Regulatory Capital Rules

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1 78 FR 51101 (August 20, 2013).

DEPARTMENT OF TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 6

[Docket ID OCC–2013–0008]

RIN 1557–AD69

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 217

[Regulation H and Q; Docket No. R–1460]

RIN 7100–AD 99

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 324

RIN 3064–AE01

Regulatory Capital Rules: Regulatory

Capital, Enhanced Supplementary

Leverage Ratio Standards for Certain

Bank Holding Companies and Their

Subsidiary Insured Depository

Institutions

AGENCIES: 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), the Board of

Governors of the Federal Reserve

System (Board), and the Federal Deposit

Insurance Corporation (FDIC)

(collectively, the agencies) are adopting

a final rule that strengthens the

agencies’ supplementary leverage ratio

standards for large, interconnected U.S.

banking organizations (the final rule).

The final rule applies to any U.S. top-

tier bank holding company (BHC) with

more than $700 billion in total

consolidated assets or more than $10

trillion in assets under custody (covered

BHC) and any insured depository

institution (IDI) subsidiary of these

BHCs (together, covered organizations).

In the revised regulatory capital rule

adopted by the agencies in July 2013

(2013 revised capital rule), the agencies

established a minimum supplementary

leverage ratio of 3 percent, consistent

with the minimum leverage ratio

adopted by the Basel Committee on

Banking Supervision (BCBS), for

banking organizations subject to the

agencies’ advanced approaches risk-

based capital rules. The final rule

establishes enhanced supplementary

leverage ratio standards for covered

BHCs and their subsidiary IDIs

ies

established a minimum supplementary

leverage ratio of 3 percent, consistent

with the minimum leverage ratio

adopted by the Basel Committee on

Banking Supervision (BCBS), for

banking organizations subject to the

agencies’ advanced approaches risk-

based capital rules. The final rule

establishes enhanced supplementary

leverage ratio standards for covered

BHCs and their subsidiary IDIs. Under

the final rule, an IDI that is a subsidiary

of a covered BHC must maintain a

supplementary leverage ratio of at least

6 percent to be well capitalized under

the agencies’ prompt corrective action

(PCA) framework. The Board also is

adopting in the final rule a

supplementary leverage ratio buffer

(leverage buffer) for covered BHCs of 2

percent above the minimum

supplementary leverage ratio

requirement of 3 percent. The leverage

buffer functions like the capital

conservation buffer for the risk-based

capital ratios in the 2013 revised capital

rule. A covered BHC that maintains a

leverage buffer of tier 1 capital in an

amount greater than 2 percent of its total

leverage exposure is not subject to

limitations on distributions and

discretionary bonus payments under the

final rule.

Elsewhere in today’s Federal Register,

the agencies are proposing changes to

the 2013 revised capital rule’s

supplementary leverage ratio, including

changes to the definition of total

leverage exposure, which would apply

to all advanced approaches banking

organizations and thus, if adopted,

would affect banking organizations

subject to this final rule.

DATES: The final rule is effective January

1, 2018.

FOR FURTHER INFORMATION CONTACT:

OCC: Roger Tufts, Senior Economic

Advisor, (202) 649–6981; Nicole Billick,

Risk Expert, (202) 649–7932, Capital

Policy; or Carl Kaminski, Counsel; or

Henry Barkhausen, Attorney, Legislative

and Regulatory Activities Division,

s, if adopted,

would affect banking organizations

subject to this final rule.

DATES: The final rule is effective January

1, 2018.

FOR FURTHER INFORMATION CONTACT:

OCC: Roger Tufts, Senior Economic

Advisor, (202) 649–6981; Nicole Billick,

Risk Expert, (202) 649–7932, Capital

Policy; or Carl Kaminski, Counsel; or

Henry Barkhausen, Attorney, Legislative

and Regulatory Activities Division,

(202) 649–5490, Office of the

Comptroller of the Currency, 400 7th

Street SW., Washington, DC 20219.

Board: Constance M. Horsley,

Assistant Director, (202) 452–5239; Juan

C. Climent, Senior Supervisory

Financial Analyst, (202) 872–7526; or

Sviatlana Phelan, Senior Financial

Analyst, (202) 912–4306, Capital and

Regulatory Policy, Division of Banking

Supervision and Regulation; or

Benjamin McDonough, Senior Counsel,

(202) 452–2036; April C. Snyder, Senior

Counsel, (202) 452–3099; or Mark C.

Buresh, Attorney, (202) 452–5270, 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: George French, Deputy

Director, gfrench@fdic.gov; Bobby R.

Bean, Associate Director, bbean@

fdic.gov; Ryan Billingsley, Chief, Capital

Policy Section, rbillingsley@fdic.gov;

Karl Reitz, Chief, Capital Markets

Strategies Section, kreitz@fdic.gov;

Capital Markets Branch, Division of Risk

Management Supervision,

regulatorycapital@fdic.gov or (202) 898–

6888; or Mark Handzlik, Counsel,

mhandzlik@fdic.gov; Michael Phillips,

Counsel, mphillips@fdic.gov; Rachel

Ackmann, Senior Attorney, rackmann@

fddic.gov; Supervision Branch, Legal

Division, Federal Deposit Insurance

Corporation, 550 17th Street NW.,

Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I

ranch, Division of Risk

Management Supervision,

regulatorycapital@fdic.gov or (202) 898–

6888; or Mark Handzlik, Counsel,

mhandzlik@fdic.gov; Michael Phillips,

Counsel, mphillips@fdic.gov; Rachel

Ackmann, Senior Attorney, rackmann@

fddic.gov; Supervision Branch, Legal

Division, Federal Deposit Insurance

Corporation, 550 17th Street NW.,

Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

On August 20, 2013, the agencies

published in the Federal Register, for

public comment, a joint notice of

proposed rulemaking (the 2013 NPR) to

strengthen the agencies’ supplementary

leverage ratio standards for large,

interconnected U.S. banking

organizations.1 As noted in the 2013

NPR, the recent financial crisis showed

that some financial companies had

grown so large, leveraged, and

interconnected that their failure could

pose a threat to overall financial

stability. The sudden collapses or near-

collapses of major financial companies

were among the most destabilizing

events of the crisis. As a result of the

imprudent risk taking of major financial

companies and the severe consequences

to the financial system and the economy

associated with the disorderly failure of

these companies, the U.S. government

(and many foreign governments in their

home countries) intervened on an

unprecedented scale to reduce the

impact of, or prevent, the failure of

these companies and the attendant

consequences for the broader financial

system.

A perception persists in the markets

that some companies remain ‘‘too big to

fail,’’ posing an ongoing threat to the

financial system. First, the perception

that certain companies are ‘‘too big to

fail’’ reduces the incentives of

shareholders, creditors and

counterparties of these companies to

discipline excessive risk-taking by the

companies. Second, it produces

competitive distortions because those

companies can often fund themselves at

a lower cost than other companies

osing an ongoing threat to the

financial system. First, the perception

that certain companies are ‘‘too big to

fail’’ reduces the incentives of

shareholders, creditors and

counterparties of these companies to

discipline excessive risk-taking by the

companies. Second, it produces

competitive distortions because those

companies can often fund themselves at

a lower cost than other companies. This

distortion is unfair to smaller

companies, damaging to fair

competition, and may artificially

encourage further consolidation and

concentration in the financial system.

An important objective of the Dodd-

Frank Wall Street Reform and Consumer

Protection Act of 2010 (Dodd-Frank Act)

is to mitigate the threat to financial

stability posed by systemically-

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2 See, e.g., Public Law 111–203, 124 Stat. 1376,

1394, 1571, 1803 (2010).

3 The agencies have authority to establish capital

requirements for depository institutions under the

prompt corrective action provisions of the Federal

Deposit Insurance Act (12 U.S.C. 1831o). In

addition, the Federal Reserve has broad authority to

establish various regulatory capital standards for

BHCs under the Bank Holding Company Act and

the Dodd-Frank Act. See, for example, sections 165

and 171 of the Dodd-Frank Act (12 U.S.C. 5365 and

12 U.S.C. 5371).

4 12 U.S.C. 3901–3911.

5 12 U.S.C. 1831o.

6 12 U.S.C. 3901(a).

7 ‘‘Each appropriate Federal banking agency shall

cause banking institutions to achieve and maintain

adequate capital by establishing levels of capital for

such banking institutions and by using such other

methods as the appropriate Federal banking agency

deems appropriate.’’ 12 U.S.C. 3907(a)(1)

.C. 5365 and

12 U.S.C. 5371).

4 12 U.S.C. 3901–3911.

5 12 U.S.C. 1831o.

6 12 U.S.C. 3901(a).

7 ‘‘Each appropriate Federal banking agency shall

cause banking institutions to achieve and maintain

adequate capital by establishing levels of capital for

such banking institutions and by using such other

methods as the appropriate Federal banking agency

deems appropriate.’’ 12 U.S.C. 3907(a)(1).

8 ‘‘Each appropriate Federal banking agency shall

have the authority to establish such minimum level

of capital for a banking institution as the

appropriate Federal banking agency, in its

discretion, deems to be necessary or appropriate in

light of the particular circumstances of the banking

institution.’’ 12 U.S.C. 3907(a)(2).

9 12 U.S.C. 3907(b)(3)(C).

10 See 12 U.S.C. 5365; 77 FR 593 (January 5,

2012); and 77 FR 76627 (December 28, 2012).

11 12 U.S.C. 5365(a)(2)(A).

12 78 FR 55340 (September 10, 2013) (FDIC) and

78 FR 62018 (October 11, 2013) (OCC and Board).

On April 8, 2014, the FDIC adopted as final the

2013 revised capital rule, with no substantive

changes.

important financial companies.2 The

agencies have sought to address this

concern through enhanced supervisory

programs, including heightened

supervisory expectations for large,

complex institutions and stress testing

requirements. In addition, the Dodd-

Frank Act mandates the implementation

of a multi-pronged approach to address

this concern: A new orderly liquidation

authority for financial companies (other

than banks and insurance companies);

the establishment of the Financial

Stability Oversight Council, empowered

with the authority to designate nonbank

financial companies for Board

supervision (designated nonbank

financial companies); stronger

regulation of large BHCs and designated

nonbank financial companies through

enhanced prudential standards; and

enhanced regulation of over-the-counter

(OTC) derivatives, other core financial

markets and financial market utilities

versight Council, empowered

with the authority to designate nonbank

financial companies for Board

supervision (designated nonbank

financial companies); stronger

regulation of large BHCs and designated

nonbank financial companies through

enhanced prudential standards; and

enhanced regulation of over-the-counter

(OTC) derivatives, other core financial

markets and financial market utilities.

This final rule builds on these efforts

by adopting enhanced supplementary

leverage ratio standards for the largest

and most interconnected U.S. banking

organizations. The agencies have broad

authority to set regulatory capital

standards.3 As a general matter, the

agencies’ authority to set regulatory

capital requirements and standards for

the institutions they regulate derives

from the International Lending

Supervision Act (ILSA) 4 and the PCA

provisions 5 of the Federal Deposit

Insurance Act (FDIA). In enacting ILSA,

Congress codified its intentions,

providing that ‘‘it is the policy of the

Congress to assure that the economic

health and stability of the United States

and the other nations of the world shall

not be adversely affected or threatened

in the future by imprudent lending

practices or inadequate supervision.’’ 6

ILSA encourages the agencies to work

with their international counterparts to

establish effective and consistent

supervisory policies, standards, and

practices and specifically provides the

agencies authority to set broadly

applicable minimum capital levels 7 as

well as individual capital

requirements.8 Additionally, ILSA

specifically directs U.S

practices or inadequate supervision.’’ 6

ILSA encourages the agencies to work

with their international counterparts to

establish effective and consistent

supervisory policies, standards, and

practices and specifically provides the

agencies authority to set broadly

applicable minimum capital levels 7 as

well as individual capital

requirements.8 Additionally, ILSA

specifically directs U.S. regulators to

encourage governments, central banks,

and bank regulatory authorities in other

major banking countries to work toward

maintaining and, where appropriate,

strengthening the capital bases of

banking institutions involved in

international banking.9 With its focus

on international lending and the safety

of the broader financial system, ILSA

provides the agencies with the authority

to consider an institution’s

interconnectedness and other systemic

factors when setting capital standards.

As part of the overall prudential

framework for bank capital, the agencies

have long expected institutions to

maintain capital well above regulatory

minimums and have monitored banking

organizations’ capital adequacy through

the supervisory process in accordance

with this expectation. This expectation

is also codified for IDIs in the statutory

PCA framework, which requires the

agencies to establish capital ratio

thresholds for both leverage and risk-

based capital that banking organizations

must satisfy to be considered well

capitalized.

Additionally, section 165 of the Dodd-

Frank Act requires the Board to develop

enhanced prudential standards for BHCs

with total consolidated assets of $50

billion or more and for designated

nonbank companies (together, section

165 covered companies).10 The Dodd-

Frank Act requires that prudential

standards for section 165 covered

companies include enhanced leverage

standards

pitalized.

Additionally, section 165 of the Dodd-

Frank Act requires the Board to develop

enhanced prudential standards for BHCs

with total consolidated assets of $50

billion or more and for designated

nonbank companies (together, section

165 covered companies).10 The Dodd-

Frank Act requires that prudential

standards for section 165 covered

companies include enhanced leverage

standards. In general, the Dodd-Frank

Act directs the Board to implement

enhanced prudential standards that

strengthen existing micro-prudential

supervision and regulation of individual

companies and incorporate macro-

prudential considerations to reduce

threats posed by section 165 covered

companies to the stability of the

financial system as a whole. The

enhanced prudential standards must

increase in stringency based on the

systemic footprint and risk

characteristics of individual companies.

