insurance Corporation Improvement Act of 1991 section 305(b)(2), Public Law 102-242, 105 Stat. 2236, 2355.

The final rule does not base the calibration of a GSIB's eSLR buffer standard on the higher of its method 1 or method 2 surcharge as some commenters advocated. As discussed in the proposal, using a GSIB's method 1 surcharge produces a generally lower calibration that meets the objective for leverage capital requirements to act as a backstop to risk-based capital requirements, and it is consistent with the leverage ratio framework published by the Basel Committee.

The final rule's calibration of the eSLR standard for GSIBs does not include a cap, as suggested by some commenters. The Board considers the final rule's calibration of the eSLR standard to be appropriate, as it correlates with the systemic footprint of a GSIB at the consolidated level and achieves the goals of the rule.

The Board does not consider it appropriate to apply, as one commenter suggested, a different eSLR standard calibration for GSIBs with significant custodial activity than would apply to other GSIBs. Under the current rule, uniform calibrations of the eSLR standards apply to GSIBs and covered depository institutions, respectively. No adjustment to the calibration of the eSLR standards applies for banking organizations that are predominantly engaged in custody, safekeeping, and asset servicing activities (custodial banking organizations), which are subject to a modified supplementary leverage ratio calculation as required by section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule would not change this aspect of the current rule.

The cumulative impact of changes to the capital rule to implement section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act and the final rule are reflected in the analysis discussed in section IV of this

SUPPLEMENTARY INFORMATION

The Board expects the final rule's recalibration of the eSLR standard for GSIBs will reduce disincentives for these banking organizations to participate in low-risk, balance sheet-intensive activities that are important for the functioning of the banking system and the financial system more broadly, while generally not materially changing the amount of capital in the banking system.

However, because GSIB risk-based capital requirements and buffers fluctuate over time in response to changes in stress test results and other factors, the effect of recalibrating the eSLR standard on capital requirements will vary over time and may result in more or less material changes in overall capital requirements. Additionally, although the final rule is intended to calibrate the eSLR standards to serve as a backstop to risk-based capital requirements rather than as a constraint that is frequently binding, the eSLR standards may nonetheless, in certain circumstances, serve as the binding constraint. As discussed in section IV of this

SUPPLEMENTARY INFORMATION

, the supplementary leverage ratio is currently the binding tier 1 capital requirement for almost all GSIBs, creating unintended incentives and rendering tier 1 capital requirements less risk sensitive. The agencies estimate that the final rule will achieve the objective of making the supplementary leverage ratio requirement a backstop to risk-based capital requirements for all GSIBs.

The expected impacts of the proposal are further discussed in section IV.F of this

SUPPLEMENTARY INFORMATION

The Board is not adopting modifications to the eSLR standards that would cause them to automatically change over economic cycles or specifically during periods of stress, as recommended by some commenters. As discussed in section IV.F of this

SUPPLEMENTARY INFORMATION

, the final rule's approach would provide significant capacity for banking organizations to engage in low-risk, balance-sheet intensive activities, including during periods of economic or financial market stress. Moreover, as the agencies have previously emphasized, capital buffers are designed to be used in times of stress.

For example, during the COVID economic event, the agencies issued a statement and a letter emphasizing that capital and liquidity buffers have been designed to provide banking organizations with the means to support the economy in adverse situations and allow banking organizations to continue to support households and businesses.

See

Joint Release: Statement on the Use of Capital and Liquidity Buffers (Mar. 17, 2020), available at

https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20200317a1.pdf;

Supervisory Letter: Questions and Answers (Q&As) on Statement regarding the Use of Capital and Liquidity Buffers (SR 20-5), (Mar. 19, 2020), available at

https://www.federalreserve.gov/supervisionreg/srletters/SR2005.pdf.

3. Calibration of the Depository Institution Standard

The proposal would have modified the six percent eSLR standard applicable to a covered depository institution to instead be an eSLR buffer standard equal to 50 percent of its parent GSIB's method 1 surcharge as determined under the Board's GSIB surcharge framework in addition to the minimum supplementary leverage ratio requirement of three percent. As described in the proposal, this approach would have resulted in a lower eSLR standard for most covered depository institutions. It also would have produced a dynamic standard that could change from year-to-year for each banking organization subject to the eSLR standard.

Commenters expressed a range of views on the proposed eSLR calibration for covered depository institutions, in addition to the comments discussed in section II.A.1 of this

SUPPLEMENTARY INFORMATION

. Commenters supportive of the proposal mostly supported the proposed modification to the eSLR standard for covered depository institutions, as it would support the objective of an eSLR standard that generally serves as a backstop to risk-based capital requirements and reduce disincentives for low-risk activities, similar to the views on the proposed

modification to the eSLR standard for GSIBs. These commenters also generally supported aligning the proposed eSLR standard for covered depository institutions with the proposed GSIB eSLR standard because, in their view, having a consistent standard at the parent and bank-subsidiary levels would allow GSIBs to more flexibly manage capital allocation throughout their organizations. One commenter supportive of the proposal noted that banking organization affiliates other than broker-dealers also engage in activities related to U.S. Treasury market intermediation, including depository institutions that hold Treasury securities for investment, liquidity, or risk management, and engage in repurchase and reverse repurchase agreements collateralized by Treasury securities, such as inter-affiliate transactions for funding and collateral. This commenter stated that custodian and trust affiliates also provide services related to U.S. Treasury markets, such as safekeeping, settlement, collateral management, and facilitation with central counterparties. This commenter further stated that the proposal would help reduce constraints on these entities' capacity to conduct such activities.

As discussed above, some commenters that were generally supportive of the proposal also asserted that the variable standard that could result from using the risk-based surcharge applicable to GSIBs might result in inappropriately high eSLR standards in certain cases, which would be contrary to the intent of the proposed recalibration. To avoid such an outcome, these commenters suggested capping the eSLR standard at a fixed amount. According to these commenters, capping the eSLR standard would mitigate the potential for constraints in U.S. Treasury market and other intermediation activities that could result if increases in the GSIB risk-based surcharge calculation over time flow through to the eSLR calibration.

Other commenters asserted that the proposed eSLR standard for covered depository institutions would undermine such institutions' safety and soundness and increase the risk of bank failure, especially in light of the expected decrease in required tier 1 capital levels at covered depository institutions. Some of these commenters expressed concerns that the decrease in capital could pose risks to the Deposit Insurance Fund and would reduce loss-absorbing capacity of GSIBs and covered depository institutions. Some of these commenters also asserted that such concerns would not be mitigated by smaller changes in tier 1 capital requirements for GSIBs because, these commenters asserted, GSIBs may not be well positioned to support the financial condition of their depository institution subsidiaries in the event of stress. Some of these commenters also noted that depository institutions facing a capital shortfall in a downturn are less able or likely to continue lending to customers over the course of the economic cycle. Certain commenters expressed concern that the proposal would increase the risks arising from insured depository institutions holding more U.S. Treasury securities, asserting that this increase would pose risks similar to those that impacted banking organizations and financial markets during the 2010-12 Eurozone sovereign debt crisis. Other commenters stated that the proposal to reduce the eSLR standards for covered depository institutions would not improve Treasury market intermediation because that activity is conducted through broker-dealers.

Some commenters criticized the use of the method 1 GSIB surcharge in the proposed eSLR standard for covered depository institutions. One commenter asserted that the agencies should not adopt this approach because it would calibrate the eSLR standard based on factors measured at the holding company level that may diverge substantially from the measurement of such risk factors for depository institutions, especially where such depository institutions have limited direct international activities. As such, in this commenter's view, the proposed eSLR buffer standard may not appropriately reflect the risks and business models of covered depository institutions. The same commenter also asserted that using a systemic risk measure, such as a GSIB's method 1 surcharge, for the leverage capital requirements but not the risk-based capital requirements of covered depository institutions would create inconsistency in the regulatory capital framework.

After reviewing the comments and considering the potential impact of reducing the eSLR standard for covered depository institutions, the agencies have decided to adopt an eSLR buffer standard applicable to covered depository institutions equal to 50 percent of a covered depository institution's parent GSIB's method 1 surcharge, capped at one percent.

The cap recognizes that the method 1 surcharge of a parent GSIB may be in part driven by activities outside of the covered depository institution. As such, the agencies consider it appropriate to limit the role that a depository institution's affiliates play in sizing capital requirements applicable to the depository institution itself.

The eSLR buffer standard applicable to a national bank or Federal savings association that is a subsidiary of a U.S. top-tier bank holding company with total consolidated assets of more than $700 billion or assets under custody of more than $10 trillion that does not have a parent GSIB method 1 surcharge is one percent.

In addition, because covered depository institutions, unlike GSIBs, are not subject to the GSIB risk-based capital surcharge or the stress capital buffer requirement, the final rule's capped approach helps to better ensure that the eSLR standard serves as a backstop to risk-based capital requirements for covered depository institutions, as compared to an uncapped approach. Moreover, compared to the proposal, imposing a cap of one percent would have a similar aggregate impact on capital requirements based on covered depository institutions' current assets and exposures. Therefore, this approach supports the objectives of establishing the eSLR standard for covered depository institutions that serves as a backstop to risk-based capital requirements, rather than as a frequently binding requirement.

Under the final rule, covered depository institutions must maintain the eSLR buffer in addition to the minimum supplementary leverage ratio of three percent to avoid restrictions on capital distributions and certain discretionary bonus payments. In addition, insured depository institutions must maintain the three percent minimum supplementary leverage ratio to be considered “adequately capitalized” under the prompt corrective action framework, as discussed further in section II.A.4 of this

SUPPLEMENTARY INFORMATION

The final rule does not adopt an adjustment to the eSLR standard calibration for covered depository institutions that are custodial banking organizations, as suggested by one commenter. As discussed above for the eSLR standard for GSIBs, no such adjustment to the eSLR standards applies under the current rule, and the final rule does not change this approach for covered depository institutions.