When differentiating among companies

for purposes of applying the standards

established under section 165, the Board

may consider the companies’ size,

capital structure, riskiness, complexity,

financial activities, and any other risk-

related factors the Board deems

appropriate.11

In the agencies’ experience, strong

capital is an important safeguard that

helps financial institutions navigate

periods of financial or economic stress.

Maintenance of a strong capital base at

the largest, systemically important

institutions is particularly important

because capital shortfalls at these

institutions can contribute to systemic

distress and can have material adverse

economic effects. Higher capital

standards for these institutions would

place additional private capital at risk,

thereby reducing the risks for the

Deposit Insurance Fund while

improving the ability of these

institutions to serve as a source of credit

to the economy during times of

economic stress

s at these

institutions can contribute to systemic

distress and can have material adverse

economic effects. Higher capital

standards for these institutions would

place additional private capital at risk,

thereby reducing the risks for the

Deposit Insurance Fund while

improving the ability of these

institutions to serve as a source of credit

to the economy during times of

economic stress. Furthermore, the

agencies believe that the enhanced

supplementary leverage ratio standards

would reduce the likelihood of

resolutions, and would allow regulators

to tailor resolution efforts were a

resolution to become necessary. By

further enhancing the capital strength of

covered organizations, the enhanced

supplementary leverage ratio standards

could counterbalance possible funding

cost advantages that these organizations

may enjoy as a result of being perceived

as ‘‘too big to fail.’’

A. The Supplementary Leverage Ratio

The 2013 revised capital rule

comprehensively revises and

strengthens the capital regulations

applicable to banking organizations.12 It

strengthens the definition of regulatory

capital, increases the minimum risk-

based capital requirements for all

banking organizations, and modifies the

requirements for how banking

organizations calculate risk-weighted

assets. The 2013 revised capital rule

also retains the generally applicable

leverage ratio requirement (generally

applicable leverage ratio) that the

agencies believe to be a simple and

transparent measure of capital adequacy

that is credible to market participants

and ensures a meaningful amount of

capital is available to absorb losses. The

minimum generally applicable leverage

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that the

agencies believe to be a simple and

transparent measure of capital adequacy

that is credible to market participants

and ensures a meaningful amount of

capital is available to absorb losses. The

minimum generally applicable leverage

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13 The generally applicable leverage ratio under

the 2013 revised capital rule is the ratio of a

banking organization’s tier 1 capital to its average

total consolidated assets as reported on the banking

organization’s regulatory report minus amounts

deducted from tier 1 capital.

14 12 U.S.C. 5371.

15 A banking organization is subject to the

advanced approaches rule if it has consolidated

assets of at least $250 billion, if it has total

consolidated on-balance sheet foreign exposures of

at least $10 billion, if it elects to apply the advanced

approaches rule, or it is a subsidiary of a depository

institution, bank holding company, or savings and

loan holding company that uses the advanced

approaches to calculate risk-weighted assets. See 78

FR 62018, 62204 (October 11, 2013); 78 FR 55340,

55523 (September 10, 2013).

16 The BCBS is a committee of banking

supervisory authorities, which was established by

the central bank governors of the G–10 countries in

1975. It currently consists of senior representatives

of bank supervisory authorities and central banks

from Argentina, Australia, Belgium, Brazil, Canada,

China, France, Germany, Hong Kong SAR, India,

Indonesia, Italy, Japan, Korea, Luxembourg, Mexico,

the Netherlands, Russia, Saudi Arabia, Singapore,

South Africa, Sweden, Switzerland, Turkey, the

United Kingdom, and the United States. Documents

issued by the BCBS are available through the Bank

for International Settlements Web site at http://

www.bis.org

, Australia, Belgium, Brazil, Canada,

China, France, Germany, Hong Kong SAR, India,

Indonesia, Italy, Japan, Korea, Luxembourg, Mexico,

the Netherlands, Russia, Saudi Arabia, Singapore,

South Africa, Sweden, Switzerland, Turkey, the

United Kingdom, and the United States. Documents

issued by the BCBS are available through the Bank

for International Settlements Web site at http://

www.bis.org. See BCBS, ‘‘Basel III: A global

regulatory framework for more resilient banks and

banking systems’’ (December 2010 (revised June

2011)), available at http://www.bis.org/publ/

bcbs189.htm.

17 The supervisory estimates were generated

using CCAR September 2012 and CCAR September

2013 data.

18 See BCBS ‘‘Revised Basel III leverage ratio

framework and disclosure requirements—

consultative document’’ (June 2013) available at

http://www.bis.org/publ/bcbs251.htm.

19 See BCBS ‘‘Basel III leverage ratio framework

and disclosure requirements’’ (January 2014)

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

ratio requirement 13 of 4 percent applies

to all IDIs, and is the ‘‘generally

applicable’’ leverage ratio for purposes

of section 171 of the Dodd-Frank Act.

Accordingly, the minimum tier 1

leverage ratio requirement for

depository institution holding

companies is also 4 percent.14

In the 2013 revised capital rule, the

agencies established a minimum

supplementary leverage ratio

requirement of 3 percent for banking

organizations subject to the banking

agencies’ advanced approaches rules

(advanced approaches banking

organizations) 15 based on the BCBS’s

Basel III leverage ratio (Basel III leverage

ratio) as it was established at the time.16

The agencies believe the introduction of

the leverage ratio by the BCBS is an

important step in improving the

framework for international capital

standards. The Basel III leverage ratio is

a non-risk-based measure of tier 1

capital relative to an exposure amount

that includes both on- and off-balance

sheet exposures

ge ratio (Basel III leverage

ratio) as it was established at the time.16

The agencies believe the introduction of

the leverage ratio by the BCBS is an

important step in improving the

framework for international capital

standards. The Basel III leverage ratio is

a non-risk-based measure of tier 1

capital relative to an exposure amount

that includes both on- and off-balance

sheet exposures. The agencies

implemented the Basel III leverage ratio

through the supplementary leverage

ratio, which the agencies believe to be

particularly relevant for large, complex

organizations that are internationally

active and often have substantial off-

balance sheet exposures.

The agencies’ supplementary leverage

ratio is the arithmetic mean of the ratio

of an advanced approaches banking

organization’s tier 1 capital to total

leverage exposure (each as defined in

the 2013 revised capital rule) calculated

as of the last day of each month in the

reporting quarter. In contrast to the

denominator of the agencies’ generally

applicable leverage ratio, which

includes only on-balance sheet assets,

the denominator for the supplementary

leverage ratio is based on a banking

organization’s total leverage exposure,

which includes all on-balance sheet

assets and many off-balance sheet

exposures. The 2013 revised capital rule

requires that an advanced approaches

banking organization calculate and

report its supplementary leverage ratio

beginning in 2015 and maintain a

supplementary leverage ratio of at least

3 percent beginning in 2018.

Because total leverage exposure

includes off-balance sheet exposures, for

any given company with material off-

balance sheet exposures the amount of

capital required to meet the

supplementary leverage ratio will

exceed the amount of capital that is

required to meet the generally

applicable leverage ratio, assuming that

both ratios are set at the same level

t

3 percent beginning in 2018.

Because total leverage exposure

includes off-balance sheet exposures, for

any given company with material off-

balance sheet exposures the amount of

capital required to meet the

supplementary leverage ratio will

exceed the amount of capital that is

required to meet the generally

applicable leverage ratio, assuming that

both ratios are set at the same level. To

illustrate, as the agencies noted in the

2013 NPR, based on supervisory

estimates for a group of advanced

approaches banking organizations using

supervisory data as of third quarter

2012,17 a 5 percent supplementary

leverage ratio corresponds to roughly a

7.2 percent generally applicable

leverage ratio and a 6 percent

supplementary leverage ratio

corresponds to roughly an 8.6 percent

generally applicable leverage ratio.

According to supervisory estimates,

2013 data yield similar results. These

estimates represent averages and the

numbers vary from institution to

institution.

The agencies noted in the 2013

revised capital rule and in the 2013 NPR

that the BCBS planned to collect

additional data from institutions in

member countries and potentially make

adjustments to the Basel III leverage

ratio requirement. The agencies

indicated that they would review any

modifications to the Basel III leverage

ratio made by the BCBS and consider

proposing to modify the supplementary

leverage ratio consistent with those

revisions, as appropriate.

In June 2013, the BCBS published and

requested comment on a consultative

paper that proposed significant

modifications to the denominator of the

Basel III leverage ratio (consultative

paper).18 The consultative paper

proposed a number of approaches that

generally would increase the

denominator of the leverage ratio

originally set out in the 2010 Basel III

framework

ions, as appropriate.

In June 2013, the BCBS published and

requested comment on a consultative

paper that proposed significant

modifications to the denominator of the

Basel III leverage ratio (consultative

paper).18 The consultative paper

proposed a number of approaches that

generally would increase the

denominator of the leverage ratio

originally set out in the 2010 Basel III

framework. Based on its review of

comments on the consultative paper, in

January 2014, the BCBS adopted certain

aspects of the proposals in the

consultative paper as well as other

changes to the denominator (BCBS 2014

revisions).19 The BCBS has indicated

that it will continue to study the Basel

III leverage ratio through the

implementation phase into 2017 and

will consider further modifications to

the ratio.

As discussed further below, several

commenters raised concerns about the

agencies’ intention to adopt the

proposed enhanced supplementary

leverage ratio standards while the BCBS

continues to revise the Basel III leverage

ratio. The agencies believe that it is

important to maintain consistency with

international standards, as appropriate,

for internationally active banking

organizations and, accordingly, have

published a separate notice of proposed

rulemaking elsewhere in today’s

Federal Register that seeks public

comment on revisions to the

denominator of the supplementary

leverage ratio that would be applicable

to advanced approaches banking

organizations (2014 NPR). These

proposed revisions are generally

consistent with the BCBS 2014

revisions.

The agencies also believe that it is

important to establish enhanced

supplementary leverage ratio standards

for the largest, most interconnected

banking organizations to strengthen the

overall regulatory capital framework in

the United States

plicable

to advanced approaches banking

organizations (2014 NPR). These

proposed revisions are generally

consistent with the BCBS 2014

revisions.

The agencies also believe that it is

important to establish enhanced

supplementary leverage ratio standards

for the largest, most interconnected

banking organizations to strengthen the

overall regulatory capital framework in

the United States. Therefore, after

reviewing comments on the 2013 NPR,

the agencies are finalizing the enhanced

supplementary leverage ratio standards

substantially as proposed, based on the

methodology for determining the

supplementary leverage ratio in the

2013 revised capital rule. As discussed

further below, the agencies believe the

proposed changes to the supplementary

leverage ratio denominator in the 2014

NPR would be responsive to some of the

concerns that commenters raised in

connection with the 2013 NPR. The

agencies will carefully consider all

comments received on the proposed

revisions to the supplementary leverage

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20 Under the 2013 NPR, applicability of the

proposed enhanced supplementary leverage ratio

standards would have been determined based on

assets reported on a BHC’s most recent

Consolidated Financial Statement for Bank Holding

Companies (FR Y–9C) or based on assets under

custody as reported on a BHC’s most recent Banking

Organization Systemic Risk Report (FR Y–15).

21 In November 2012, the Financial Stability

Board and BCBS published a list of banks that meet

the BCBS definition of a G–SIB based on year-end

2011 data. A revised list based on year-end 2012

data was published November 11, 2013 (available

at http://www.financialstabilityboard.org/

publications/r_131111.pdf). The U.S

a BHC’s most recent Banking

Organization Systemic Risk Report (FR Y–15).

21 In November 2012, the Financial Stability

Board and BCBS published a list of banks that meet

the BCBS definition of a G–SIB based on year-end

2011 data. A revised list based on year-end 2012

data was published November 11, 2013 (available

at http://www.financialstabilityboard.org/

publications/r_131111.pdf). The U.S. top-tier bank

holding companies that are currently identified as

G–SIBs are Bank of America Corporation, The Bank

of New York Mellon Corporation, Citigroup Inc.,

Goldman Sachs Group, Inc., JP Morgan Chase & Co.,

Morgan Stanley, State Street Corporation, and Wells

Fargo & Company.

22 Available at http://www.bis.org/publ/

bcbs207.pdf. The BCBS published a revised version

of this document in July 2013, available at http://

www.bis.org/publ/bcbs255.pdf.

23 See 12 U.S.C. 5365(a).

24 See BCBS, ‘‘Revised Basel III leverage ratio

framework and disclosure requirements—

consultative document’’ (June 2013), available at

http://www.bis.org/publ/bcbs251.htm.

25 The Board’s proposed rules to implement the

provisions of sections 165 and 166 of the Dodd-

Frank Act for bank holding companies with total

consolidated assets of $50 billion or more and for

nonbank financial firms supervised by the Board

(domestic proposal) and for foreign banking

organizations with total consolidated assets of $50

billion or more and foreign nonbank financial

companies supervised by the Board (foreign

proposal) can be found at 77 FR 594 (January 5,

2012) and 77 FR 76628 (December 28, 2012) for the

domestic proposal and foreign proposal,

respectively. The Board’s final rule implementing

these provisions is available at http://

www.federalreserve.gov/newsevents/press/bcreg/

20140218a.htm.

ratio calculation in the 2014 NPR,

including those related to the impact of

the proposed changes on advanced

approaches banking organizations’

capital requirements.

B

628 (December 28, 2012) for the

domestic proposal and foreign proposal,

respectively. The Board’s final rule implementing

these provisions is available at http://

www.federalreserve.gov/newsevents/press/bcreg/

20140218a.htm.

ratio calculation in the 2014 NPR,

including those related to the impact of

the proposed changes on advanced

approaches banking organizations’

capital requirements.

B. The Proposed Enhanced

Supplementary Leverage Ratio

Standards

The 2013 NPR proposed applying

enhanced supplementary leverage

standards to any U.S. top-tier BHC that

has more than $700 billion in total

consolidated assets or more than $10

trillion in assets under custody and any

IDI subsidiary of such a BHC.20 As

explained in the 2013 NPR, the list of

covered BHCs identified by these

thresholds is consistent with the list of

banking organizations that meet the

BCBS definition of a global systemically

important bank (G–SIB), based on year-

end 2011 data.21 In November 2011, the

BCBS released a document entitled,

Global Systemically Important Banks

(G–SIBs): Assessment methodology and

the additional loss absorbency

requirement, which sets out a

framework for a new capital surcharge

for G–SIBs (BCBS G–SIB framework).22

The BCBS G–SIB framework

incorporates five broad characteristics of

a banking organization that the agencies

consider to be good proxies for, and

correlated with, systemic importance:

Size, complexity, interconnectedness,

lack of substitutes, and cross-border

activity

loss absorbency

requirement, which sets out a

framework for a new capital surcharge

for G–SIBs (BCBS G–SIB framework).22

The BCBS G–SIB framework

incorporates five broad characteristics of

a banking organization that the agencies

consider to be good proxies for, and

correlated with, systemic importance:

Size, complexity, interconnectedness,

lack of substitutes, and cross-border

activity. Further, the Board believes that

the criteria and methodology used by

the BCBS to identify G–SIBs are

consistent with the criteria it must

consider under the Dodd-Frank Act

when tailoring enhanced prudential

standards based on the systemic

footprint and risk characteristics of

individual section 165 covered

companies.23

Under the 2013 NPR, a covered BHC

would have been subject to a leverage

buffer composed of tier 1 capital, in

addition to the minimum 3 percent

supplementary leverage ratio

requirement established in the 2013

revised capital rule. Under the 2013

NPR, a covered BHC that maintains a

leverage buffer of tier 1 capital in an

amount greater than 2 percent of its total

leverage exposure would not have been

subject to limitations on its distributions

and discretionary bonus payments. If a

covered BHC were to maintain a

leverage buffer of 2 percent or less, it

would have been subject to increasingly

strict limitations on its distributions and

discretionary bonus payments. The

proposed leverage buffer followed the

same general mechanics and structure

as the capital conservation buffer

contained in the 2013 revised capital

rule. Any constraints on distributions

and discretionary bonus payments

resulting from a covered BHC

maintaining a leverage buffer of 2

percent or less would have been

independent of any constraints imposed

by the capital conservation buffer or

other supervisory or regulatory

measures

eneral mechanics and structure

as the capital conservation buffer

contained in the 2013 revised capital

rule. Any constraints on distributions

and discretionary bonus payments

resulting from a covered BHC

maintaining a leverage buffer of 2

percent or less would have been

independent of any constraints imposed

by the capital conservation buffer or

other supervisory or regulatory

measures.

As noted in the 2013 NPR, the 2013

revised capital rule incorporated the 3

percent supplementary leverage ratio

minimum requirement into the PCA

framework as an adequately capitalized

threshold for IDIs subject to the

advanced approaches risk-based capital

rules, but did not establish a well-

capitalized threshold for this ratio.

Under the 2013 NPR, an IDI that is a

subsidiary of a covered BHC would have

been required to satisfy a 6 percent

supplementary leverage ratio to be

considered well-capitalized for PCA

purposes.

II. Summary of Comments on the 2013

NPR

The agencies sought comment on all

aspects of the 2013 NPR and received

approximately 30 public comments

from banking organizations, trade

associations representing the banking or

financial services industry, supervisory

authorities, public interest advocacy

groups, private individuals, members of

Congress, and other interested parties.

In general, comments from financial

services firms, banking organizations,

banking trade associations and other

industry groups were critical of the 2013

NPR, while comments from

organizations representing smaller

banks or their supervisors, public

interest advocacy groups and the public

generally were supportive of the 2013

NPR. A detailed discussion of

commenters’ concerns and the agencies’

response follows.

A

inancial

services firms, banking organizations,

banking trade associations and other

industry groups were critical of the 2013

NPR, while comments from

organizations representing smaller

banks or their supervisors, public

interest advocacy groups and the public

generally were supportive of the 2013

NPR. A detailed discussion of

commenters’ concerns and the agencies’

response follows.

A. Timing of the Final Rule

A number of commenters made

reference to the BCBS consultative

paper that proposed to revise the

denominator for the Basel III leverage

ratio.24 While the proposals outlined in

the BCBS consultative paper were not

part of the 2013 NPR, commenters

stated that they believe the final BCBS

changes eventually will be incorporated

into the U.S. supplementary leverage

ratio, and that it would be premature to

finalize the 2013 NPR before the BCBS

process is complete. Commenters

recommended that a final rule adopting

the proposed enhanced supplementary

leverage ratio standards be delayed until

the BCBS finalized the consultative

paper and the Board adopted a final rule

implementing enhanced prudential

standards under section 165 of the Dodd

Frank Act.25 In addition, these

commenters argued that the proposed

enhanced supplementary leverage ratio

standards, if applied in conjunction

with the denominator changes proposed

in the BCBS consultative paper, would

result in inappropriately high capital

charges.

The agencies emphasize that the 2013

NPR did not propose or seek comment

on the revisions to the supplementary

leverage ratio denominator that were

being considered by the BCBS. The

agencies are moving forward with the

finalization of the proposed enhanced

supplementary leverage ratio standards

to further enhance the capital position

of covered organizations and to

strengthen financial stability

cies emphasize that the 2013

NPR did not propose or seek comment

on the revisions to the supplementary

leverage ratio denominator that were

being considered by the BCBS. The

agencies are moving forward with the

finalization of the proposed enhanced

supplementary leverage ratio standards

to further enhance the capital position

of covered organizations and to

strengthen financial stability. As noted

earlier, the agencies are seeking

comment elsewhere in today’s Federal

Register on the 2014 NPR, which

proposes revisions to the definition of

total leverage exposure in the 2013

revised capital rule as well as other

proposed requirements relating to the

supplementary leverage ratio that would

reflect the BCBS 2014 revisions. The

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

26 Under the 2013 revised capital rule, a

‘‘subsidiary’’ is defined as a company controlled by

another company, and a person or company

‘‘controls’’ a company if it: (1) Owns, controls, or

holds with power to vote 25 percent or more of a

class of voting securities of the company; or (2)

consolidates the company for financial reporting

purposes. See section 2 of the 2013 revised capital

rule.

agencies believe that the proposed

revisions to the definition of total

leverage exposure in the 2014 NPR are

responsive to a number of concerns that

commenters expressed about the

relationship between the BCBS process

and the supplementary leverage ratio.

As noted above, the agencies will

carefully review all comments received

on the 2014 NPR.

B. Scope of Application

The 2013 NPR would have applied

enhanced supplementary leverage ratio

standards to the largest, most

interconnected U.S. BHCs and their

subsidiary IDIs (specifically, to any U.S

s expressed about the

relationship between the BCBS process

and the supplementary leverage ratio.

As noted above, the agencies will

carefully review all comments received

on the 2014 NPR.

B. Scope of Application

The 2013 NPR would have applied

enhanced supplementary leverage ratio

standards to the largest, most

interconnected U.S. BHCs and their

subsidiary IDIs (specifically, to any U.S.

top-tier BHC with more than $700

billion in total consolidated assets or

more than $10 trillion in assets under

custody and any IDI subsidiary of these

BHCs).26 Several commenters criticized

the 2013 NPR’s scope of application,

including the proposed quantitative

thresholds for determining applicability

of the enhanced supplementary leverage

ratio standards. These commenters

stated that tying the application of the

2013 NPR to size alone would not be

appropriate, as size is not always a

reliable indicator of the degree of risk to

financial stability. In addition,

commenters stated that the quantitative

thresholds may capture the G–SIBs

today, but there is no assurance that this

will be the case in the future. A few

commenters asserted that applicability

should be based on the systemic risk

posed by an institution’s failure and not

just on quantitative thresholds. For

instance, one commenter suggested

extending the applicability of the final

rule beyond the largest financial

institutions to institutions that are

smaller, but nonetheless are integral

parts of the financial system. A few

commenters favored expanding the

quantitative thresholds of the 2013 NPR

to include additional banking

organizations, for example, by applying

the proposed enhanced supplementary

leverage ratio standards to all advanced

approaches banking organizations.

Some commenters asserted that using

assets under custody as one of the

metrics to determine the 2013 NPR’s

applicability significantly overstates the

risk of the custody bank business model

lds of the 2013 NPR

to include additional banking

organizations, for example, by applying

the proposed enhanced supplementary

leverage ratio standards to all advanced

approaches banking organizations.

Some commenters asserted that using

assets under custody as one of the

metrics to determine the 2013 NPR’s

applicability significantly overstates the

risk of the custody bank business model.

In addition, several commenters

suggested that it is not clear that the

enhanced supplementary leverage ratio

standards are necessary or appropriate

for any organization. These commenters

stated that substantial steps have been

taken toward addressing ‘‘too big to fail’’

concerns, and that the 2013 NPR should

not be extended to banking

organizations that, in the commenters’

view, may not present systemic risk.

The agencies have decided to finalize

the proposed enhanced supplementary

leverage ratio standards, including the

proposed applicability thresholds,

substantively as proposed. In the

agencies’ view, the proposed asset

thresholds capture banking

organizations that are so large or

interconnected that they pose

substantial systemic risk. As explained

above, these banking organizations have

also been identified by the BCBS as G–

SIBs, which are subject to heightened

risk-based capital standards under the

Basel framework. The agencies believe

the application of the enhanced

supplementary leverage ratio standards

to covered organizations is an

appropriate way to further strengthen

the ability of the these organizations to

remain a going concern during times of

economic stress and to minimize the

likelihood that problems at these

organizations would contribute to

financial instability.

The agencies continue to believe that

the benefits to financial stability of the

enhanced supplementary leverage ratio

standards are most pronounced for these

large and systemically important

institutions, and have decided not to

extend these enhanced standards to

smaller institutions

minimize the

likelihood that problems at these

organizations would contribute to

financial instability.

The agencies continue to believe that

the benefits to financial stability of the

enhanced supplementary leverage ratio

standards are most pronounced for these

large and systemically important

institutions, and have decided not to

extend these enhanced standards to

smaller institutions. In addition, as also

discussed in the 2013 NPR, it is

anticipated that over time, as the BCBS

G–SIB framework is implemented in the

United States or revised by the BCBS,

the agencies may consider modifying

the scope of application of the enhanced

supplementary leverage ratio standards

to align more closely with the scope of

application of the BCBS G–SIB

framework. In addition, the agencies

will otherwise continue to evaluate the

applicability thresholds and may

consider revising them in the future to

ensure they remain appropriate.

C. Calibration of the Enhanced

Supplementary Leverage Ratio

Standards

The agencies received several

comments expressing concern with the

proposed calibration of the enhanced

supplementary leverage ratio standards.

Commenters stated that the proposed

enhanced supplementary leverage ratio

standards should be set no higher than

those that would apply to banking

organizations in other jurisdictions to

maintain the competitive position of

covered organizations with respect to

their foreign competitors. A number of

commenters viewed the proposed

calibration as arbitrary, stating that it

should be supported by quantitative

studies of the cumulative impact of the

enhanced supplementary leverage ratio

standards and other financial reforms on

the ability of U.S. banking organizations

to provide financial services to

customers and businesses

zations with respect to

their foreign competitors. A number of

commenters viewed the proposed

calibration as arbitrary, stating that it

should be supported by quantitative

studies of the cumulative impact of the

enhanced supplementary leverage ratio

standards and other financial reforms on

the ability of U.S. banking organizations

to provide financial services to

customers and businesses. A number of

commenters stated that the 2013 NPR

would cause the supplementary

leverage ratio to become the binding

regulatory capital constraint, rather than

a backstop to the risk-based capital

measures, and expressed concern that

an unintended consequence of a binding

supplementary leverage ratio could be

that covered organizations would divest

lower risk assets and instead assume

more risk, to the detriment of financial

stability.