As discussed in section IV of this

SUPPLEMENTARY INFORMATION

, the agencies estimate that the final rule will set the level of the supplementary leverage ratio requirement below the level of the risk-based tier 1 capital requirement for the majority of major

covered depository institutions.

Accordingly, the recalibrated eSLR buffer standard under the final rule generally achieves the objective of adjusting the eSLR standard so that it better serves as a backstop to risk-based capital requirements for covered depository institutions. As discussed above and consistent with the objective of the proposal, reducing the eSLR buffer for covered depository institutions reduces disincentives for these banking organizations to participate in low-risk, low-return activities.

In the economic analysis, a “major covered depository institution” refers to a GSIB's largest depository institution subsidiary as well as any of its depository institution subsidiaries with total assets greater than $50 billion at the end of any quarter in 2024.

The final rule's calibration would result in a reduction in the level of covered depository institutions' tier 1 capital requirements.

Under the agencies' current prompt corrective action framework, covered depository institutions must maintain a level of tier 1 capital to be considered “well capitalized” that is higher than the level required by the risk-based capital framework for these depository institutions. The final rule would improve the alignment of the eSLR standards for covered depository institutions with their risk-based capital requirements, which take into account these entities' risk profiles. In so doing, the final rule would help to reduce the negative incentive effects that can result when leverage requirements, rather than risk-based capital requirements, are too frequently binding. The final rule would not change the risk-based capital requirements of covered depository institutions.

See

section IV of this

SUPPLEMENTARY INFORMATION

In addition, although the capital requirements of covered depository institutions would decrease, the capital requirements applicable to GSIBs generally would remain near their present level, with better incentive effects from leverage-based requirements declining below risk-based requirements.

As a consequence, the final rule would not materially alter the ability of these consolidated banking organizations to distribute capital to shareholders. Under the final rule, GSIBs would have greater flexibility in allocating capital among different subsidiaries and would continue to be required to act as a source of strength for their depository institution subsidiaries, including in the event of financial stress.

As discussed in Section IV.E this

SUPPLEMENTARY INFORMATION

, the new calibration of the eSLR standard would reduce the aggregate tier 1 capital required by the eSLR for the major covered depository institutions by about 37 percent.

4. Modification to the Form of the Depository Institution Standard

The proposal would have removed the eSLR threshold for a covered depository institution to be considered “well capitalized” under the prompt corrective action framework and instead implemented the eSLR as a buffer standard for covered depository institutions.

The prompt corrective action framework establishes capital categories at which an insured depository institution will become subject to increasingly stringent limitations on its activities.

Among other measures, the prompt corrective action framework includes a three percent supplementary leverage ratio threshold for any insured depository institution subject to Category I-III capital standards to be considered “adequately capitalized.” Until the adoption of the eSLR standards in 2014, the prompt corrective action framework did not specify a corresponding supplementary leverage ratio threshold at which such an insured depository institution subsidiary would be considered “well capitalized.” The 2014 eSLR standards established a six percent supplementary leverage ratio threshold at which covered insured depository institution subsidiaries of the largest and most complex banking organizations would be considered “well capitalized.”

Each of the agencies have issued regulations to implement the statutory prompt corrective action framework, set forth at 12 U.S.C. 1831o, which codifies section 131 of the Federal Deposit Insurance Corporation Improvements Act of 1991 (FDICIA), Public Law 102-242, 105 Stat. 2253 (Dec. 19, 1991). The prompt corrective action capital categories are critically undercapitalized, significantly undercapitalized, undercapitalized, adequately capitalized, and well capitalized.

See

12 CFR part 6 (national banks and Federal savings associations) (OCC); 12 CFR part 208, subpart D (state member banks) (Board); 12 CFR part 324, subpart H (state nonmember banks and state savings associations) (FDIC).

The proposal would have removed the six percent supplementary leverage ratio threshold from the definition of “well capitalized” in the prompt corrective action framework and instead would have implemented the eSLR standard for covered depository institutions as a regulatory capital buffer. If a covered depository institution's supplementary leverage ratio dropped below the buffer amount, under the proposal, the institution would become subject to increasingly strict limitations on its ability to make certain capital distributions, including the issuance of dividends, and to pay certain discretionary bonuses. This approach would have aligned the form of the depository institution eSLR standard with that of the holding company eSLR standard.

Some commenters expressed strong support for the proposal to remove the eSLR standard from the prompt corrective action framework. These commenters noted that implementing the eSLR as a regulatory capital buffer at both the holding company and covered depository institution levels would better harmonize the standards and promote more coherent capital management across consolidated GSIB organizations. These commenters also stated that the buffer approach would ensure that regulators maintain flexibility necessary for dealing with a depository institution with decreasing capital. The commenters stated a buffer would act as an early warning and trigger changes in a banking organization's capital management before more severe consequences of the prompt corrective action framework apply.

One commenter supported the proposed change and advocated for removing all leverage-based thresholds from the prompt corrective action framework, based on a view that the prompt corrective action framework should be based only on risk-based capital measures. This commenter stated that adopting a buffer approach that would only impose limits on distributions, rather than the more severe limitations included in the prompt corrective action framework, would help ensure the eSLR standard serves as a backstop to the risk-based capital rules.

After reviewing the comments and considering the potential impact of applying the eSLR standard to covered depository institutions as a regulatory capital buffer, rather than as part of the definition of “well capitalized” in the prompt corrective action framework, the agencies have decided to finalize this aspect of the proposal as proposed. The agencies are retaining the minimum supplementary leverage ratio threshold of three percent to be considered “adequately capitalized” under the prompt corrective action framework.

Under section 38 of the FDI Act, the agencies are required to prescribe relevant capital measures for the prompt corrective action framework that incorporate leverage-based requirements.

See

12 U.S.C. 1831o(c)(1)(A)(i).

The agencies continue to expect that a buffer approach will enhance effective capital management across a banking organization, have fewer pro-cyclical effects as it would provide “early warning” benefits relative to the prompt

corrective action-based approach, and lessen the likelihood that a covered depository institution will reduce lending and other activities during times of economic stress.

At the same time, the payout restrictions of a leverage buffer framework will provide an incentive for covered depository institutions to maintain sufficient capital and reduce the risk that their capital levels may fall below their minimum requirements during economic downturns.

Consistent with the proposal, the final rule implements a leverage buffer framework that follows the same general mechanics and structure as the capital conservation buffer and the leverage buffer applicable to GSIBs currently contained in the agencies' respective capital rules. A covered depository institution will need to have a supplementary leverage ratio equal to three percent minimum supplementary leverage ratio requirement plus the eSLR buffer standard to avoid limitations on capital distributions and certain discretionary bonus payments. If the covered depository institution maintains a leverage buffer that is less than or equal to 100 percent of its leverage buffer standard, a payout limitation will apply in accordance with Table 1 below. The limitations on distributions and discretionary bonus payments will be applied to a covered depository institution alongside any limitations imposed by the capital conservation buffer or any other supervisory or regulatory measures. If the depository institution is constrained by either the capital conservation buffer or the leverage buffer, or both, the depository institution will be required to apply the more binding payout ratio.

ER01DE25.011

B. Amendments to Total Loss-Absorbing Capacity and Long-Term Debt Requirements

The proposal would have made conforming amendments to the leverage-based components of the Board's TLAC and long-term debt requirements to maintain alignment of these components with the eSLR buffer standard for GSIBs. Under the TLAC framework, GSIBs must maintain outstanding minimum levels of TLAC based on risk-based and leverage-based measures. GSIBs must also maintain TLAC levels sufficient to meet buffers on top of both the risk-weighted asset and leverage components of the TLAC requirements in order to avoid

limitations on their capital distributions and certain discretionary bonus payments.

The leverage-based TLAC buffer is equal to two percent, above the 7.5 percent minimum leverage component of a GSIB's external TLAC requirement.

This buffer amount was expressly designed to align with the eSLR buffer standard applicable to these firms.

Accordingly, the Board proposed to replace the two percent TLAC leverage buffer with a new TLAC leverage buffer equal to the eSLR buffer standard under the proposal.

See

12 CFR part 252, subpart G.

See

12 CFR 252.63. There is no buffer requirement over the leverage-based minimum total loss-absorbing capacity requirement for a U.S. intermediate holding company of a foreign banking organization subject to TLAC requirements. The TLAC requirement based on total leverage exposure for a U.S. intermediate holding company of a foreign banking organization subject to the TLAC framework is either 6.75 percent or six percent, depending on the planned resolution strategy of the company's parent global systemically important foreign banking organization. 12 CFR 252.165.

See

“Total Loss-Absorbing Capacity, Long-Term Debt, and Clean Holding Company Requirements for Systemically Important U.S. Bank Holding Companies and Intermediate Holding Companies of Systemically Important Foreign Banking Organizations,” 82 FR 8266, at 8276 (Jan. 24, 2017).

The Board also requires GSIBs to maintain a minimum leverage-based external long-term debt amount equal to a GSIB's total leverage exposure multiplied by 4.5 percent. As described in the preamble to the final rule that established the long-term debt requirement, the requirement was calibrated primarily on the basis of a “capital refill” framework.

According to the capital refill framework, the objective of the external long-term debt requirement is to ensure that each GSIB has a minimum amount of eligible external long-term debt such that, if the GSIB's going-concern capital is depleted and the covered bank holding company fails and enters resolution, the eligible external long-term debt can be used to replenish the GSIB's going-concern capital to at least the amount required to meet the minimum leverage capital requirement and buffer applicable to GSIBs. Therefore, the Board proposed to revise the minimum leverage-based external long-term debt requirement to reflect the proposed change to the eSLR standard. The proposed minimum leverage-based external long-term debt requirement would have been total leverage exposure multiplied by 2.5 percent (the minimum supplementary leverage ratio of three percent minus 0.5 percentage points to allow for balance sheet depletion) plus the eSLR buffer standard under the proposal.

82 FR 8266, at 8275 (Jan. 24, 2017).

The Board also requested comments on other potential adjustments to the TLAC and long-term debt framework that it should consider, including whether the Board should apply a 50 percent haircut on the amount of long-term debt principal that is due to be paid in one year or more but less than two years that can be considered for purposes of the minimum TLAC requirements and buffers. In addition, the Board requested comment on the advantages and disadvantages of adjusting the amount of balance sheet run-off embedded in the minimum long-term debt requirement or of removing the assumption of balance sheet run-off entirely from the minimum long-term debt requirement.

The Board received several comments on the proposed changes to the TLAC and long-term debt requirements. Many commenters supported the proposed changes, seeing them as necessary to maintain the internal consistency of the Board's regulatory framework. Some commenters opposed the proposed modifications to TLAC and long-term debt requirements, asserting that they would undermine the orderly resolution of GSIBs and weaken the safety and soundness of the U.S. banking system, particularly given these commenters' concerns with declines in capital requirements resulting from the proposal. One commenter suggested that the Board clarify how the proposed changes would interact with the resolution planning process.

In response to a question asking whether the Board should apply a 50 percent haircut on certain long-term debt used to satisfy the TLAC requirement and buffers, some trade association and banking organization commenters recommended that the Board not do so, arguing that the 50 percent haircut would add significant costs for issuers without material benefits. Some commenters also recommended that the Board eliminate, or reduce, the long-term debt requirement and thereby allow firms greater flexibility to determine the composition of their TLAC. Some trade association and banking organization commenters also recommended that the Board eliminate the existing 50 percent haircut on long-term debt that is due to be paid in one year or more but less than two years and which is used to satisfy the long-term debt requirement as well as the assumption of balance sheet run-off. Several commenters recommended that the agencies rescind the 2023 long-term debt proposal applicable to certain non-GSIBs. One commenter suggested that the TLAC requirement applicable to U.S. intermediate holding companies of foreign banking organizations be recalibrated to account for their risk profiles, local supervisory frameworks, and particular structural considerations.

The final rule revises the TLAC and long-term debt requirements as proposed. As discussed in the proposal, these changes maintain alignment between the TLAC and long-term debt requirements and the enhanced supplementary leverage ratio standard for GSIBs, in accordance with the manner in which these requirements were originally calibrated. Consistent with the proposal, the final rule does not change the minimum level of TLAC that a GSIB is required to maintain or change the general structure of the TLAC and long-term debt frameworks.

As discussed in section IV.I of this

SUPPLEMENTARY INFORMATION

, the final rule results in a reduction in the overall level of TLAC for some GSIBs and in the levels of long-term debt necessary to comply with the long-term debt requirement for all GSIBs. However, GSIBs will continue to be subject to robust TLAC and long-term debt requirements.

The Board considered commenters' views on other potential modifications it could make to the TLAC and long-term debt frameworks. Consistent with the proposal, the Board is not making any further changes to the TLAC and long-term debt frameworks at this time and is amending these requirements only to maintain alignment with the eSLR standards.

C. Applicability Thresholds of the eSLR Standard for OCC-Supervised Institutions

The OCC's eSLR standard applies to national banks and Federal savings associations that are subsidiaries of holding companies with more than $700 billion in total consolidated assets or more than $10 trillion in total assets under custody.

In the proposal, the OCC proposed to revise the applicability thresholds of its eSLR standard to be consistent with the Board's regulations for identifying GSIBs and applying the eSLR standard only to national banks and federal savings associations that are subsidiaries of bank holding companies identified as GSIBs. In the proposal, the OCC further noted that the asset thresholds the OCC uses to determine applicability of the eSLR standard scope in all the national bank and federal savings association subsidiaries of GSIBs, but no other institutions. Therefore, this proposed change would not have had any practical impact on the current application of the eSLR

standard to national banks and federal savings associations.

Some commenters supported the proposal to revise the scope of the OCC's eSLR standard and asserted that it would be appropriate to remove the thresholds based on asset size and custody activities and instead reference the GSIB determinations made under the Board's rules. The commenters asserted this revision would have harmonized the OCC, FDIC, and Board rules and would not result in unintended consequences.

One commenter, on the other hand, argued against adopting this aspect of the proposal. This commenter acknowledged that the proposed change would not have any immediate impact, but it noted that the OCC's standard was potentially broader than the Board's and FDIC's and may capture different banking organizations at some point in the future. The commenter further suggested expanding the application of the eSLR standard to scope in even more organizations, including those with well below $700 billion in total consolidated assets because, according to the commenter, the failure of large regional banking organizations can pose systemic risks.

The OCC has decided not to finalize this aspect of the proposal. The asset thresholds the OCC currently uses to determine the applicability of the eSLR standard scope in all the national bank and federal savings association subsidiaries of GSIBs, but no other institutions. Therefore, the decision not to finalize this aspect of the proposal will have no impact on which entities will currently be subject to the eSLR standard.

Regardless of whether their parent holding companies are identified as GSIBs by the Board, the OCC believes the eSLR standard should apply to those national banks and federal savings associations that the OCC determines pose the greatest risks to public and private stakeholders in the event of adverse performance, disruption, or failure of the national banks or federal savings associations or the activities they engage in. The OCC will continue to monitor the national banks and federal savings associations under its supervision and as the banking industry grows, the OCC will consider whether changes are needed to ensure the continued appropriate application of the eSLR standard through a future rulemaking action, if necessary.

D. Comments on Other Potential Modifications to the Supplementary Leverage Ratio Requirement and Other Elements of the Agencies' Regulatory Framework

In addition to the proposed changes to the eSLR standards, the proposal requested comment on potential additional or alternative changes the agencies could make that would achieve the objectives of the proposal. The Board requested comment on a specific potential additional change, the narrow exclusion approach described above. The proposal also requested comment on other changes to the bank regulatory framework that the agencies should consider to reduce regulatory impediments to well-functioning U.S. Treasury markets.

Many commenters opposed any exclusions from the supplementary leverage ratio denominator, including the narrow exclusion approach. Some commenters asserted that the narrow exclusion approach would diminish the effectiveness of the supplementary leverage ratio requirement, which broadly treats assets and exposures in a risk-insensitive manner, and that the narrow exclusion approach would prompt requests for additional exclusions that would further erode the risk-insensitive nature of the requirement. Other commenters asserted that the narrow exclusion approach—and other approaches that exclude assets or exposures from the supplementary leverage ratio denominator—would represent a departure from the Basel Committee's leverage ratio framework and could invite a “race to the bottom” in the international regulatory treatment of sovereign exposures. Additionally, some commenters expressed concern that the narrow exclusion approach would lead banking organizations to increase holdings of Treasury securities, including longer-dated securities that carry greater interest rate risk, a scenario which, in these commenters' view, could lead to banks having inadequate capital to absorb losses from shifts in market interest rates. Finally, one commenter expressed doubt that the narrow exclusion would result in a meaningful increase of U.S. Treasury market intermediation.

A few commenters supported including the narrow exclusion approach in a final rule, and some additional commenters expressed openness to this concept but supported finalizing the proposal without the narrow exclusion. One commenter stated that the narrow exclusion approach may aid market intermediation while limiting additional exposure to interest rate risk, since the securities excluded from total leverage exposure would be trading securities measured at fair value and would be subject to the market risk capital requirements of the risk-based capital framework. Another commenter asserted that the narrow exclusion approach would provide some incremental support for Treasury market intermediation, but the approach's benefit would be limited by the current method 2 GSIB surcharge calculation in the risk-based capital framework.

Other commenters suggested broader exclusions from the supplementary leverage ratio denominator. Some commenters suggested excluding banking organizations' deposits held at central banks (reserves); reserves and short-term Treasury securities; or reserves and all Treasury security holdings. In addition, one commenter supported excluding from the denominator of the supplementary leverage ratio all reserves, Treasury securities, and repurchase and reverse repurchase agreements backed by Treasury security collateral across all entities within a banking organization. A few commenters called for applying some of these exclusions to all leverage capital requirements applicable to banking organizations. Some commenters requested that the agencies state that they may exclude certain assets from total leverage exposure during exceptional macroeconomic circumstances, as the agencies did on a temporary basis through interim final rules in 2020, as the onset of the COVID-19 pandemic significantly and adversely affected global financial markets.

See

“Temporary Exclusion of U.S. Treasury Securities and Deposits at Federal Reserve Banks from the Supplementary Leverage Ratio,” 85 FR 20578 (Apr. 14, 2020); “Regulatory Capital Rule: Temporary Exclusion of U.S. Treasury Securities and Deposits at Federal Reserve Banks from the Supplementary Leverage Ratio for Depository Institutions,” 85 FR 32980 (June 1, 2020).

The final rule does not adopt the narrow exclusion approach or other exclusions requested by commenters. As discussed in the proposal and in section IV of this

SUPPLEMENTARY INFORMATION,

and as observed by many of the commenters, the final rule's changes to the eSLR standards achieve the objectives of the rulemaking and continues to broadly treat exposures equally under the supplementary leverage ratio framework.

The proposal also included a question about potential additional modifications to the regulatory capital framework that the agencies should consider to reduce

regulatory impediments to well-functioning U.S. Treasury markets. Many commenters recommended several additional changes to the regulatory capital framework for the agencies to consider in potential future rulemakings. Specifically, some commenters suggested modifying the GSIB surcharge framework by, for example, removing U.S. Treasury security holdings or other assets or exposures from the GSIB surcharge calculation and recognizing the risk-mitigation effects of cross-product master netting agreements in the standardized approach for counterparty credit risk.

Some commenters advocated for changes to the tier 1 leverage ratio requirement, such as a reduction in the level of the requirement at the holding company and depository institution levels or exclusion of certain assets, such as reserves, Treasury securities, and certain other Treasury-collateralized exposures, from the denominator of the ratio.