Some commenters expressed concern

that a binding supplementary leverage

ratio could have negative consequences,

including the creation of disincentives

for banking organizations to engage in

robust risk assessment and management

practices. Furthermore, according to

commenters, the 2013 NPR could

incentivize banking organizations to

engage in financial activities with a

higher risk-reward profile as there

would be no regulatory capital benefit

for holding low-risk assets, potentially

resulting in institutions that are less

stable. For instance, one commenter

stated that unsecured commercial loans

would be more attractive than secured

lines of credit because the former have

a stronger return on assets and both

would require equal amounts of

regulatory capital under the

supplementary leverage ratio

framework. The commenter warned that

in the mortgage banking industry, this

could constrain warehouse lines of

credit needed to finance the production

of new mortgages and mortgage-backed

securities

attractive than secured

lines of credit because the former have

a stronger return on assets and both

would require equal amounts of

regulatory capital under the

supplementary leverage ratio

framework. The commenter warned that

in the mortgage banking industry, this

could constrain warehouse lines of

credit needed to finance the production

of new mortgages and mortgage-backed

securities. Another commenter stated

that the proposed enhanced

supplementary leverage ratio standards

could make it uneconomical for covered

organizations to hold or provide

unfunded revolving lines of credit with

maturities of less than one year, cash,

U.S. Treasuries, reverse repurchase

agreements, certain traditional interest

rate swaps, and credit default swaps on

corporate bonds. Other commenters

maintained that the 2013 NPR could

incentivize banking organizations to

hold the lowest quality assets possible

within the constraints of the other credit

quality regulations and, thus, would be

fundamentally at odds with the

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27 On November 29, 2013, the agencies issued a

joint notice of proposed rulemaking that would

implement quantitative liquidity requirements for

certain banking organizations. See 78 FR 71818

(November 29, 2013).

agencies’ proposed liquidity coverage

ratio (LCR) by encouraging banking

organizations to divest low-risk assets

above the minimum required by the

proposed LCR.27 In addition, according

to commenters, banking organizations

would find high-volume, low-risk and

low-return, client-driven financial

activities less profitable, such as deposit

taking. As such, commenters stated that

a binding leverage ratio would result in

higher prices, less liquidity, and

reduction of business lines that have

lower returns on assets

mum required by the

proposed LCR.27 In addition, according

to commenters, banking organizations

would find high-volume, low-risk and

low-return, client-driven financial

activities less profitable, such as deposit

taking. As such, commenters stated that

a binding leverage ratio would result in

higher prices, less liquidity, and

reduction of business lines that have

lower returns on assets.

Some commenters recommended that

the agencies use a more tailored

approach to calibrate the proposed

enhanced supplementary leverage ratio

standards, for example by proposing a

leverage buffer for covered BHCs that

would be aligned with the capital

surcharges provided in the BCBS G–SIB

framework. These commenters asserted

that there is significant diversity among

G–SIBs in risk profile, operating

structure, and approaches to balance

sheet management and that a one-size-

fits-all approach is unduly punitive for

banking organizations with significant

amounts of highly liquid, low-risk

assets.

In contrast, a few commenters stated

that the supplementary leverage ratio is

a more accurate measure of regulatory

capital than the risk-based capital ratios,

easier to understand, comparable across

firms, less prone to manipulation and,

therefore, should be the binding capital

standard. Commenters supported a

revised calibration as strong, or stronger,

than the one set forth in the 2013 NPR.

For example, some commenters

suggested substantially increasing the

proposed enhanced supplementary

leverage ratio standards for covered

organizations (for example, by

implementing an 8 percent well-

capitalized threshold for any IDI

subsidiary of a covered BHC and a 4 or

5 percent leverage buffer (in addition to

the minimum 3 percent) for covered

BHCs). These commenters argued that

incentivizing covered organizations to

be better capitalized as a group through

the proposed standards would improve

their ability to provide credit during

periods of economic stress

ng an 8 percent well-

capitalized threshold for any IDI

subsidiary of a covered BHC and a 4 or

5 percent leverage buffer (in addition to

the minimum 3 percent) for covered

BHCs). These commenters argued that

incentivizing covered organizations to

be better capitalized as a group through

the proposed standards would improve

their ability to provide credit during

periods of economic stress. Others

supported either increasing or

maintaining the proposed calibration of

the enhanced supplementary leverage

ratio standards by emphasizing the

importance of constraining the risks

large institutions pose to the financial

system. Other commenters supported

strengthening the supplementary

leverage ratio standards based on their

view that the risk-based capital

framework is subjective and may

excessively rely on the use of models.

With regard to the concerns raised by

commenters about potential competitive

disadvantages for covered organizations

as a result of the proposed enhanced

supplementary leverage ratio standards,

in the agencies’ experience, a strong

regulatory capital base is a competitive

strength for banking organizations,

rather than a competitive weakness.

Specifically, strong capital promotes

confidence among banking

organizations’ market counterparties

and bolsters the ability of banking

organizations to lend and otherwise

serve customers during stressed market

conditions. The agencies are of the view

that a strongly capitalized banking

system also promotes the resilience of

the broader economy because it

promotes the stability of the financial

system, which allows a wide range of

firms to efficiently access funding and

liquidity to meet their business needs.

The agencies also note that banking

organizations in the U.S. have long been

subject to a leverage ratio framework,

whereas banking organizations in other

jurisdictions generally have not been

subject to any leverage requirement

e it

promotes the stability of the financial

system, which allows a wide range of

firms to efficiently access funding and

liquidity to meet their business needs.

The agencies also note that banking

organizations in the U.S. have long been

subject to a leverage ratio framework,

whereas banking organizations in other

jurisdictions generally have not been

subject to any leverage requirement. The

agencies do not believe this

longstanding difference has adversely

affected the competitive strength of U.S.

banking organizations. Finally, the

agencies believe that the benefits to the

banking and financial system from more

resilient systemically important banking

organizations outweigh any potential

competitive disadvantages of related

implementation costs that covered

organizations may face.

With regard to the comments asserting

that the proposed enhanced

supplementary leverage ratio standards

were arbitrary, the 2013 NPR described

the agencies’ approach to calibration.

According to the agencies’ analysis, a 3

percent minimum supplementary

leverage ratio would have been too low

to have meaningfully constrained the

buildup of leverage at the largest

institutions in the years leading up to

the financial crisis. To address this issue

the agencies proposed the enhanced

supplementary leverage ratio standards.

The agencies believe that the leverage

and risk-based capital ratios play

complementary roles, with each

offsetting potential weaknesses of the

other. The 2013 revised capital rule

implemented the capital conservation

buffer framework (which is only

applicable to risk-based capital ratios)

and increased risk-based capital

requirements more than it increased

leverage requirements, reducing the

ability of the leverage requirements to

act as an effective complement to the

risk-based requirements, as they had

historically

es of the

other. The 2013 revised capital rule

implemented the capital conservation

buffer framework (which is only

applicable to risk-based capital ratios)

and increased risk-based capital

requirements more than it increased

leverage requirements, reducing the

ability of the leverage requirements to

act as an effective complement to the

risk-based requirements, as they had

historically. As a result, the degree to

which covered organizations could

potentially benefit from active

management of risk-weighted assets

before they breach the leverage

requirements may be greater. As

described in the 2013 NPR, such

potential behavior suggests that the

increase in stringency of the leverage

and risk-based standards should be

more closely calibrated to each other so

that they remain in an effective

complementary relationship. These

considerations were important in

calibrating the enhanced supplementary

leverage ratio standards. Specifically,

the 2013 NPR noted that the proposed

enhanced supplementary leverage

ratio’s well-capitalized threshold for IDI

subsidiaries of covered BHCs and the

proposed leverage buffer for covered

BHCs would retain a degree of

proportionality with the stronger tier 1

risk-based capital standards (including

the minimum risk-based capital

requirements and the capital

conservation buffer) under the 2013

revised capital rule.

Consistent with the calibration goals

described in the 2013 NPR, the agencies

believe that the proposed enhanced

supplementary leverage ratio standards

should broadly preserve the historical

relationship between the tier 1 leverage

and risk-based capital levels for covered

organizations, rather than

fundamentally alter such a relationship

as several commenters suggest

vised capital rule.

Consistent with the calibration goals

described in the 2013 NPR, the agencies

believe that the proposed enhanced

supplementary leverage ratio standards

should broadly preserve the historical

relationship between the tier 1 leverage

and risk-based capital levels for covered

organizations, rather than

fundamentally alter such a relationship

as several commenters suggest. With

respect to IDI subsidiaries of covered

BHCs, the increase in stringency in

terms of the additional tier 1 capital that

would be required to be well capitalized

under the enhanced supplementary

leverage ratio standards is roughly

equivalent to the increase in stringency

resulting from the application of the

2013 revised capital rule’s risk-based

capital standards.

Moreover, in response to comments

suggesting that the supplementary

leverage ratio well-capitalized threshold

for an IDI subsidiary of a covered BHC

should result in the same amount of

capital needed by a covered BHC to

meet the minimum supplementary ratio

requirement plus the proposed leverage

buffer, the agencies note that the PCA

framework and the proposed leverage

buffer were designed for different

purposes. The PCA framework is

intended to ensure that problems at

depository institutions are addressed

promptly and at the least cost to the

Deposit Insurance Fund. The leverage

buffer (as well as the capital

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r were designed for different

purposes. The PCA framework is

intended to ensure that problems at

depository institutions are addressed

promptly and at the least cost to the

Deposit Insurance Fund. The leverage

buffer (as well as the capital

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

conservation buffer) was designed and

calibrated to provide incentives to

banking organizations to hold sufficient

capital to reduce the risk that their

capital levels would fall below their

minimum requirements during times of

economic and financial stress. In

addition, as discussed in the 2013 NPR,

the relationship between the 5 percent

supplementary leverage ratio for

covered BHCs (resulting from the 3

percent minimum supplementary

leverage ratio plus the 2 percent

leverage buffer) and the 6 percent

supplementary leverage ratio’s well-

capitalized threshold for IDI

subsidiaries of covered BHCs is

generally structurally consistent with

the relationship between the 4 percent

minimum leverage ratio for BHCs and

the 5 percent well-capitalized leverage

ratio threshold for IDIs under the

generally applicable regulatory capital

framework, including as revised under

the 2013 revised capital rule.

The agencies note that the

maintenance of a complementary

relationship between the leverage and

risk-based capital ratios is designed to

mitigate any regulatory capital

incentives for covered organizations to

inappropriately increase their risk

profile in response to a binding

supplementary leverage ratio. Similarly,

stress testing provides another

mechanism to counterbalance the risk

that these institutions could potentially

increase their risk profile in response to

a binding supplementary leverage ratio

is designed to

mitigate any regulatory capital

incentives for covered organizations to

inappropriately increase their risk

profile in response to a binding

supplementary leverage ratio. Similarly,

stress testing provides another

mechanism to counterbalance the risk

that these institutions could potentially

increase their risk profile in response to

a binding supplementary leverage ratio.

If the supplementary leverage ratio is

binding and covered organizations

acquire more higher-risk assets, risk

weights should increase until the risk-

based capital framework becomes

binding. Conversely, if a binding risk-

based capital ratio induces an

institution to expand portfolios whose

risk is insufficiently addressed by the

risk-based capital framework, its total

leverage exposure would increase until

the leverage ratio becomes binding.

Moreover, the agencies believe that

banking organizations choose their asset

mix based on a variety of factors,

including yields available relative to the

overall cost of funds, the need to

preserve financial flexibility and

liquidity, revenue generation and the

maintenance of market share and

business relationships, and the

likelihood that principal will be repaid.

The agencies also believe that the

enhanced supplementary leverage ratio

standards, together with the strong risk-

based regulatory capital framework in

the 2013 revised capital rule, will

increase stability and improve safety

and soundness in the banking system. In

particular, the agencies believe that the

complementary relationship between

the enhanced supplementary leverage

ratio standards and the risk-based

capital framework under the 2013

revised capital rule will strengthen

capital positions at covered

organizations, thereby reducing the

likelihood that they fail or experience

severe difficulties

safety

and soundness in the banking system. In

particular, the agencies believe that the

complementary relationship between

the enhanced supplementary leverage

ratio standards and the risk-based

capital framework under the 2013

revised capital rule will strengthen

capital positions at covered

organizations, thereby reducing the

likelihood that they fail or experience

severe difficulties.

With regard to the comments

suggesting that the calibration of the

enhanced supplementary leverage ratio

should vary in accordance with the

specific systemic footprint of a covered

organization, the agencies note that such

issues are addressed in part by the risk-

differentiation that exists within the

risk-based capital framework. The

agencies believe that all covered

organizations, despite differences in

business models, are systemically

important and highly interconnected

and, therefore, uniformly-applied

leverage capital standards across these

organizations are warranted.

D. Economic Impact of the 2013 NPR on

Specific Types of Securities and Credit

Transactions and on the Custody Bank

Business Model

Commenters also expressed concern

about the effect the 2013 NPR would

have for particular types of transactions

and business models. Commenters

asserted that the 2013 NPR would

directly affect short-term securities

financing transactions, including

repurchase agreements, reverse

repurchase agreements, and revolving

lines of credit, among other similar

transactions, by imposing additional

capital requirements on low-risk

exposures held by covered organizations

when they enter into these

arrangements. Some commenters argued

that the enhanced supplementary

leverage ratio standards may encourage

covered organizations to reduce their

participation in securities financing

transactions

nts, and revolving

lines of credit, among other similar

transactions, by imposing additional

capital requirements on low-risk

exposures held by covered organizations

when they enter into these

arrangements. Some commenters argued

that the enhanced supplementary

leverage ratio standards may encourage

covered organizations to reduce their

participation in securities financing

transactions. One commenter also

indicated that the 2013 NPR would

result in the entrance into the securities

financing transactions market of

smaller, less-experienced, and less well-

capitalized counterparties who may fall

outside existing regulatory oversight,

resulting in additional systemic risk due

to insufficient oversight of these

counterparties. That commenter argued

that the 2013 NPR may result in the

overexposure to individual

counterparties, because covered

organizations could conclude that

securities financing transactions are

more costly to them and, as a result,

may limit the availability (or the best

terms) of this financing to only those

asset managers to whom they provide

other lines of service. In addition,

commenters asserted that asset

managers might respond by directing

business to a single large banking

organization in order to receive the best

terms for securities financing

transactions.

Several commenters argued that there

would be less flexibility for mutual fund

managers and insurance companies to

execute certain transactions with

covered organizations as a result of the

enhanced supplementary leverage ratio

standards, which could give rise to less

liquid markets at the time that liquidity

is needed the most

ceive the best

terms for securities financing

transactions.