12 CFR 3.132(c) (OCC); 12 CFR 217.132(c) (Board); 12 CFR 324.132(c) (FDIC).

Some commenters suggested removing supplementary leverage ratio requirements for certain banking organizations, such as Category III banking organizations and U.S. intermediate holding companies of foreign banking organizations with less than $250 billion in total assets. Some other commenters recommended modifications to the calibration of the community bank leverage ratio requirement to a level lower than the current nine percent calibration.

Some commenters advocated for changes to elements of the agencies' regulatory frameworks that are not related to leverage requirements. For example, some commenters advocated that the agencies should adjust certain regulatory thresholds based on factors such as economic growth or inflation. A few commenters suggested changes to the Board's method 2 GSIB surcharge calculation, the Board's supervisory stress tests, the applicability of the global market shock component of the stress test, and the stress capital buffer requirement. Some commenters also expressed concerns that the method 1 GSIB surcharge calculation incorporates global data to compute aggregate global indicator amounts. Other commenters suggested specific changes to the risk-based capital framework. One commenter suggested removing Treasury security cash-market and repurchase agreement positions from certain risk-based indicators of the agencies' regulatory tailoring framework for large banking organizations and removing from the off-balance sheet exposure risk-based indicator exposures that arise in connection with central clearing services for U.S. Treasury security-related transactions provided by a clearing member banking organization to another firm. One commenter called for mandating equity issuance or retention of capital to avoid what the commenter viewed as inefficiencies in changing ratio-based capital requirements, and another commenter called for inclusion of weather- and climate-related risks in the capital framework. One commenter expressed concern that the Board has not yet adopted a countercyclical capital buffer requirement greater than zero and has not yet responded to a petition for rulemaking related to the boards of directors of holding companies and their subsidiary depository institutions.

The final rule does not address these requests, as they are beyond the scope of the proposal. As noted previously, the agencies monitor the effectiveness of their rules for potential improvements and may make changes in the future as appropriate.

E. Technical Corrections

The proposal would have implemented certain technical corrections. The Board proposed to revise 12 CFR 217.11(c)(3)(ii)(A) through (C) to correct certain cross-references. Those paragraphs had erroneously referred to 12 CFR 217.10(c)(1)(ii), (c)(2)(ii), and (c)(3)(ii), respectively; the proposed technical correction would have replaced those references with the appropriate references to 12 CFR 217.10(d)(1)(ii), (d)(2)(ii), and (d)(3)(ii), respectively. Second, the FDIC proposed to remove outdated references in its prompt corrective action regulation to the supplementary leverage ratio's effective date of January 1, 2018. The Board and FDIC did not receive comments on the proposed technical corrections. The Board and FDIC are finalizing the technical corrections as proposed.

Additionally, the Board is finalizing additional technical corrections that were not included in the proposal but are related to the same incorrect cross-reference. First, the Board is revising 12 CFR 208.41(d), (m), and (p). Those paragraphs had erroneously referred to 12 CFR 217.10(c)(1), (c)(2), and (c)(3), respectively; the Board is replacing those references with appropriate references to 12 CFR 217.10(d)(1), (d)(2), and (d)(3), respectively. Second, the Board is revising the definition of “common equity tier 1 capital ratio” in both 12 CFR 252.61 (“common equity tier 1 capital ratio”) and 12 CFR 252.161 (“common equity tier 1 capital ratio”). Those definitions had erroneously referred to 12 CFR 217.10(c); the Board is replacing those references with appropriate references to 12 CFR 217.10(d). Additionally, the Board is removing paragraph 12 CFR 208.43(a)(1)(iv)(C), which is now unnecessary.

III. Effective Date

The agencies received several comments relating to the length of the comment period on the proposal, timing of adoption of a final rule, and the effective date of a final rule.

Several commenters asked the agencies to withdraw the proposal or delay adoption of the final rule and, instead, prioritize changes to risk-based capital requirements. Specifically, these commenters asserted that the agencies should delay adoption of the proposed modifications of the eSLR standards until completion of a further study and additional public comment on the effect of other potential changes to the regulatory capital framework on the proposal. Other commenters requested an extension of the comment period before finalizing the proposal. In these commenters' view, the proposal has significant implications and warrants a longer comment period than 60 days to ensure meaningful public participation.

Several other commenters asked the agencies to adopt the proposal as a final rule without delay. Of these, some commenters suggested that the effective date for implementation of the final rule should be no later than January 1, 2026, or as promptly as possible. One commenter noted that prompt adoption is particularly important, given the implementation of mandatory clearing for certain U.S. Treasury security transactions.

The agencies received approximately 40 comments on the proposal. The comments received by the agencies represent a broad range of views and included thoughtful engagement with the proposal.

The agencies do not consider an extension of the comment period to be warranted, given the volume, depth, and diversity of comments submitted.

In addition, on July 22, 2025, the Board held a conference on the capital framework for large banking organizations, which was publicly streamed and available on the Board's website.

See

Integrated Review of the Capital Framework for Large Banks Conference (July 22, 2025),

https://www.federalreserve.gov/conferences/integrated-review-of-the-capital-framework-for-large-banks.htm.

The final rule includes an effective date of April 1, 2026, for the modified eSLR standard applicable to GSIBs and

covered depository institutions. This effective date is intended to provide banking organizations subject to the rule with time to comply with the modified eSLR standards. The agencies will permit GSIBs and covered depository institutions subject to the eSLR standards to elect to voluntarily adopt the final rule's modified eSLR standards as of January 1, 2026, prior to the mandatory compliance date.

IV. Economic Analysis

A. Introduction

As discussed in section I.B of this

SUPPLEMENTARY INFORMATION,

the final rule aims generally for the supplementary leverage ratio requirement to be a backstop to risk-based tier 1 capital requirements for GSIBs and covered depository institutions.

The final rule's changes reduce the likelihood and frequency of the supplementary leverage ratio requirement being a binding tier 1 capital requirement for these banking organizations. As a consequence, the changes reduce disincentives for these organizations to participate in low-risk, low-return activities, such as U.S. Treasury market intermediation.

Throughout the economic analysis section, the agencies use the term “supplementary leverage ratio requirement” to refer to the combination of the supplementary leverage ratio minimum requirement, which is three percent for all banking organizations subject to Category I-III standards, plus the eSLR standards, which are an additional two percent for GSIBs and an additional three percent for covered depository institutions.

See

Section I.A of this

SUPPLEMENTARY INFORMATION

for a detailed description of the eSLR standards.

In recent years, the supplementary leverage ratio requirement has regularly been the binding tier 1 capital requirement for many GSIBs and most covered depository institutions. This can create unintended incentives for these banking organizations to engage in higher-risk activities and to reduce their participation in low-risk, low-return activities. The final rule will address these incentives by reducing the calibration of the eSLR standards. As a consequence, the final rule increases the balance sheet capacity of most GSIBs for low-risk activities, which can reduce the need for temporary policy adjustments in the event of severe market stress.

The agencies estimate that, in the period from the second quarter of 2021 to the fourth quarter of 2024, the supplementary leverage ratio requirement was the binding tier 1 capital requirement 60 percent of the time, on average, for seven out of the eight GSIBs. In the same period, the supplementary leverage ratio requirement was the binding tier 1 capital requirement 87 percent of the time, on average, for major covered depository institutions.

When the binding capital requirement for a banking organization is a leverage ratio requirement, it can discourage the banking organization from engaging in low-risk activities, especially in high-volume, low-return activities, while creating incentives for the organization to conduct higher-risk activities. These incentives are due to what may be called the “level effect” and the “marginal effect” of a binding leverage ratio requirement. Specifically, for a given amount of tier 1 capital, the level effect of a binding leverage ratio requirement restricts the growth of the banking organization because it cannot engage in even low-risk activities without further increasing its tier 1 capital requirement. Additionally, the marginal effect of a binding leverage ratio requirement makes the banking organization prefer higher-risk activities to low-risk activities because both activities need to be financed by the same amount of tier 1 capital under the supplementary leverage ratio requirement, while higher-risk activities typically have higher expected returns. This marginal effect could incentivize the banking organization to forego investments in low-risk activities or substitute its existing low-risk exposures with higher-risk ones. Such unintended incentives are further amplified by the fact that low-risk activities tend to be balance sheet intensive because their typically low expected returns make them profitable only if they are conducted in large volumes. Hence, general economic theory predicts that a binding leverage ratio requirement can discourage banking organizations from engaging in low-risk activities, which might reduce social welfare.

A prime example of such low-risk, low-return, high-volume activities conducted by banking organizations is intermediation in the U.S. Treasury market, a key financial market.

Acting as intermediaries in this market, banking organizations enter into temporary positions in U.S. Treasury securities, classified as trading assets on their balance sheets. Most of these trading assets are held by the broker-dealer subsidiaries of banking organizations to facilitate transactions across different participants and segments in the U.S. Treasury market.

These broker-dealers play a critical role in the U.S. Treasury market by providing liquidity to market participants through both market making and securities financing activities;

in particular, GSIBs' primary dealer subsidiaries are the largest U.S. Treasury securities dealers.

The U.S. Treasury market is a key financial market because it (i) constitutes an important channel through which the Federal Reserve can conduct its monetary policy; (ii) enables the U.S. government to obtain financing at a low and stable cost; (iii) provides the yield curve widely used as a risk-free benchmark in the valuation of other financial assets and derivatives; and (iv) offers a large supply of safe and liquid assets for global investors.

See the discussion related to Table 5 in section IV.B of this

SUPPLEMENTARY INFORMATION

The activities of U.S. Treasury securities dealers extend well beyond buying and selling U.S. Treasury securities outright in the primary and secondary markets. In particular, these entities also act as key counterparties in secured financing and derivatives transactions. For a detailed analysis of how the activities and positions of the broker-dealer subsidiaries of GSIBs evolved over time,

see

P. Cochran et al., Dealers' Treasury Market Intermediation and the Supplementary Leverage Ratio, FEDS Notes, Board of Governors of the Federal Reserve System (Aug. 3, 2023).