Several commenters argued that there

would be less flexibility for mutual fund

managers and insurance companies to

execute certain transactions with

covered organizations as a result of the

enhanced supplementary leverage ratio

standards, which could give rise to less

liquid markets at the time that liquidity

is needed the most. These commenters

indicated that when mutual fund

redemptions rise because individual

investors desire liquidity, investment

managers are required to meet those

redemption requests immediately, and

that if many requests come at once, the

investment manager will use securities

financing arrangements to smooth out

the flow of capital, rather than be forced

to sell investments in a rapid or

disorderly fashion. Commenters also

noted that if securities financing

arrangements are less accessible, an

investment manager may incur higher

costs related to the forced sale of

underlying securities.

Some commenters suggested that the

agencies recalibrate the enhanced

supplementary leverage ratio standards

to better reflect the business model and

risk profile of custody banks, either

through an approach tied to each

covered company’s G–SIB risk-based

capital surcharge (which incorporates

various measures to identify systemic

risk) or an adjustment specific to these

organizations, because a one-size-fits-all

approach would be unduly punitive for

covered organizations with significant

amounts of highly liquid, low-risk

assets. One commenter asserted that

custody banks have balance sheets that

are uniquely constructed as they are

built around client deposits derived

from the provision of core safekeeping

and fund administration services,

whereas most other covered

organizations feature extensive

commercial and investment banking

operations

ganizations with significant

amounts of highly liquid, low-risk

assets. One commenter asserted that

custody banks have balance sheets that

are uniquely constructed as they are

built around client deposits derived

from the provision of core safekeeping

and fund administration services,

whereas most other covered

organizations feature extensive

commercial and investment banking

operations. Some commenters asserted

that the enhanced supplementary

leverage ratio standards would

significantly punish or effectively limit

important custody bank functions such

as those which are associated with

central bank deposits and committed

facilities. These commenters also noted

that the enhanced supplementary

leverage ratio standards may limit the

ability of custody banks to accept

deposits, particularly during periods of

systemic stress. One commenter

asserted that global payment systems

could be adversely affected by a

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

28 Banking organizations that are not subject to

the advanced approaches rule may elect to opt out

of the requirement to recognize unrealized gains

and losses in AOCI for purposes of determining

CET1 capital.

29 See section III.C. of the preamble in the 2013

final capital rule issued by the Board and OCC for

a discussion of accumulated other comprehensive

income. 78 FR 62018, 62026–62027 (October 11,

2013). See section V.B.2.c. of the preamble in the

2013 interim final capital rule issued by the FDIC

for a discussion of accumulated other

comprehensive income. 78 FR 55340, 55377–55380

(September 10, 2013).

reduction in central bank balances,

which are broadly used by banking

organizations to reduce the risk of

payment failures and facilitate

consistent and smooth payment flows

ber 11,

2013). See section V.B.2.c. of the preamble in the

2013 interim final capital rule issued by the FDIC

for a discussion of accumulated other

comprehensive income. 78 FR 55340, 55377–55380

(September 10, 2013).

reduction in central bank balances,

which are broadly used by banking

organizations to reduce the risk of

payment failures and facilitate

consistent and smooth payment flows.

In addition, some commenters asserted

that the enhanced supplementary

leverage ratio standards would reduce

incentives to hold low-risk assets and

would increase the cost to comply with

increased margin requirements,

particularly initial margin, for

derivatives transactions. The agencies

note that several of the commenters’

concerns were related to aspects of the

BCBS consultative paper.

With regard to the comments

expressing concern about the impact of

the enhanced supplementary leverage

ratio standards on securities financing

transactions, the agencies believe that

certain provisions of the 2014 NPR

would address several of these

concerns. In addition, the agencies

believe it is important to consider that

counterparties may view favorably a

banking organization’s maintenance of a

meaningfully higher supplementary

leverage ratio. To the extent this occurs,

there might be some reduction in a

banking organization’s cost of funds that

potentially offsets any costs related to

holding more regulatory capital. In this

regard, the agencies also note that any

change in regulatory capital costs would

affect a banking organization’s overall

cost of funds only to the extent it affects

the weighted average cost of its

deposits, debt, and equity

ccurs,

there might be some reduction in a

banking organization’s cost of funds that

potentially offsets any costs related to

holding more regulatory capital. In this

regard, the agencies also note that any

change in regulatory capital costs would

affect a banking organization’s overall

cost of funds only to the extent it affects

the weighted average cost of its

deposits, debt, and equity.

The agencies believe that using daily

average balance sheet assets, rather than

requiring the average of three end-of-

month balances in the calculation of the

supplementary leverage ratio under the

2013 revised capital rule would be an

appropriate way to address the

commenters’ concerns on the impact of

spikes in deposits and, in the 2014 NPR,

are proposing changes to the calculation

of total leverage exposure that would

incorporate this concept.

Likewise, for purposes of determining

total leverage exposure, the 2014 NPR

would permit cash variation margin that

satisfies certain requirements to reduce

the positive mark-to-fair value of

derivative contracts. The agencies

believe this proposed revision in the

2014 NPR would address the

commenters’ concerns regarding the

potential increase in the cost to comply

with increased margin requirements.

E. Measure of Capital Used as the

Numerator of the Supplementary

Leverage Ratio

The agencies sought comment on the

appropriate measure of capital for the

numerator of the supplementary

leverage ratio. Many commenters

supported tier 1 capital as the

appropriate measure of capital for the

numerator of the supplementary

leverage ratio because it is designed

specifically to absorb losses on a going

concern basis and has been

meaningfully strengthened under the

2013 revised capital rule.

One commenter encouraged the

agencies to allow covered banking

organizations to include the amount of

a covered organization’s allowance for

loan and lease losses (ALLL) because it

is available to absorb losses

lementary

leverage ratio because it is designed

specifically to absorb losses on a going

concern basis and has been

meaningfully strengthened under the

2013 revised capital rule.

One commenter encouraged the

agencies to allow covered banking

organizations to include the amount of

a covered organization’s allowance for

loan and lease losses (ALLL) because it

is available to absorb losses. A few

commenters, however, asserted that the

numerator of the supplementary

leverage ratio should be common equity

tier 1 (CET1) capital. One commenter

supported this assertion with the

observation that CET1 capital is the

standard most likely to keep an

institution solvent and able to lend

during periods of market distress, and

suggested it would be the only measure

of capital strength trusted by the

markets during a financial crisis.

Another commenter asserted that a

tangible equity measure is preferable

because it is the most simple,

transparent, and useful measure of loss-

absorbing capital.

One commenter recognized the

importance of having a single definition

of tier 1 capital for both risk-based and

leverage requirements, but urged the

agencies to revisit the treatment of

unrealized gains and losses included in

accumulated other comprehensive

income (AOCI) for large banking

organizations under the 2013 revised

capital rule.

The agencies have considered the

comments and have decided to retain

tier 1 capital as the numerator of the

supplementary leverage ratio. The

agencies agree that CET1 capital is the

most conservative measure of capital

defined in the 2013 revised capital rule

and has the highest capacity to absorb

losses, similar to most common

descriptions of ‘‘tangible common

equity.’’ However, as a practical matter

for U.S. banking organizations, tier 1

capital consists of CET1 capital plus

non-cumulative perpetual preferred

stock, a form of preferred stock that the

agencies believe has strong loss-

absorbing capacity

fined in the 2013 revised capital rule

and has the highest capacity to absorb

losses, similar to most common

descriptions of ‘‘tangible common

equity.’’ However, as a practical matter

for U.S. banking organizations, tier 1

capital consists of CET1 capital plus

non-cumulative perpetual preferred

stock, a form of preferred stock that the

agencies believe has strong loss-

absorbing capacity. Accordingly, the

agencies believe that tier 1 capital, as

defined in the 2013 revised capital rule,

is an appropriately conservative

measure of capital for the purposes of

the supplementary leverage ratio.

Furthermore, tier 1 capital incorporates

substantial regulatory adjustments and

deductions that are not typically made

from market measures of tangible

equity. Moreover, using tier 1 capital as

the numerator of the supplementary

leverage ratio has the advantage of

maintaining consistency with the

numerator of the leverage ratio that has

long applied broadly to U.S. banking

organizations and that now applies to

banking organizations in other

jurisdictions adopting the Basel III

leverage ratio.

With respect to allowing covered

banking organizations to include ALLL

as part of the capital measure for the

numerator, the agencies note that ALLL

is partially includable in tier 2 capital

under the risk-based capital framework

and under the 2013 revised capital rule.

However, ALLL is not includable in tier

1 capital and the agencies believe that

such an inclusion would weaken the

quality of tier 1 capital as it relates to

the supplementary leverage ratio when

compared to the risk-based capital

framework

the agencies note that ALLL

is partially includable in tier 2 capital

under the risk-based capital framework

and under the 2013 revised capital rule.

However, ALLL is not includable in tier

1 capital and the agencies believe that

such an inclusion would weaken the

quality of tier 1 capital as it relates to

the supplementary leverage ratio when

compared to the risk-based capital

framework.

The agencies considered comments

on the recognition of unrealized gains

and losses in AOCI in connection with

the development of the 2013 revised

capital rule, which requires advanced

approaches banking organizations to

recognize unrealized gains and losses in

AOCI for purposes of determining CET1

capital.28 The agencies believe that

requiring a banking organization to

reflect unrealized gains and losses in

regulatory capital provides a more

accurate depiction of its loss-absorption

capacity at a specific point in time,

which is particularly important for

large, internationally active banking

organizations. For this reason and the

reasons discussed above, the agencies

are retaining tier 1 capital as the

numerator of the enhanced

supplementary leverage ratio standards

under this final rule.29

F. Total Leverage Exposure Definition

The 2013 NPR would not have

amended the definition of total leverage

exposure (the denominator of the

supplementary leverage ratio) under the

2013 revised capital rule. However, a

significant number of commenters

criticized the components and

methodology for calculating total

leverage exposure.

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tal leverage

exposure (the denominator of the

supplementary leverage ratio) under the

2013 revised capital rule. However, a

significant number of commenters

criticized the components and

methodology for calculating total

leverage exposure.

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

30 One commenter also noted that retaining the

proposal to include U.S. Treasury debt securities in

total leverage exposure could present certain

national security concerns.

Many commenters asserted that total

leverage exposure should be more risk-

sensitive. For instance, commenters

encouraged the agencies to exclude

highly liquid assets, such as cash on

hand and claims on central banks, and

sovereign securities, particularly U.S.

Treasuries, from total leverage exposure.

Commenters maintained that, if the

agencies opt to not exclude risk-free or

very low-risk, highly liquid assets from

total leverage exposure, then these

assets should be discounted according

to their relative levels of liquidity

similar to the categories of eligible

assets under the standardized approach

in the 2013 revised capital rule. In

addition, commenters stated that bank

deposits with central banks such as the

Federal Reserve Banks should be

excluded in order to accommodate

increases in banks’ assets, both

temporary and sustained, that occur as

a result of macroeconomic factors and

monetary policy decisions, particularly

during periods of financial market

stress. Commenters urged the agencies

to exclude assets such as U.S.

government obligations securing public

sector entity (PSE) deposits from total

leverage exposure. Commenters argued

that a banking organization holding PSE

deposits is required to pledge U.S.

Treasuries to collateralize the deposits,

and that if U.S

etary policy decisions, particularly

during periods of financial market

stress. Commenters urged the agencies

to exclude assets such as U.S.

government obligations securing public

sector entity (PSE) deposits from total

leverage exposure. Commenters argued

that a banking organization holding PSE

deposits is required to pledge U.S.

Treasuries to collateralize the deposits,

and that if U.S. Treasuries are not

excluded from total leverage exposure,

the cost of additional capital would

result in higher costs being passed on to

the PSEs. Another commenter, however,

asked that the agencies not introduce

any risk-based capital measure into the

supplementary leverage ratio.30

Several commenters encouraged the

agencies not to include in total leverage

exposure the notional amount of all off-

balance sheet assets, particularly for

undrawn commitments. Commenters

stated that using the notional value is

inaccurate, particularly for trade finance

and committed credit lines.

Commenters encouraged the agencies to

use the more granular standardized

approach credit conversion factors

(CCF) in the 2013 revised capital rule.

With respect to the commenters’

request for more risk-sensitivity in the

supplementary leverage ratio

calculation, the agencies believe that

excluding categories of assets from the

denominator of the supplementary

leverage ratio is generally inconsistent

with the intended role of this ratio as an

overall limitation on leverage that does

not differentiate across asset types.

Accordingly, the agencies have decided

not to exempt any categories of balance

sheet assets from the denominator of the

supplementary leverage ratio in the final

rule. Thus, for example, cash, U.S.

Treasuries, and deposits at the Federal

Reserve are included in the

denominator of the supplementary

leverage ratio, as has been the case in

the agencies’ generally applicable

leverage ratio

Accordingly, the agencies have decided

not to exempt any categories of balance

sheet assets from the denominator of the

supplementary leverage ratio in the final

rule. Thus, for example, cash, U.S.

Treasuries, and deposits at the Federal

Reserve are included in the

denominator of the supplementary

leverage ratio, as has been the case in

the agencies’ generally applicable

leverage ratio. The agencies recognize

the low risk of these assets under the

agencies’ risk-based capital rules, which

complement the minimum

supplementary leverage ratio

requirement and the enhanced

supplementary leverage ratio standards,

as discussed above. Excluding specific

categories of assets from the

supplementary leverage ratio

denominator would in effect allow

banking organizations to finance these

assets exclusively with debt, potentially

resulting in a significant increase in a

banking organizations’ ability to deploy

financial leverage.