One commenter requested that the agencies further explain why GSIBs are important for U.S. Treasury market intermediation. While all primary dealers in general play a critical role as intermediaries in the U.S. Treasury market and dedicated counterparties of the Federal Reserve Bank of New York, as described at

https://www.newyorkfed.org/markets/primarydealers

in more detail, the broker-dealers of GSIBs are particularly important market participants. Indeed, the six largest U.S. Treasury securities dealers are all subsidiaries of GSIBs, whose activities therefore have an outsized influence on the liquidity and price dynamics in the U.S. Treasury market.

See, e.g.,

P. Cochran et al., Dealers' Treasury Market Intermediation and the Supplementary Leverage Ratio, FEDS Notes, Board of Governors of the Federal Reserve System (Aug. 3, 2023) and J. Goldberg, Liquidity Supply by Broker-Dealers and Real Activity, Journal of Financial Economics, 136(3) (Apr. 14, 2020).

As discussed in the proposal, both the U.S. Treasury market and primary dealers' U.S. Treasury securities positions have grown rapidly over the last decade. As Table 2 shows, the amount of U.S. Treasury securities outstanding, excluding holdings of the Federal Reserve System Open Market Account (SOMA), has expanded by 139 percent, from $10 trillion to $24 trillion, since 2014.

Meanwhile, the U.S. Treasury securities positions of primary dealers have grown by 155 percent, reaching $0.6 trillion in aggregate. This expansion in primary dealers' U.S. Treasury securities positions reflects both the abundant supply of these securities and the central role of these broker-dealer subsidiaries of banking organizations as intermediaries in this market. Notably, despite the rapid increase in primary dealers' U.S.

Treasury securities positions, measured in dollar terms, the size of these positions relative to the size of the market has been stable over time. Specifically, relative to the amount of U.S. Treasury securities outstanding, excluding holdings of the Federal Reserve System Open Market Account, the U.S. Treasury securities positions of primary dealers stayed at about 2.5 percent over the last decade, which indicates the strong connection between the size of the U.S. Treasury market and the magnitude of market intermediation activities by these broker-dealers.

To assess the size of the U.S. Treasury market from the perspective of broker-dealers, the agencies exclude the U.S. Treasury securities holdings in the Federal Reserve's SOMA because broker-dealers' market intermediation activity is closely related to U.S. Treasury securities held by the public sector.

The positive empirical relationship between the size of the U.S. Treasury market and primary dealers' U.S. Treasury securities positions is also documented in P. Cochran et al., Assessment of Dealer Capacity to Intermediate in Treasury and Agency MBS Markets, FEDS Notes, Board of Governors of the Federal Reserve System (Oct. 22, 2024).

ER01DE25.012

The

rapid growth of the U.S. Treasury market has raised concerns about its liquidity and resiliency, especially considering that the balance sheets of primary dealers, key intermediaries in this market, have grown at a more moderate pace (by 29 percent, in aggregate, since 2014).

These concerns partly drove the agencies' decision to temporarily exclude deposits at Federal Reserve Banks and U.S. Treasury securities holdings from the calculation of total leverage exposure for banking organizations subject to Category I-III standards in the wake of the COVID-19 market stress.

Empirical evidence in BCBS (2021) suggests that the exclusions enabled these banking organizations, and especially GSIBs, which had smaller supplementary leverage ratio management buffers than banking organizations subject to Category II and III standards, to significantly expand their U.S. Treasury securities holdings.

In this table, the agencies use publicly available data reported in field FL313161105 of the Financial Accounts of the United States (Z.1) for the amount of U.S. Treasury securities outstanding; the Federal Reserve Bank of New York's public reports for the amount of U.S. Treasury securities holdings in the Federal Reserve's SOMA,

see https://www.newyorkfed.org/markets/soma-holdings;

publicly available data reported in SEC Form X-14A-5 Part IIA filings for the total assets of primary dealers; and the sum of the values reported in fields GSWA M438, N749, M440, M442, M444, M446, M448, M450, LF56, LF58, M452, M454, M456, M458 of the confidential FR 2004A filings for the amount of long U.S. Treasury securities positions of primary dealers, measured at the end of 2014 and 2024.

See, e.g.,

the discussion of concerns about U.S. Treasury market functioning and proposed solutions in D. Duffie, Still the World's Safe Haven? Redesigning the U.S. Treasury Market After the COVID-19 Crisis, Hutchins Center on Fiscal and Monetary Policy, Brookings (June 22, 2020) and N. Liang and P. Parkinson, Enhancing Liquidity of the U.S. Treasury Market Under Stress, Hutchins Center on Fiscal and Monetary Policy, Brookings (Dec. 16, 2020).

See the Board's and the agencies' interim final rules temporarily excluding these assets from the calculation of total leverage exposure for holding companies subject to Category I-III standards, as well as their depository institution subsidiaries, effective April 14, 2020, and June 1, 2020. 85 FR 20578 (Apr. 14, 2020); 85 FR 32980 (June 1, 2020).

Basel Committee, Early Lessons from the Covid-19 Pandemic on the Basel Reforms, Bank for International Settlements (July 2021) (“BCBS (2021)”). Throughout the economic analysis section, the agencies use the term “management buffer” to refer to the amount of regulatory capital that a company has in excess of the sum of its minimum regulatory capital requirements and any regulatory capital buffer requirements.

There are several factors that influence broker-dealers' decisions to engage in financial market intermediation.

As discussed in the proposal, academic studies also provide support for the concern that the supplementary leverage ratio requirement could potentially discourage U.S. Treasury market intermediation by the broker-dealer subsidiaries of large banking organizations. Favara, Infante, Rezende (2022) find that large and unexpected increases to GSIBs' balance sheets discourage GSIBs' broker-dealer subsidiaries from participating in the U.S. Treasury market, with the estimated effect being stronger for GSIBs with smaller supplementary leverage ratio management buffers.

Duffie et al. (2023) show that U.S. Treasury market liquidity measures deteriorate as primary dealers face capacity constraints, suggesting that a lack of ability by broker-dealers to participate in U.S. Treasury markets can have a detrimental effect on market liquidity.

The empirical findings in Bräuning and Stein (2024) indicate that the primary dealer subsidiaries of banking organizations subject to Category I-III standards that face relatively more

binding supplementary leverage ratio requirements or internal risk limits reduce their U.S. Treasury securities positions relative to less constrained primary dealers, which in turn leads to a decrease in market liquidity in the form of lower aggregate turnover and wider bid-ask spreads.

Overall, the academic literature suggests that reducing the supplementary leverage ratio requirement's bindingness could improve the functioning of the U.S. Treasury market.

For example, Li, Petrasek, Tian (2024) find that internal risk limits are important determinants of broker-dealers' capacity and willingness to intermediate financial markets. D. Li, L. Petrasek and M. H. Tian, Risk-Averse Dealers in a Risk-Free Market—The Role of Internal Risk Limits, SSRN (Mar. 1, 2024) (“Li, Petrasek, Tian (2024)”).

G. Favara, S. Infante, and M. Rezende, Leverage Regulations and Treasury Market Participation: Evidence from Credit Line Drawdowns, SSRN (Aug. 4, 2022) (“Favara, Infante, Rezende (2022)”).

D. Duffie et al., Dealer Capacity and U.S. Treasury Market Functionality, Federal Reserve Bank of New York Staff Report (Aug. 2023,

rev.

Oct. 2023) (“Duffie et al. (2023)”).

F. Bräuning and H. Stein, The Effect of Primary Dealer Constraints on Intermediation in the Treasury Market, Federal Reserve Bank of Boston Research Department Working Papers (2024) (“Bräuning and Stein (2024)”).

Several commenters requested evidence that the eSLR standard is currently acting as a constraint to U.S. Treasury market intermediation, with some commenters noting that internal risk limits could also constrain such activities. One commenter noted that GSIBs may not purchase more U.S. Treasury securities under the proposal. Meanwhile, several commenters supported the agencies' assessment that the eSLR is currently a binding capital constraint, which can create unintended disincentives for GSIBs.

As discussed in section II.A of this

SUPPLEMENTARY INFORMATION

, the final rule's objective is to set the supplementary leverage ratio requirement as a backstop to risk-based tier 1 capital requirements for GSIBs and covered depository institutions, rather than creating incentives for these banking organizations to hold more U.S. Treasury securities. Accordingly, as discussed in section IV.F of this

SUPPLEMENTARY INFORMATION

, the agencies anticipate that the final rule will reduce unintended disincentives for GSIBs to engage in low-risk activities through both its marginal and level effect. In particular, the level effect of the final rule will create additional capacity for these banking organizations to hold low-risk assets on their balance sheets. One notable example where this benefit may manifest is the U.S. Treasury market intermediation activity of GSIBs, which could be affected by balance sheet constraints, as evidenced by the empirical studies cited above. The findings in these studies indicate that the supplementary leverage ratio requirement could pose a potential constraint to the intermediation activity of primary dealers, although, as discussed in the proposal and earlier in this subsection, other factors, such as internal risk limits can also influence broker-dealers' decisions to participate in the U.S. Treasury market.

The structure of the economic analysis is as follows. Section IV.B describes the baseline for the impact assessment, which is the current regulatory framework, and the data sources used. Sections IV.C and IV.D present the policy change and four reasonable alternatives. Section IV.E estimates the change in the supplementary leverage ratio requirement and the binding tier 1 capital requirement for banking organizations subject to Category I-III standards under the final rule and the policy alternatives, relative to the baseline. Sections IV.F and IV.G evaluate the economic benefits and costs, respectively, of the final rule and the policy alternatives. Section IV.H addresses further comments received on the analysis in the proposal. Section IV.I analyzes the impact of the changes to the long-term debt and total loss-absorbing capacity buffer requirements under the final rule. Section IV.J concludes the analysis.

B. Baseline

The economic analysis uses the current regulatory framework as a baseline, which includes the current supplementary leverage ratio requirement, described in section I.A of this

SUPPLEMENTARY INFORMATION

. The baseline represents the state of banking organizations subject to Category I-III standards in the absence of a policy change. Accordingly, throughout the analysis, the agencies assess the economic impact of the final rule and the policy alternatives considered, described in sections IV.C and IV.D of this

SUPPLEMENTARY INFORMATION

, respectively, by comparing outcomes estimated under the final rule and the alternatives to the outcome estimated under the baseline.

The analysis uses the year 2024 as the sample period to produce quantitative estimates, which reflects a recent state of banking organizations subject to Category I-III standards. Unless stated otherwise, the calculations and estimates in the analysis take the average values of balance sheet quantities and ratios measured at the end of each quarter in 2024. A review of balance sheets of banking organizations subject to Category I-III standards from 2021 to 2024 indicates that using a longer sample period yields similar estimates.

In response to comments, the agencies also calculate the main impact estimates using the most recent quarter of balance sheet data in section IV.H.1 of this

SUPPLEMENTARY INFORMATION

Unless stated otherwise, the analysis uses publicly available data reported in FR Y-9C filings for holding companies and the Federal Financial Institutions Examination Council (FFIEC) Call Reports for depository institutions.

In certain calculations related to the total leverage exposure of holding companies, the agencies use publicly available data reported in FFIEC 101 filings.

The agencies calculate method 1 and method 2 surcharges by using publicly available data from FR Y-15 filings as well as the aggregate global systemic indicator amounts published annually by the Board.

The agencies calculate the amount of U.S. Treasury securities holdings of primary dealers by using confidential data from FR 2004A filings.

From FR Y-9C filings, the agencies use the fields BHCA8274, BHCAA223, BHCWA223, BHCAA224, BHCK2170, BHCK3368, BHCM3531, BHCK0211, BHCK0213, BHCK1286, BHCK1287, BHCALE85. From FFIEC Call Reports, the agencies use the fields RCFA8274, RCFAA223, RCFWA223, RCFAA224, RCFD2170, RCFAH015, RCFD3531, RCFD0211, RCFD0213, RCFD1286, RCFD1287, RCFD0090, RCON0090.

From FFIEC 101 filings, the agencies use the field AAABH015.

From FR Y-15 filings, the agencies use the fields RISK Y832, M362, M370, M376, M390, M405, M408, M411, N255, G506, M422, M426, Y896. Additionally, in method 1 surcharge calculations, the agencies use the aggregate global indicator amounts published by the Board at

https://www.federalreserve.gov/supervisionreg/basel/denominators.htm

From FR 2004A filings, the agencies use the sum of the values reported in fields GSWA M438, N749, M440, M442, M444, M446, M448, M450, LF56, LF58, M452, M454, M456, M458 to calculate the amount of long U.S. Treasury securities positions of primary dealers.

In calculations involving the depository institution subsidiaries of holding companies subject to Category I-III standards, the agencies focus on each holding company's major depository institution subsidiaries (

i.e.,

the largest depository institution subsidiary as well as any of its depository institution subsidiaries with total assets greater than $50 billion at the end of any quarter in 2024). The rest of their depository institution subsidiaries, with total assets less than $50 billion in 2024, account for 0.7 percent of the consolidated total assets of these holding companies, in aggregate.

These depository institution subsidiaries include the uninsured national bank subsidiaries of GSIBs that are subject to the eSLR standard under the final rule, as discussed in section II.A of this

SUPPLEMENTARY INFORMATION

. There are six such uninsured national bank subsidiaries, which account for 0.01 percent of the total assets of GSIBs, in aggregate.

Table 3 compares the baseline levels of the different tier 1 capital requirements, inclusive of buffer requirements, for banking organizations subject to Category I-III standards in

2024.

On average, for GSIBs, the supplementary leverage ratio requirement is at a similar level to the risk-based tier 1 capital requirement. On average, for major covered depository institutions, the supplementary leverage ratio requirement is higher than the risk-based tier 1 capital requirement. On average, for banking organizations subject to Category II and III standards, the risk-based tier 1 capital requirement is higher than the tier 1 leverage ratio requirement, which in turn is higher than the supplementary leverage ratio requirement.

The agencies calculated tier 1 capital requirements for banking organizations subject to Category I-III standards as per the applicable rules.

See

12 CFR 3.10 and 3.11, 12 CFR 6.4 (OCC); 12 CFR 208.43, 12 CFR 217.10 and 217.11 (Board); 12 CFR 324.10, 324.11, and 324.403 (FDIC).

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The agencies estimate that the supplementary leverage ratio requirement is the highest tier 1 capital requirement for five out of the eight GSIBs and eight out of the nine major covered depository institutions under the baseline.

By contrast, for almost all holding companies subject to Category II and III standards, as well as for nine out of their 12 major depository institution subsidiaries, the risk-based tier 1 capital requirement is the highest tier 1 capital requirement.

One commenter raised questions about the need for adjusting the eSLR standard for GSIBs predominantly engaged in custody, safekeeping, and asset servicing activities. The agencies' baseline calculations show that the supplementary leverage ratio requirement was often the highest tier 1 capital requirement for these GSIBs and their covered depository institutions.

Table 3 also shows that, compared to the risk-based tier 1 requirement, the relative level of the supplementary leverage ratio requirement is significantly lower for GSIBs than for their major covered depository institutions under the baseline. For GSIBs, the relative level of the supplementary leverage ratio requirement ranges from 87 to 111 percent of the risk-based tier 1 capital requirement, whereas for major covered depository institutions, the relative level of the supplementary leverage ratio requirement ranges from 128 to 244 percent of the risk-based tier 1 capital requirement. This difference between GSIBs and major covered depository institutions in the level of the supplementary leverage ratio requirement is due to the lower risk-based capital buffer requirements and the higher eSLR standard at the depository institutions.

Therefore, any adjustment to the eSLR standards that aims for the supplementary leverage ratio requirement to be a backstop to risk-based capital requirements would lead to a larger reduction in tier 1 capital requirements for covered depository institutions than for GSIBs.

Risk-based capital buffer requirements are higher for GSIBs than for covered depository institutions because of the GSIB surcharge and the stress capital buffer requirement.

The final rule also affects requirements and buffer standards for TLAC and long-term debt. The agencies present a baseline analysis for these standards in section IV.I of this

SUPPLEMENTARY INFORMATION

1. Role of Banking Organizations as Investors in U.S. Treasury Securities

In addition to their critical role as intermediaries in the U.S. Treasury market, banking organizations also act as investors. Specifically, in addition to U.S. Treasury securities held as trading assets, banking organizations also hold such securities as investment securities on their balance sheets, typically for longer periods, and sometimes until maturity.

Most of these investment securities are held by depository institution subsidiaries.

Under U.S. Generally Accepted Accounting Principles, investment securities holdings can be classified as “available-for-sale” or “held-to-maturity” securities on banking organizations' balance sheets.

See the discussion related to Table 5 in Section IV.B of this

SUPPLEMENTARY INFORMATION

Over the last decade, banking organizations have increased their market share as investors in the U.S. Treasury market, with the growth of U.S. Treasury securities held by depository institutions outpacing the expansion of the market. Indeed, Table 4 shows that the amount of U.S. Treasury securities outstanding has expanded by 125 percent, from $12.5 trillion to $28.1 trillion, whereas the U.S. Treasury securities holdings of U.S.

depository institutions have grown by 264 percent, reaching $1.54 trillion in aggregate. Hence, the aggregate market share of depository institutions has increased from 3.4 percent to 5.5 percent.

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Table 4 shows that while the U.S. Treasury securities holdings of U.S. depository institutions have grown significantly, their balance sheets have grown at a more moderate pace, by 60 percent, in aggregate, since 2014. Consequently, the aggregate share of U.S. Treasury securities held on their balance sheets has more than doubled, from 3.0 percent to 6.8 percent, which indicates that the relative importance of U.S. Treasury securities as investment assets has increased for banking organizations over the last decade. These developments contribute to the increased bindingness of leverage ratio requirements because U.S. Treasury securities held on the balance sheet of a depository institution have zero risk weight under the risk-based capital framework; hence, increases in such securities holdings can increase leverage ratio requirements relative to risk-based capital requirements.

2. Treasury Securities Held by Banking Organizations Subject to Category I to III Standards

In this table, the agencies use publicly available data reported in the Financial Accounts of the United States (Z.1): field FL313161105 for the amount of U.S. Treasury securities outstanding; field FL764194005 for the total assets of U.S. depository institutions; and field LM763061100 for the U.S. Treasury securities holdings of U.S. depository institutions, measured at the end of 2014 and 2024.

Banking organizations subject to Category I-III standards had large U.S. Treasury holdings, in both nominal and relative terms, in 2024. As Table 5 shows, measured at fair value at the consolidated holding company level, these banking organizations held $1.9 trillion of U.S. Treasury securities, in aggregate, which was almost 7 percent of the total amount of U.S. Treasury securities outstanding. On average, these securities holdings constituted 9 percent of GSIBs' total leverage exposures and 5 percent of the total leverage exposures of holding companies subject to Category II and III standards.

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Table 5 also shows the two distinct roles of banking organizations subject to Category I-III standards as both intermediaries and investors in the U.S. Treasury market. On average across these banking organizations, about two thirds of U.S. Treasury securities held on consolidated holding company balance sheets are classified as investment assets, with the remaining one third classified as trading assets. In aggregate, the depository institution subsidiaries of these banking organizations hold the majority of the U.S. Treasury securities classified as investment assets and a minor share of U.S. Treasury securities classified as trading assets on the consolidated balance sheets of their parent holding companies. As noted earlier, most of the U.S. Treasury holdings classified as trading assets are held by the broker-dealer subsidiaries of these banking organizations.

Using confidential FR 2004 data for GSIBs' primary dealer subsidiaries, the agencies confirm that, on average, 92 percent of the U.S. Treasury securities holdings classified as trading assets on GSIBs' consolidated balance sheets and not held by their depository institution subsidiaries are indeed held by their primary dealer subsidiaries. Section IV.B of this

SUPPLEMENTARY INFORMATION

describes the data used in this calculation.