With regard to the comments

criticizing the use of the notional

amounts of off-balance sheet

commitments for purposes of the

supplementary leverage ratio, the

agencies are seeking comment on

proposed changes to the denominator in

the 2014 NPR that would include the

use of standardized approach CCFs for

most off-balance sheet commitments.

G. Proposed Basel III Leverage Ratio

Revisions

A number of commenters were

concerned about the relationship

between the enhanced supplementary

leverage ratio standards and the

revisions to the Basel III leverage ratio

framework proposed by the BCBS

consultative paper, which proposed a

leverage ratio exposure measure that

would result in greater reported

exposure than the total leverage

exposure as defined in the 2013 revised

capital rule.

A number of commenters were

concerned that covered organizations

would be placed at a competitive

disadvantage relative to foreign

competitors if the enhanced

supplementary leverage ratio standards

in the U.S. are set at a higher level than

the Basel III leverage ratio

would result in greater reported

exposure than the total leverage

exposure as defined in the 2013 revised

capital rule.

A number of commenters were

concerned that covered organizations

would be placed at a competitive

disadvantage relative to foreign

competitors if the enhanced

supplementary leverage ratio standards

in the U.S. are set at a higher level than

the Basel III leverage ratio. Some

commenters also expressed concern that

the proposed BCBS revisions to the

denominator would be inappropriately

restrictive and might be incorporated

into the U.S. supplementary leverage

ratio. However, another commenter

argued that a stronger leverage ratio

standard would enhance the

competitive position of U.S. banking

organizations by improving the relative

stability and financial strength of the

U.S. banking system.

One commenter included a study of

the impact of the revisions proposed in

the BCBS’s consultative paper, and,

where relevant, the U.S. enhanced

supplementary leverage ratio standards,

on the U.S. banking industry, products

offered by U.S. banks, and U.S. markets.

The study concludes that, on average,

U.S. advanced approaches banking

organizations (including U.S. G-SIBs)

exceed the 3 percent supplementary

leverage ratio threshold based both on

the ratio as formulated in the Basel III

leverage ratio framework and after

giving effect to the BCBS proposed

revisions, but when measured against

the proposed enhanced supplementary

leverage ratio standards, U.S. advanced

approaches banking organizations

would have substantial tier 1 capital

shortfalls. Specifically, the study

suggests that if the revisions proposed

in the consultative paper and the

proposed enhanced supplementary

leverage ratio standards were both

implemented, the U.S

roposed

revisions, but when measured against

the proposed enhanced supplementary

leverage ratio standards, U.S. advanced

approaches banking organizations

would have substantial tier 1 capital

shortfalls. Specifically, the study

suggests that if the revisions proposed

in the consultative paper and the

proposed enhanced supplementary

leverage ratio standards were both

implemented, the U.S. advanced

approaches banking organizations

would need $202 billion in additional

tier 1 capital or a reduction in exposures

of $3.7 trillion to meet those standards,

and to meet the proposed enhanced

supplementary leverage ratio standards

without giving effect to the BCBS

consultative paper changes, these

banking organizations would need to

raise $69 billion in additional capital or

reduce exposures by $1.2 trillion. The

study suggests that if the agencies

adopted the Basel proposed total

leverage exposure as contemplated in

the consultative paper in combination

with the proposed enhanced

supplementary leverage ratio standards,

the leverage ratio would become the

binding constraint for banking

organizations holding 67 percent of U.S.

G–SIB assets.

One commenter, on the other hand,

encouraged the agencies to revise the

denominator of the supplementary

leverage ratio in accordance with the

BCBS’s consultative paper. This

commenter further encouraged the

agencies to restrict derivatives netting

permitted under the BCBS consultative

paper and to substantially increase the

standardized measurement of the

potential future exposure for derivative

transactions. Similarly, another

commenter asked the agencies to

consider the use of International

Financial Reporting Standards (IFRS)

for purposes of measuring off-balance

sheet derivatives exposures

ncies to restrict derivatives netting

permitted under the BCBS consultative

paper and to substantially increase the

standardized measurement of the

potential future exposure for derivative

transactions. Similarly, another

commenter asked the agencies to

consider the use of International

Financial Reporting Standards (IFRS)

for purposes of measuring off-balance

sheet derivatives exposures.

Neither the 2013 NPR nor the final

rule includes the changes to total

leverage exposure described in the

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

31 Available at http://www.bis.org/publ/

bcbs258.pdf.

BCBS consultative paper. Therefore, the

agencies’ supplementary leverage ratio

is consistent with the international

leverage ratio established by the BCBS

in 2010. The agencies’ analysis of the

impact of this final rule is summarized

in the next section of this preamble.

As discussed above, in January 2014

the BCBS adopted certain aspects of the

proposals outlined in the BCBS

consultative paper as well as other

changes to the denominator. The

changes to the denominator included,

among other items, revising CCFs for

certain off-balance sheet exposures,

incorporating the notional amount of

sold credit protection (that is, credit

derivatives sold by a banking

organization acting as a credit

protection provider) in total leverage

exposure, and modifying the measure of

exposure for derivatives and repo-style

transactions, including changes to the

criteria for recognizing netting for repo-

style transactions and cash collateral for

derivatives. The agencies believe that

the changes introduced by the BCBS

strengthen the Basel III leverage ratio in

important ways

ing as a credit

protection provider) in total leverage

exposure, and modifying the measure of

exposure for derivatives and repo-style

transactions, including changes to the

criteria for recognizing netting for repo-

style transactions and cash collateral for

derivatives. The agencies believe that

the changes introduced by the BCBS

strengthen the Basel III leverage ratio in

important ways. In the 2014 NPR,

published elsewhere in today’s Federal

Register, the agencies are proposing

revisions to the supplementary leverage

ratio that are generally consistent with

the BCBS 2014 revisions. The agencies

believe that the proposed revisions to

the definition of total leverage exposure

published in the 2014 NPR are

responsive to a number of concerns that

commenters expressed about the

relationship between the BCBS process

and the supplementary leverage ratio. In

this regard, the agencies will carefully

review all comments received on these

aspects of the definition of total leverage

exposure in the 2014 NPR.

H. Impact Analysis

Commenters suggested that, in

addition to waiting for the BCBS to

finalize the denominator of the Basel

leverage ratio, the agencies should

conduct a quantitative impact study to

assess the cumulative impact of bank

capital and other financial reform

regulations on the ability of U.S.

banking organizations to provide

financial services to consumers and

businesses.

In the 2013 NPR, the agencies cited

data from the Board’s Comprehensive

Capital Analysis and Review (CCAR)

process in which all of the agencies

participate. This information reflects

banking organizations’ own projections

of their supplementary leverage ratios

under the supervisory baseline scenario,

including institutions’ own assumptions

about earnings retention and other

strategic actions

he 2013 NPR, the agencies cited

data from the Board’s Comprehensive

Capital Analysis and Review (CCAR)

process in which all of the agencies

participate. This information reflects

banking organizations’ own projections

of their supplementary leverage ratios

under the supervisory baseline scenario,

including institutions’ own assumptions

about earnings retention and other

strategic actions.

As noted in the 2013 NPR, in the 2013

CCAR, all 8 covered BHCs met the 3

percent supplementary leverage ratio as

of third quarter 2012, and almost all

projected that their supplementary

leverage ratios would exceed 5 percent

at year-end 2017. If the enhanced

supplementary leverage ratio standards

had been in effect as of third quarter

2012, covered BHCs under the 2013

NPR that did not exceed a minimum

supplementary leverage ratio

requirement of 3 percent plus a 2

percent leverage buffer would have

needed to increase their tier 1 capital by

about $63 billion to meet that ratio.

Because CCAR is focused on the

consolidated capital of BHCs, BHCs did

not project future Basel III leverage

ratios for their IDIs. To estimate the

impact of the 2013 NPR on the lead

subsidiary IDIs of covered BHCs, the

agencies assumed that an IDI has the

same ratio of total leverage exposure to

total assets as its BHC. Using this

assumption and CCAR 2013 projections,

all 8 lead subsidiary IDIs of covered

BHCs were estimated to meet the 3

percent supplementary leverage ratio as

of third quarter 2012. If the enhanced

supplementary leverage ratio standards

had been in effect as of third quarter

2012, the lead subsidiary IDIs of covered

BHCs that did not meet a 6 percent

supplementary leverage ratio would

have needed to increase their tier 1

capital by about $89 billion to meet that

ratio

d

BHCs were estimated to meet the 3

percent supplementary leverage ratio as

of third quarter 2012. If the enhanced

supplementary leverage ratio standards

had been in effect as of third quarter

2012, the lead subsidiary IDIs of covered

BHCs that did not meet a 6 percent

supplementary leverage ratio would

have needed to increase their tier 1

capital by about $89 billion to meet that

ratio.

In finalizing the rule, the agencies

updated their supervisory estimates of

the amount of tier 1 capital that would

be required for covered BHCs and their

lead subsidiary IDIs to meet the

enhanced supplementary leverage ratio

standards. Using updated CCAR

estimates, all 8 covered BHCs meet the

3 percent supplementary leverage ratio

as of fourth quarter 2013. If the

enhanced supplementary leverage ratio

standards had been in effect as of fourth

quarter 2013, CCAR data suggests that

covered BHCs that would not have met

a 5 percent supplementary leverage ratio

would have needed to increase their tier

1 capital by about $22 billion to meet

that ratio.

Assuming that an IDI has the same

ratio of total leverage exposure to total

assets as its BHC to estimate the impact

at the IDI level, the updated CCAR data

indicates that all 8 lead subsidiary IDIs

of covered BHCs meet the 3 percent

supplementary leverage ratio as of

fourth quarter 2013. If the enhanced

supplementary leverage ratio standards

had been in effect as of fourth quarter

2013, the updated CCAR data suggests

that the lead subsidiary IDIs of covered

BHCs that did not meet a 6 percent ratio

would have needed to increase their tier

1 capital by about $38 billion to meet

that ratio. The agencies believe that the

affected covered BHCs and their

subsidiary IDIs would be able to

effectively manage their capital

structures to meet the enhanced

supplementary leverage ratio standards

in the final rule by January 1, 2018

diary IDIs of covered

BHCs that did not meet a 6 percent ratio

would have needed to increase their tier

1 capital by about $38 billion to meet

that ratio. The agencies believe that the

affected covered BHCs and their

subsidiary IDIs would be able to

effectively manage their capital

structures to meet the enhanced

supplementary leverage ratio standards

in the final rule by January 1, 2018. The

agencies believe that this transition

period should help to reduce any short-

term consequences and allow covered

organizations to adjust smoothly to the

new supplementary leverage ratio

standards.

I. Advanced Approaches Framework

The agencies sought comment on

whether in light of the proposed

enhanced supplementary leverage ratio

standards and ongoing standardized

risk-based capital floors, the agencies

should consider, in some future

regulatory action, simplifying or

eliminating portions of the advanced

approaches rule if they are unnecessary

or duplicative. One commenter stated

that mandatory application of the

advanced approaches rule is based on

an outdated size-based threshold, and

that the agencies should review the

thresholds for mandatory application of

the advanced approaches risk-based

capital rules and consider whether, in

light of recently implemented reforms to

the regulatory capital framework, the

criteria remain appropriate or whether

they should be refined given the

purpose of those rules. Another

commenter recommended delaying

consideration of the proposed enhanced

supplementary leverage ratio standards

pending the review and completion of

regulatory initiatives based on the

BCBS’s discussion paper entitled, The

regulatory framework: balancing risk

sensitivity, simplicity and

comparability.31

The agencies are not proposing any

changes to the advanced approaches

rule in connection with the final rule

delaying

consideration of the proposed enhanced

supplementary leverage ratio standards

pending the review and completion of

regulatory initiatives based on the

BCBS’s discussion paper entitled, The

regulatory framework: balancing risk

sensitivity, simplicity and

comparability.31

The agencies are not proposing any

changes to the advanced approaches

rule in connection with the final rule.

As with any aspect of the regulatory

capital framework, the agencies will

continue to evaluate the appropriateness

of the requirements of the advanced

approaches rule in light of this final rule

and the ongoing evolution of the U.S.

financial regulatory framework.

III. Description of the Final Rule

For the reasons discussed above, and

consistent with the transition provisions

set forth in subpart G of the 2013

revised capital rule, the agencies have

decided to adopt the 2 percent leverage

buffer for covered BHCs and the 6

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

32 See section 11(a)(4) of the 2013 revised capital

rule.

33 The OCC calculated the number of small

entities using the SBA’s size thresholds for

commercial banks and savings institutions, and

trust companies, which are $500 million and $35.5

million, respectively. 78 FR 37409 (June 20, 2013).

Consistent with the General Principles of Affiliation

13 CFR 121.103(a), the OCC counted the assets of

affiliated financial institutions when determining

whether to classify a national bank or Federal

savings association as a small entity. The OCC used

December 31, 2013, to determine size because a

‘‘financial institution’s assets are determined by

averaging the assets reported on its four quarterly

financial statements for the preceding year.’’ See

footnote 8 of the U.S. Small Business

Administration’s Table of Size Standards

n determining

whether to classify a national bank or Federal

savings association as a small entity. The OCC used

December 31, 2013, to determine size because a

‘‘financial institution’s assets are determined by

averaging the assets reported on its four quarterly

financial statements for the preceding year.’’ See

footnote 8 of the U.S. Small Business

Administration’s Table of Size Standards.