C. Policy Change

The final rule sets the eSLR buffer standard for GSIBs to 50 percent of their method 1 surcharge, instead of the two percent eSLR buffer standard applicable under the baseline. Additionally, for covered depository institutions, the final rule sets the eSLR buffer standard to 50 percent of their parent GSIB's method 1 surcharge, capped at one percent. This eSLR buffer standard applies in addition to the three percent supplementary leverage ratio minimum requirement. This requirement for covered depository institutions replaces the six percent “well-capitalized” prompt corrective action threshold applicable under the baseline.

The final rule does not change the three percent supplementary leverage ratio minimum requirement or the calculation of total leverage exposure for banking organizations subject to Category I-III standards.

D. Reasonable Alternatives

The analysis considered four reasonable alternatives to the final rule. The agencies assess the expected benefits and costs of these alternatives relative to the baseline and compare them to the expected benefits and costs of the final rule.

Alternative 1 is the “narrow exclusion” approach, which includes all changes for GSIBs and covered depository institutions under the final rule and additionally excludes from the calculation of total leverage exposure for holding companies subject to Category I-III standards U.S. Treasury securities reported as trading assets on the holding companies' balance sheets and held at broker-dealer subsidiaries (and foreign equivalents thereof) that are not subsidiaries of a depository institution.

Alternative 2 is the “broader exclusion” approach, which does not change the eSLR standards like the final rule but instead excludes deposits held at Federal Reserve Banks (reserves) and all U.S. Treasury securities holdings from the calculation of total leverage exposure for all banking organizations subject to Category I-III standards. This policy alternative is similar to the temporary exclusion of these assets from the calculation of total leverage exposure implemented by the agencies in 2020.

Alternative 3 (“2018 proposal”) sets the eSLR standards for both GSIBs and covered depository institutions equal to

50 percent of the higher of method 1 and method 2 surcharges. This policy alternative is similar to the notice of proposed rulemaking published in the

Federal Register

by the Board and OCC on April 19, 2018, which would have recalibrated the eSLR standards for these banking organizations.

This proposed rule was not finalized.

See

“Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for U.S. Global Systemically Important Bank Holding Companies and Certain of Their Subsidiary Insured Depository Institutions; Total Loss-Absorbing Capacity Requirements for U.S. Global Systemically Important Bank Holding Companies.” 83 FR 17317 (Apr. 19, 2018).

Alternative 4 (“combined”) is a combination of the final rule and Alternative 2. As such, this policy alternative both sets the eSLR standards for GSIBs as well as covered depository institutions like the final rule and excludes reserves as well as U.S. Treasury securities holdings from the calculation of total leverage ratio exposure for all banking organizations subject to Category I-III standards.

E. Changes in the Supplementary Leverage Ratio and Tier 1 Capital Requirements

The agencies estimate that the final rule will substantially reduce the supplementary leverage ratio requirement for GSIBs and covered depository institutions relative to the baseline. As Table 6 shows, the final rule reduces the requirement by 23 percent, on average, for the holding companies and by 37 percent for major covered depository institutions. The final rule does not change the supplementary leverage ratio requirement for banking organizations subject to Category II and III standards.

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Alternative 1 (“narrow exclusion”) has a similar effect to that of the final rule, reducing the supplementary leverage ratio requirement slightly more, by 25 percent, on average, for GSIBs and by the same amount, 37 percent for major covered depository institutions. Relative to the baseline, this alternative slightly reduces the supplementary leverage ratio requirement for holding companies subject to Category II and III standards.

This small incremental reduction in the supplementary leverage ratio requirement for holding companies is due to the exclusion of U.S. Treasury securities held by their broker-dealer subsidiaries from the calculation of total leverage exposure for these holding companies.

Under Alternative 1, the estimated reduction in the supplementary leverage ratio requirement for holding companies subject to Category II and III is modest because it is solely driven by the exclusion of U.S. Treasury securities held by their broker-dealer subsidiaries from the calculation of total leverage exposure for these holding companies, while their minimum supplementary leverage ratio requirement remains unchanged.

Throughout the economic analysis, for each holding company subject to Category I to III standards, the agencies approximate the amount of U.S. Treasury securities classified as trading assets and held by its broker-dealer subsidiaries by taking the amount of U.S. Treasury securities reported as trading assets by the consolidated holding company and subtracting the amount of U.S. Treasury securities reported as trading assets by its depository institution subsidiaries.

Alternative 2 (“broader exclusion”) leads to a much smaller reduction in the supplementary leverage ratio requirement for GSIBs and covered depository institutions than the final rule. This policy alternative affects GSIBs and banking organizations subject

to Category II and III standards to a similar extent because it excludes reserves and all U.S. Treasury securities holdings from the calculation of total leverage exposure for all of these banking organizations. Specifically, this alternative reduces the supplementary leverage ratio requirement for these banking organizations by 14 percent, on average. The reduction in the requirement is similar between holding companies and depository institution subsidiaries because most of the excluded assets are held at the depository institution subsidiaries.

Alternative 3 (“2018 proposal”) leads to a smaller reduction in the supplementary leverage ratio requirement for GSIBs and covered depository institutions than the final rule. This is because this policy alternative sets the eSLR standards to 50 percent of the higher of the method 1 and method 2 surcharges. Specifically, Alternative 3 reduces the supplementary leverage ratio requirement by 8 percent, on average, for GSIBs and by 23 percent, on average, for major covered depository institutions. Like the final rule, this alternative leads to a much larger reduction in the supplementary leverage ratio requirement for the depository institutions than for the holding companies because, as described in section IV.D of this

SUPPLEMENTARY INFORMATION

, it sets eSLR standards to the same percentage amount for both GSIBs and their major depository institution subsidiaries, whereas the eSLR standard is one percentage point higher for covered depository institutions under the baseline. Like the final rule, this alternative does not change the supplementary leverage ratio requirement for banking organizations subject to Category II and III standards.

Alternative 4 (“combined”) combines the effects of the final rule and the “broader exclusion” alternative, reducing the supplementary leverage ratio requirement by 35 percent and 46 percent, on average, for GSIBs and major covered depository institutions, respectively, and by a little more than 10 percent, on average, for banking organizations subject to Category II and III standards.

Similar to the “narrow exclusion” alternative, the “combined” alternative reduces tier 1 capital requirements for GSIBs and covered depository institutions much more than for banking organizations subject to Category II and III standards. This greater reduction is due to GSIBs and covered depository institutions being affected by both the reduced calibration of the eSLR standards and the exclusion of reserves and U.S. Treasury securities holdings from the calculation of total leverage exposure, whereas banking organizations subject to Category II and III standards are only affected by the exclusion.

The effect of Alternative 4 is less than the sum of the final rule's effect and the effect of Alternative 2 because the exclusion of reserves and U.S. Treasury securities holdings from the supplementary leverage ratio's denominator reduces the effect of the reduced calibration of the eSLR standards under this combined policy alternative.

The final rule will meaningfully reduce the supplementary leverage ratio requirement relative to the risk-based tier 1 capital requirements for GSIBs and covered depository institutions, thereby achieving the goal of making the supplementary leverage ratio requirement a backstop for these banking organizations. As Table 7 shows, the final rule will reduce the relative level of the supplementary leverage ratio requirement from about 100 percent and 155 percent of the risk-based tier 1 capital requirement to about 75 percent and 100 percent of it, on average, for GSIBs and major covered depository institutions, respectively. Under the final rule, the level of the supplementary leverage ratio requirement will range from 61 percent to 86 percent of the risk-based tier 1 requirement for GSIBs and from 75 percent to 143 percent of the risk-based tier 1 requirement for major covered depository institutions. Therefore, the final rule sets the supplementary leverage ratio requirement below the level of the risk-based tier 1 capital requirement for all GSIBs, making it a backstop to risk-based tier 1 capital requirements. The final rule also sets the level of the supplementary leverage ratio requirement below the level of the risk-based tier 1 capital requirement for six out of the nine major covered depository institutions. The final rule does not change the supplementary leverage ratio requirement for banking organizations subject to Category II and III standards. The supplementary leverage ratio requirement is already well below (about 65 percent of) the risk-based tier 1 capital requirement for these banking organizations under the baseline.

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The estimated changes in the relative level of the supplementary leverage ratio requirement under the policy alternatives are consistent with the estimated percentage changes in the supplementary leverage ratio requirement discussed earlier. The effect of Alternative 1 (“narrow exclusion”) is similar to that of the final rule. Alternative 2 (“broader exclusion”) reduces the relative level of the leverage ratio requirement for GSIBs and covered depository institutions by less than the final rule. For banking organizations subject to Category II and III standards, the reduction is larger than under the final rule. Alternative 3 (“2018 proposal”) reduces the relative level of the leverage ratio requirement less for GSIBs and covered depository institutions than the final rule. Notably, under Alternatives 2 and 3, the supplementary leverage ratio requirement remains above the risk-based tier 1 capital requirement for some GSIBs. Alternative 4 reduces the relative level of the leverage ratio requirement the most of all policy alternatives. The supplementary leverage ratio requirement still exceeds the risk-based tier 1 capital requirement for one major covered depository institution under this alternative.

Turning to changes in tier 1 capital requirements, the agencies estimate that the final rule will reduce tier 1 capital requirements for most GSIBs and covered depository institutions. Table 8 shows that the estimated aggregate reduction in tier 1 capital requirement under the final rule is $13 billion for GSIBs and $219 billion for major covered depository institutions. For GSIBs, the estimated reduction in tier 1 capital requirement relative to the baseline is small, less than 2 percent, in aggregate. This is because the baseline levels of the supplementary leverage ratio requirement and the risk-based tier 1 capital requirement, expressed in dollar terms, are similar for GSIBs, and thus lowering the supplementary leverage ratio requirement reduces the tier 1 capital requirement only up to the point that other tier 1 capital requirements become binding.