34 See 13 CFR 121.201. Effective July 22, 2013, the

Small Business Administration revised the size

standards for banking organizations to $500 million

in assets from $175 million in assets. 78 FR 37409

(June 20, 2013).

percent well-capitalized threshold for

subsidiary IDIs of covered BHCs

effective on January 1, 2018. The final

rule implements the provisions in the

2013 NPR as proposed. Accordingly, the

final rule applies to any U.S. top-tier

BHC with more than $700 billion in

total consolidated assets or more than

$10 trillion in assets under custody and

any advanced approaches IDI subsidiary

of such BHCs.

As further discussed above, the

agencies are proposing elsewhere in the

Federal Register changes to the

calculation of the supplementary

leverage ratio that would amend the

2013 revised capital rule and change the

basis for calculating the supplementary

leverage ratio.

Under the final rule, a covered BHC

that maintains a leverage buffer greater

than 2 percent of its total leverage

exposure is not subject to the rule’s

limitations on its distributions and

discretionary bonus payments.32 If the

covered BHC maintains a leverage buffer

of 2 percent or less, it is subject to

increasingly stricter limitations on such

payouts. An IDI that is a subsidiary of

a covered BHC is required to satisfy a

6 percent supplementary leverage ratio

to be considered well capitalized for

PCA purposes. The leverage ratio PCA

thresholds under the 2013 revised

capital rule and this final rule are

shown in Table 1

maintains a leverage buffer

of 2 percent or less, it is subject to

increasingly stricter limitations on such

payouts. An IDI that is a subsidiary of

a covered BHC is required to satisfy a

6 percent supplementary leverage ratio

to be considered well capitalized for

PCA purposes. The leverage ratio PCA

thresholds under the 2013 revised

capital rule and this final rule are

shown in Table 1.

TABLE 1—LEVERAGE RATIO PCA LEVELS

PCA category

Generally applicable leverage ratio

(percent)

Supplementary

leverage ratio

for advanced

approaches banking

organizations

(percent)

Supplementary

leverage ratio

for subsidiary

IDIs of covered

BHCs

(percent)

Well Capitalized ......................

≥5 ............................................................................................

Not applicable ........................

≥6.

Adequately Capitalized ...........

≥4 ............................................................................................

≥3 ...........................................

≥3.

Undercapitalized ......................

<4 ............................................................................................

<3 ...........................................

<3.

Significantly Undercapitalized

<3 ............................................................................................

Not applicable ........................

Not applicable.

Critically Undercapitalized .......

Tangible equity (defined as tier 1 capital plus non-tier 1 per-

petual preferred stock) to Total Assets ≤2.

Not applicable ........................

Not applicable.

Note: The supplementary leverage ratio includes many off-balance sheet exposures in its denominator; the generally applicable leverage ratio

does not.

All advanced approaches banking

organizations must calculate and begin

reporting their supplementary leverage

ratios beginning in the first quarter of

2015

red stock) to Total Assets ≤2.

Not applicable ........................

Not applicable.

Note: The supplementary leverage ratio includes many off-balance sheet exposures in its denominator; the generally applicable leverage ratio

does not.

All advanced approaches banking

organizations must calculate and begin

reporting their supplementary leverage

ratios beginning in the first quarter of

2015. However, the enhanced

supplementary leverage ratio standards

for covered organizations set forth in the

final rule do not become effective until

January 1, 2018.

IV. Regulatory Analysis

A. Paperwork Reduction Act (PRA)

There is no new collection of

information pursuant to the PRA (44

U.S.C. 3501 et seq.) contained in this

final rule. The agencies did not receive

any comment on their PRA analysis.

B. Regulatory Flexibility Act Analysis

OCC

The Regulatory Flexibility Act, 5

U.S.C. 601 et seq. (RFA) requires an

agency, in connection with a final rule,

to prepare a Final Regulatory Flexibility

Act analysis describing the impact of

the rule on small entities (defined by the

Small Business Administration for

purposes of the RFA to include banking

entities with total assets of $500 million

or less) or to certify that the rule will not

have a significant economic impact on

a substantial number of small entities.

Using the SBA’s size standards, as of

December 31, 2013, the OCC supervised

1,195 small entities.33

As described in the SUPPLEMENTARY

INFORMATION section of the preamble, the

final rule strengthens the supplementary

leverage ratio standards for covered

BHCs and their IDI subsidiaries.

Because the final rule applies only to

covered BHCs and their IDI subsidiaries,

it does not impact any OCC-supervised

small entities. Therefore, the OCC

certifies that the final rule will not have

a significant economic impact on a

substantial number of OCC-supervised

small entities.

Board

The Regulatory Flexibility Act, 5

U.S.C. 601 et seq

for covered

BHCs and their IDI subsidiaries.

Because the final rule applies only to

covered BHCs and their IDI subsidiaries,

it does not impact any OCC-supervised

small entities. Therefore, the OCC

certifies that the final rule will not have

a significant economic impact on a

substantial number of OCC-supervised

small entities.

Board

The Regulatory Flexibility Act, 5

U.S.C. 601 et seq. (RFA) requires an

agency to provide a final regulatory

flexibility analysis with a final rule or

to certify that the rule will not have a

significant economic impact on a

substantial number of small entities

(defined for purposes of the RFA

beginning on July 22, 2013, to include

banks with assets less than or equal to

$500 million) 34 and publish its analysis

or a summary, or its certification and a

short, explanatory statement, in the

Federal Register along with the final

rule.

The Board is providing a final

regulatory flexibility analysis with

respect to this final rule. As discussed

above, this final rule is designed to

enhance the safety and soundness of

U.S. top-tier bank holding companies

with at least $700 billion in

consolidated assets or at least $10

trillion in assets under custody (covered

BHCs), and the insured depository

institution subsidiaries of covered

BHCs. The Board received no public

comments on the proposed rule from

members of the general public or from

the Chief Counsel for Advocacy of the

Small Business Administration. Thus,

no issues were raised in public

comments relating to the Board’s initial

regulatory flexibility act analysis and no

changes are being made in response to

such comments.

Under regulations issued by the Small

Business Administration, a small entity

includes a depository institution or

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lating to the Board’s initial

regulatory flexibility act analysis and no

changes are being made in response to

such comments.

Under regulations issued by the Small

Business Administration, a small entity

includes a depository institution or

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

35 Effective July 22, 2013, the SBA revised the size

standards for banking organizations to $500 million

in assets from $175 million in assets. 78 FR 37409

(June 20, 2013).

bank holding company with total assets

of $500 million or less (a small banking

organization). As of December 31, 2013,

there were 627 small state member

banks. As of December 31, 2013, there

were approximately 3,676 small bank

holding companies. No small top-tier

bank holding company would meet the

threshold provided in the final rule, so

there would be no additional projected

compliance requirements imposed on

small bank holding companies. One

covered bank holding company has one

small state member bank subsidiary,

which would be covered by the final

rule. The Board expects that any small

banking organization covered by the

final rule would rely on its parent

banking organization for compliance

and would not bear additional costs.

The Board believes that the final rule

will not have a significant economic

impact on small banking organizations

supervised by the Board and therefore

believes that there are no significant

alternatives to the final rule that would

reduce the economic impact on small

banking organizations supervised by the

Board

t

banking organization for compliance

and would not bear additional costs.

The Board believes that the final rule

will not have a significant economic

impact on small banking organizations

supervised by the Board and therefore

believes that there are no significant

alternatives to the final rule that would

reduce the economic impact on small

banking organizations supervised by the

Board.

FDIC

The RFA requires an agency to

provide an FRFA with a final rule or to

certify that the rule will not have a

significant economic impact on a

substantial number of small entities

(defined for purposes of the RFA to

include banking entities with total

assets of $500 million or less).35

As described in sections I and III of

this preamble, the final rule strengthens

the supplementary leverage ratio

standards for covered BHCs and their

advanced approaches IDI subsidiaries.

As of December 31, 2013, 1 (out of

3,394) small state nonmember bank and

no (out of 303) small state savings

associations were advanced approaches

IDI subsidiaries of a covered BHC.

Therefore, the FDIC does not believe

that the final rule will result in a

significant economic impact on a

substantial number of small entities

under its supervisory jurisdiction.

The FDIC certifies that the final rule

does not have a significant economic

impact on a substantial number of small

FDIC-supervised institutions.

C. OCC Unfunded Mandates Reform Act

of 1995 Determination

Section 202 of the Unfunded

Mandates Reform Act of 1995, Public

Law 104–4 (Unfunded Mandates Reform

Act) provides that an agency that is

subject to the Unfunded Mandates Act

must prepare a budgetary impact

statement before promulgating a rule

that includes a Federal mandate that

may result in expenditure by State,

local, and tribal governments, in the

aggregate, or by the private sector, of

$100 million (adjusted for inflation) or

more in any one year. The current

inflation-adjusted expenditure threshold

is $141 million

subject to the Unfunded Mandates Act

must prepare a budgetary impact

statement before promulgating a rule

that includes a Federal mandate that

may result in expenditure by State,

local, and tribal governments, in the

aggregate, or by the private sector, of

$100 million (adjusted for inflation) or

more in any one year. The current

inflation-adjusted expenditure threshold

is $141 million. If a budgetary impact

statement is required, section 205 of the

UMRA also requires an agency to

identify and consider a reasonable

number of regulatory alternatives before

promulgating a rule. The OCC has

determined this proposed rule is likely

to result in the expenditure by the

private sector of $141 million or more.

The OCC has prepared a budgetary

impact analysis and identified and

considered alternative approaches.

When the final rule is published in the

Federal Register, the full text of the

OCC’s analyses will available at:

http://www.regulations.gov, Docket ID

OCC–2013–0008.

D. Plain Language

Section 722 of the Gramm-Leach-

Bliley Act requires the Federal banking

agencies to use plain language in all

proposed and final rules published after

January 1, 2000. The agencies have

sought to present the final rule in a

simple and straightforward manner. The

agencies did not receive any comment

on their use of plain language.

List of Subjects

12 CFR Part 6

National banks.

12 CFR Part 208

Confidential business information,

Crime, Currency, Federal Reserve

System, Mortgages, Reporting and

recordkeeping requirements, Securities.

12 CFR Part 217

Administrative practice and

procedure, Banks, Banking, Capital,

Federal Reserve System, Holding

companies, Reporting and

recordkeeping requirements, Securities.

12 CFR Part 324

Administrative practice and

procedure, Banks, banking, Capital

Adequacy, Reporting and recordkeeping

requirements, Savings associations,

State non-member banks

rdkeeping requirements, Securities.

12 CFR Part 217

Administrative practice and

procedure, Banks, Banking, Capital,

Federal Reserve System, Holding

companies, Reporting and

recordkeeping requirements, Securities.

12 CFR Part 324

Administrative practice and

procedure, Banks, banking, Capital

Adequacy, Reporting and recordkeeping

requirements, Savings associations,

State non-member banks.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Chapter I

Authority and Issuance

For the reasons set forth in the

preamble and under the authority of 12

U.S.C. 93a, 1831o, and 5412(b)(2)(B), the

Office of the Comptroller of the

Currency amends part 6 of chapter I of

title 12, Code of Federal Regulations as

follows:

PART 6—PROMPT CORRECTIVE

ACTION

■1. The authority citation for part 6

continues to read as follows:

Authority: 12 U.S.C. 93a, 1831o,

5412(b)(2)(B).

■2. Amend § 6.4 by revising paragraph

(c)(1)(iv) to read as follows:

§ 6.4

Capital measures and capital

category definition.

*

*

*

*

*

(c) * * *

(1) * * *

(iv) Leverage Measure:

(A) The national bank or Federal

savings association has a leverage ratio

of 5.0 percent or greater; and

(B) With respect to a national bank or

Federal savings association that is a

subsidiary of a U.S. top-tier bank

holding company that has more than

$700 billion in total assets as reported

on the company’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (Y–15), on January

1, 2018 and thereafter, the national bank

or Federal savings association has a

supplementary leverage ratio of 6.0

percent or greater; and

*

*

*

*

*

Board of Governors of the Federal

Reserve System

12 CFR Chapter II

Authority and Issuance

For the reasons set forth in the

preamble, chapter II of title 12 of the

Code of Federal Regulations is amended

as follows:

PART

), on January

1, 2018 and thereafter, the national bank

or Federal savings association has a

supplementary leverage ratio of 6.0

percent or greater; and

*

*

*

*

*

Board of Governors of the Federal

Reserve System

12 CFR Chapter II

Authority and Issuance

For the reasons set forth in the

preamble, chapter II of title 12 of the

Code of Federal Regulations is amended

as follows:

PART 208—MEMBERSHIP OF STATE

BANKING INSTITUTIONS IN THE

FEDERAL RESERVE SYSTEM

(REGULATION H)

■3. The authority citation for part 208

is revised to read as follows:

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

Authority: 12 U.S.C. 24, 36, 92a, 93a,

248(a), 248(c), 321–338a, 371d, 461, 481–486,

601, 611, 1814, 1816, 1818, 1820(d)(9),

1833(j), 1828(o), 1831, 1831o, 1831p–1,

1831r–1, 1831w, 1831x, 1835a, 1882, 2901–

2907, 3105, 3310, 3331–3351, 3905–3909,

and 5371; 15 U.S.C. 78b, 78I(b), 78l(i), 780–

4(c)(5), 78q, 78q–1, and 78w, 1681s, 1681w,

6801, and 6805; 31 U.S.C. 5318; 42 U.S.C.