By contrast, for major covered depository institutions, the estimated reduction in tier 1 capital requirement relative to the baseline is sizable, about 28 percent, in aggregate. This is because, for these depository institutions, the baseline level of the supplementary leverage ratio requirement, in dollar terms, is significantly higher than the baseline levels of the other tier 1 capital requirements.

More precisely, lowering the supplementary leverage ratio requirement reduces the tier 1 capital requirement only up to the point that the risk-based tier 1 capital requirement

the tier 1 leverage ratio requirement becomes the binding tier 1 capital requirement. One commenter requested more information regarding the relative bindingness of the tier 1 leverage ratio requirement compared to other tier 1 capital requirements. Under the baseline, the risk-based tier 1 capital requirement exceeds the tier 1 leverage ratio requirement for all except one GSIB.

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Alternatives 1, 2, and 4 lead to the same reduction in the tier 1 capital requirement for GSIBs as the final rule because all of these policy alternatives reduce the supplementary leverage ratio requirement below the other (risk-based and leverage) tier 1 capital requirements for all GSIBs. By contrast, Alternative 3 leads to a small, less than $2 billion, aggregate increase in the tier 1 capital requirement for GSIBs, as one GSIB faces an increase in its tier 1 capital requirement under this policy alternative.

For major covered depository institutions, the estimated dollar reduction in tier 1 capital requirements is in line with the estimated percentage reduction in the supplementary leverage ratio requirement across policy alternatives, with the exception of Alternative 4. Specifically, even though this alternative combines the effects of the final rule and the “broader exclusion” alternative, the estimated aggregate reduction in tier 1 capital requirement under Alternative 4 is the same as the reduction under the final rule. This is because the final rule already sets the supplementary leverage ratio requirement for all major covered depository institutions below at least one of the other (risk-based and leverage) tier 1 capital requirements, and therefore the additional effect of excluding assets from the calculation of total leverage exposures under the “combined” alternative for these depository institutions does not lead to a further reduction in their tier 1 capital requirements.

Similar to the final rule, the policy alternatives considered do not reduce the tier 1 capital requirements for banking organizations subject to Category II and III standards because the supplementary leverage ratio requirement is not the binding tier 1 capital requirement for these banking organizations under the baseline.

For major covered depository institutions, the final rule's estimated impact is slightly different from the proposal's estimated impact.

This small change is due to the difference in the eSLR standard for covered depository institutions under the final rule and the proposal. In particular, as explained in section II.A of this

SUPPLEMENTARY INFORMATION

, the proposal would have set the eSLR standard for covered depository institutions equal to 50 percent of their parent GSIB's method 1 surcharge, whereas the final rule sets the eSLR standard for covered depository institutions equal to 50 percent of their parent GSIB's method 1 surcharge, capped at one percent. Even though this change relative to the proposal does not meaningfully change the estimated aggregate impact on tier 1 capital requirements and the related economic implications, it leads to a somewhat lower supplementary leverage ratio requirement for some covered

depository institutions whose parent GSIBs have method 1 surcharges above two percent. Nevertheless, this change does not affect the estimated reduction in the tier 1 capital requirements for most of these depository institutions because both the proposal and the final rule achieve the objective of setting the supplementary leverage ratio requirement as a backstop for these depository institutions, as other (risk-based and leverage) tier 1 capital requirements become binding.

The estimated aggregate reduction in the tier 1 capital requirement for these covered depository institutions was $213 billion under the proposal and is $219 billion under the final rule.

One commenter requested that the agencies provide public, reliable data supporting the estimated aggregate reduction in the tier 1 capital requirements of GSIBs and covered depository institutions, respectively. As discussed in section IV.B of this

SUPPLEMENTARY INFORMATION,

the agencies use publicly available data reported in FR Y-9C and FFIEC Call Report filings in their calculations. The section also describes how the agencies use these data to calculate their impact estimates, with the relevant data fields specified in the corresponding footnotes.

Notably, the estimated changes in tier 1 capital requirements discussed above in Table 8 do not reflect potential short-run transition effects due to risk-based total capital requirements. So far, the analysis has only considered the risk-based tier 1 capital requirements, the tier 1 leverage ratio requirement, and the supplementary leverage ratio requirement. However, banking organizations also have to meet risk-based total capital requirements, where total capital comprises tier 1 and tier 2 capital, which includes a limited allowance for credit losses on loans and leases as well as subordinated debt. Therefore, if the baseline tier 2 capital amounts ($76 billion, in aggregate) of covered depository institutions remain unchanged in the short run, they would likely continue to use their existing tier 1 capital amounts to satisfy the rest of their total capital requirements. Taking this effect into account, the agencies estimate that the aggregate reduction in tier 1 requirements for covered depository institutions would be $197 billion. However, over time, or in anticipation of the policy change, these depository institutions could increase their tier 2 capital such that the aggregate reduction in their tier 1 capital requirements would be closer to the $219 billion estimate in Table 8.

Up to this point, the analysis has focused on the major depository institution subsidiaries of holding companies subject to Category I-III standards. The rest of the insured depository institution subsidiaries of holding companies subject to Category I-III standards account for 0.7 percent of the consolidated total assets of these holding companies, in aggregate. These smaller subsidiaries will slightly add to the aggregate reduction in the supplementary leverage ratio and the tier 1 capital requirements estimated above.

Finally, the final rule will impose an enhanced supplementary leverage ratio requirement on the uninsured national bank subsidiaries of GSIBs. As noted in section IV.B of this

SUPPLEMENTARY INFORMATION,

there are six such subsidiaries, which account for 0.01 percent of the consolidated total assets of GSIBs, in aggregate. Under the baseline, these small subsidiaries have a supplementary leverage ratio above 90 percent, on average, well in excess of the requirement that they will be subject to under the final rule. Hence, the agencies expect that the final rule will generally have little impact on the uninsured national bank subsidiaries of GSIBs.

F. Benefits

The agencies expect that the reduced calibration of the eSLR standards for GSIBs and covered depository institutions under the final rule will have two main economic benefits: (1) it will reduce unintended disincentives for these banking organizations to engage in low-risk activities as well as unintended incentives to engage in higher-risk activities; and (2) it could enhance the functioning of financial markets, including the U.S. Treasury market, by creating additional capacity for GSIBs to engage in market intermediation. In the rest of this section, the agencies discuss these benefits in more detail.

The first benefit is due to the significant reduction in the supplementary leverage ratio requirement for these banking organizations under the final rule, estimated in section IV.E, which has both a level effect and a marginal effect, as discussed in section IV.A of this

SUPPLEMENTARY INFORMATION

. The level effect manifests because the reduced calibration of the eSLR standards will enable these banking organizations to substantially increase low-risk asset holdings without raising their tier 1 capital requirements. The marginal effect manifests as the final rule sets the supplementary leverage ratio requirement, in dollar terms, below risk-based tier 1 capital requirements for all GSIBs and most covered depository institutions. By doing so, the final rule will make the binding tier 1 capital requirement for these banking organizations more risk sensitive because risk-based requirements are more closely aligned with the underlying risks of different asset classes. In particular, under the final rule, increasing low-risk-weight activities will not lead to a significant increase in tier 1 capital requirements for these banking organizations, because the risk-based tier 1 capital requirement will be their binding tier 1 capital requirement. Moreover, this marginal effect will reduce unintended incentives for these banking organizations to engage excessively in higher-risk activities because such activities are required to be backed by more tier 1 capital under the risk-based capital framework than under the supplementary leverage ratio requirement.

For example, for each dollar of an asset with 100 percent risk weight, GSIBs are required to maintain 5 cents of tier 1 capital under the baseline supplementary leverage ratio requirement and, on average, 12.3 cents of tier 1 capital under the risk-based capital framework.

Similar to the final rule, the “narrow exclusion” Alternative 1 and the “combined” Alternative 4 reduce these unintended marginal incentives for GSIBs and covered depository institutions. By contrast, this economic benefit does not fully manifest under the “broader exclusion” Alternative 2 and the “2018 proposal” Alternative 3, as the supplementary leverage ratio requirement remains above the risk-based tier 1 capital requirement for one GSIB under “the 2018 proposal” alternative and for most covered depository institutions under both alternatives. However, the “broader exclusion” alternative still reduces unintended marginal incentives for these banking organizations to hold reserves and U.S. Treasury securities, as this alternative excludes such assets from the calculation of total leverage exposure.

The level effect of the final rule will enable these banking organizations to add certain low-risk assets to their balance sheets without increasing their tier 1 capital requirements as long as their leverage-based tier 1 capital requirements remain below their risk-based tier 1 capital requirements.

The agencies do not predict the type and dollar amount of low-risk assets that banking organizations subject to Category I-III standards may add to their balance sheets under the final rule and the policy alternatives considered

because such predictions are both highly uncertain and depend on various macroeconomic factors, such as the market and economic environment. However, the agencies provide a simple measure for the potential magnitude of this effect by estimating the available capacity of GSIBs to increase reserves or U.S. Treasury securities held as investment securities at covered depository institutions and assessing how the final rule will increase this capacity estimate.

Specifically, for each GSIB, the agencies define “available capacity” as the dollar amount of such assets that its depository institution subsidiaries can add to their balance sheets without raising their or their consolidated holding company's tier 1 capital requirements above baseline levels.

For a comprehensive assessment of the policy alternatives considered, the agencies also estimate this available capacity for holding companies subject to Category II and III standards. Additionally, further below in this subsection, the agencies also estimate GSIBs' available capacity to hold U.S. Treasury securities at their broker-dealer subsidiaries, which is more closely tied to U.S. Treasury market intermediation.

In particular, banking organizations will be able to increase their asset holdings that do not increase their total risk weighted assets. Such asset holdings include reserves, U.S. Treasury securities, and Ginnie Mae mortgage-backed securities held as investment securities.

Notably, the agencies

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