4012a, 4104a, 4104b, 4106 and 4128.

■4. In § 208.41, redesignate paragraphs

(c) through (j) as paragraphs (d) through

(k), and add a new paragraph (c) to read

as follows:

§ 208.41

Definitions for purposes of this

subpart.

*

*

*

*

*

(c) Covered BHC means a covered

BHC as defined in § 217.2 of Regulation

Q (12 CFR 217.2).

*

*

*

*

*

■5. Amend § 208.43 as follows:

■a. Add paragraph (a)(2)(iv)(C).

■b. Revise paragraph (c)(1)(iv).

§ 208.43

Capital measures and capital

category definitions.

(a) * * *

(2) * * *

(iv) * * *

(C) With respect to any bank that is a

subsidiary (as defined in § 217.2 of

Regulation Q (12 CFR 217.2)) of a

covered BHC, on January 1, 2018, and

thereafter, the supplementary leverage

ratio.

*

*

*

*

*

§ 208.43 as follows:

■a. Add paragraph (a)(2)(iv)(C).

■b. Revise paragraph (c)(1)(iv).

§ 208.43

Capital measures and capital

category definitions.

(a) * * *

(2) * * *

(iv) * * *

(C) With respect to any bank that is a

subsidiary (as defined in § 217.2 of

Regulation Q (12 CFR 217.2)) of a

covered BHC, on January 1, 2018, and

thereafter, the supplementary leverage

ratio.

*

*

*

*

*

(c) * * *

(1) * * *

(iv) Leverage Measure:

(A) The bank has a leverage ratio of

5.0 percent or greater; and

(B) Beginning on January 1, 2018,

with respect to any bank that is a

subsidiary of a covered BHC under the

definition of ‘‘subsidiary’’ in section

217.2 of Regulation Q (12 CFR 217.2),

the bank has a supplementary leverage

ratio of 6.0 percent or greater; and

*

*

*

*

*

PART 217—CAPITAL ADEQUACY OF

BOARD-REGULATED INSTITUTIONS

■6. The authority citation for part 217

is revised to read as follows:

Authority: 12 U.S.C. 248(a), 321–338a,

481–486, 1462a, 1467a, 1818, 1828, 1831n,

1831o, 1831p–l, 1831w, 1835, 1844(b), 1851,

3904, 3906–3909, 4808, 5365, 5368, 5371.

■7. Amend § 217.1 by revising

paragraph (f)(4) to read as follows:

§ 217.1

Purpose, applicability,

reservations of authority, and timing.

*

*

*

*

*

(f) * * *

(4) Beginning January 1, 2018, a

covered BHC (as defined in § 217.2) is

subject to limitations on distributions

and discretionary bonus payments in

accordance with the lower of the

maximum payout amount as determined

under § 217.11(a)(2)(iii) and the

maximum leverage payout amount as

determined under § 217.11(a)(2)(vi).

■8. In § 217.2 add a definition of

‘‘covered BHC’’ in alphabetical order to

read as follows:

§ 217.2

Definitions.

*

*

*

*

*

Covered BHC means a U.S

mitations on distributions

and discretionary bonus payments in

accordance with the lower of the

maximum payout amount as determined

under § 217.11(a)(2)(iii) and the

maximum leverage payout amount as

determined under § 217.11(a)(2)(vi).

■8. In § 217.2 add a definition of

‘‘covered BHC’’ in alphabetical order to

read as follows:

§ 217.2

Definitions.

*

*

*

*

*

Covered BHC means a U.S. top-tier

bank holding company that has more

than $700 billion in total assets as

reported on the company’s most recent

Consolidated Financial Statements for

Holding Companies (FR Y–9C) or more

than $10 trillion in assets under custody

as reported on the company’s most

recent Banking Organization Systemic

Risk Report (FR Y–15).

*

*

*

*

*

■9. In § 217.11

■A. Add new paragraphs (a)(2)(v) and

(a)(2)(vi), and (c);

■B. Revise paragraph (a)(4); and

■C. Add Table 2 to read as follows.

§ 217.11

Capital conservation buffer and

countercyclical capital buffer amount.

(a) * * *

(2) * * *

(v) Maximum leverage payout ratio.

The maximum leverage payout ratio is

the percentage of eligible retained

income that a covered BHC can pay out

in the form of distributions and

discretionary bonus payments during

the current calendar quarter. The

maximum leverage payout ratio is based

on the covered BHC’s leverage buffer,

calculated as of the last day of the

previous calendar quarter, as set forth in

Table 2 of this section.

(vi) Maximum leverage payout

amount. A covered BHC’s maximum

leverage payout amount for the current

calendar quarter is equal to the covered

BHC’s eligible retained income,

multiplied by the applicable maximum

leverage payout ratio, as set forth in

Table 2 of this section.

*

*

*

*

*

ulated as of the last day of the

previous calendar quarter, as set forth in

Table 2 of this section.

(vi) Maximum leverage payout

amount. A covered BHC’s maximum

leverage payout amount for the current

calendar quarter is equal to the covered

BHC’s eligible retained income,

multiplied by the applicable maximum

leverage payout ratio, as set forth in

Table 2 of this section.

*

*

*

*

*

(4) Limits on distributions and

discretionary bonus payments. (i) A

Board-regulated institution shall not

make distributions or discretionary

bonus payments or create an obligation

to make such distributions or payments

during the current calendar quarter that,

in the aggregate, exceed the maximum

payout amount or, as applicable, the

maximum leverage payout amount.

(ii) A Board-regulated institution that

has a capital conservation buffer that is

greater than 2.5 percent plus 100

percent of its applicable countercyclical

capital buffer, in accordance with

paragraph (b) of this section, and, if

applicable, that has a leverage buffer

that is greater than 2.0 percent, in

accordance with paragraph (c) of this

section, is not subject to a maximum

payout amount or maximum leverage

payout amount under this section.

(iii) Negative eligible retained income.

Except as provided in paragraph

(a)(4)(iv) of this section, a Board-

regulated institution may not make

distributions or discretionary bonus

payments during the current calendar

quarter if the Board-regulated

institution’s:

(A) Eligible retained income is

negative; and

(B) Capital conservation buffer was

less than 2.5 percent, or, if applicable,

leverage buffer was less than 2.0

percent, as of the end of the previous

calendar quarter.

*

*

*

*

*

d-

regulated institution may not make

distributions or discretionary bonus

payments during the current calendar

quarter if the Board-regulated

institution’s:

(A) Eligible retained income is

negative; and

(B) Capital conservation buffer was

less than 2.5 percent, or, if applicable,

leverage buffer was less than 2.0

percent, as of the end of the previous

calendar quarter.

*

*

*

*

*

(c) Leverage buffer—(1) General. A

covered BHC is subject to the lower of

the maximum payout amount as

determined under paragraph (a)(2)(iii) of

this section and the maximum leverage

payout amount as determined under

paragraph (a)(2)(vi) of this section.

(2) Composition of the leverage buffer.

The leverage buffer is composed solely

of tier 1 capital.

(3) Calculation of the leverage buffer.

(i) A covered BHC’s leverage buffer is

equal to the covered BHC’s

supplementary leverage ratio minus 3

percent, calculated as of the last day of

the previous calendar quarter based on

the covered BHC’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C).

(ii) Notwithstanding paragraph

(c)(3)(i) of this section, if the covered

BHC’s supplementary leverage ratio is

less than or equal to 3 percent, the

covered BHC’s leverage buffer is zero.

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ncial Statement for

Bank Holding Companies (FR Y–9C).

(ii) Notwithstanding paragraph

(c)(3)(i) of this section, if the covered

BHC’s supplementary leverage ratio is

less than or equal to 3 percent, the

covered BHC’s leverage buffer is zero.

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Federal Register / Vol. 79, No. 84 / Thursday, May 1, 2014 / Rules and Regulations

TABLE 2 TO § 217.11—CALCULATION OF MAXIMUM LEVERAGE PAYOUT AMOUNT

Leverage buffer

Maximum leverage

payout ratio

(as a percentage of

eligible retained

income)

Greater than 2.0 percent .........................................................................................................................................................

No payout ratio limita-

tion applies.

Less than or equal to 2.0 percent, and greater than 1.5 percent ...........................................................................................

60 percent.

Less than or equal to 1.5 percent, and greater than 1.0 percent ...........................................................................................

40 percent.

Less than or equal to 1.0 percent, and greater than 0.5 percent ...........................................................................................

20 percent.

Less than or equal to 0.5 percent ...........................................................................................................................................

0 percent.

Federal Deposit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons stated in the

preamble, the Federal Deposit Insurance

Corporation is amending part 324 of

chapter III of Title 12, Code of Federal

Regulations as follows:

PART 324—CAPITAL ADEQUACY OF

FDIC–SUPERVISED INSTITUTIONS

■10. The authority section for part 324

continues to read as follows:

Authority: 12 U.S.C

posit Insurance Corporation

12 CFR Chapter III

Authority and Issuance

For the reasons stated in the

preamble, the Federal Deposit Insurance

Corporation is amending part 324 of

chapter III of Title 12, Code of Federal

Regulations as follows:

PART 324—CAPITAL ADEQUACY OF

FDIC–SUPERVISED INSTITUTIONS

■10. The authority section for part 324

continues to read as follows:

Authority: 12 U.S.C. 1815(a), 1815(b),

1816, 1818(a), 1818(b), 1818(c), 1818(t),

1819(Tenth), 1828(c), 1828(d), 1828(i),

1828(n), 1828(o), 1831o, 1835, 3907, 3909,

4808; 5371; 5412; Pub. L. 102–233, 105 Stat.

1761, 1789, 1790 (12 U.S.C. 1831n note); Pub.

L. 102–242, 105 Stat. 2236, 2355, as amended

by Pub. L. 103–325, 108 Stat. 2160, 2233 (12

U.S.C. 1828 note); Pub. L. 102–242, 105 Stat.

2236, 2386, as amended by Pub. L. 102–550,

106 Stat. 3672, 4089 (12 U.S.C. 1828 note);

Pub. L. 111–203, 124 Stat. 1376, 1887 (15

U.S.C. 78o–7 note).

■11. Revise § 324.403(b)(1)(v) to read as

follows:

§ 324.403

Capital measures and capital

category definitions.

*

*

*

*

*

(b) * * *

(1) * * *

(v) Beginning on January 1, 2018 and

thereafter, an FDIC-supervised

institution that is a subsidiary of a

covered BHC will be deemed to be well

capitalized if the FDIC-supervised

institution satisfies paragraphs (b)(1)(i)

through (iv) of this section and has a

supplementary leverage ratio of 6.0

percent or greater. For purposes of this

paragraph, a covered BHC means a U.S.

top-tier bank holding company with

more than $700 billion in total assets as

reported on the company’s most recent

Consolidated Financial Statement for

Bank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (FR Y–15); and

*

*

*

*

*

Dated: April 8, 2014.

Thomas J. Curry,

Comptroller of the Currency.

By order of the Board of Governors of the

Federal Reserve System, April 10, 2014.

Robert deV. Frierson,

Secretary of the Board

ank Holding Companies (FR Y–9C) or

more than $10 trillion in assets under

custody as reported on the company’s

most recent Banking Organization

Systemic Risk Report (FR Y–15); and

*

*

*

*

*

Dated: April 8, 2014.

Thomas J. Curry,

Comptroller of the Currency.

By order of the Board of Governors of the

Federal Reserve System, April 10, 2014.

Robert deV. Frierson,

Secretary of the Board.

Dated at Washington, DC, this 8th day of

April, 2014.

By order of the Board of Directors.

Robert E. Feldman,

Executive Secretary, Federal Deposit

Insurance Corporation.

[FR Doc. 2014–09367 Filed 4–30–14; 8:45 am]

BILLING CODE P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA–2010–1160; Directorate

Identifier 2010–NM–148–AD; Amendment

39–17698; AD 2013–25–02]

RIN 2120–AA64

Airworthiness Directives; The Boeing

Company Airplanes

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final rule.

SUMMARY: We are superseding

Airworthiness Directive (AD) 2000–11–

06 for certain The Boeing Company

Model 767 airplanes. AD 2000–11–06

required repetitive inspections to detect

discrepancies of the wiring and

surrounding Teflon sleeves of the fuel

tank boost pumps and override/jettison

pumps; replacement of the sleeves with

new sleeves, for certain airplanes; and

repair or replacement of the wiring and

sleeves with new parts, as necessary.

This new AD requires reducing the

initial compliance time and repetitive

inspection interval in AD 2000–11–06;

mandates a terminating action for the

repetitive inspections to eliminate wire

damage; removes certain airplanes from

the applicability; and requires revising

the maintenance program to incorporate

changes to the airworthiness limitations

section. This AD was prompted by fleet

information indicating that the

repetitive inspection interval in AD

2000–11–06 is too long, because

excessive chafing of the sleeving

continues to occur much earlier than

expected between scheduled

inspections

ain airplanes from

the applicability; and requires revising

the maintenance program to incorporate

changes to the airworthiness limitations

section. This AD was prompted by fleet

information indicating that the

repetitive inspection interval in AD

2000–11–06 is too long, because

excessive chafing of the sleeving

continues to occur much earlier than

expected between scheduled

inspections. We are issuing this AD to

detect and correct chafing of the fuel

pump wire insulation and consequent

exposure of the electrical conductor,

which could result in electrical arcing

between the wires and conduit and

consequent fire or explosion of the fuel

tank.

DATES: This AD is effective June 5, 2014.

The Director of the Federal Register

approved the incorporation by reference

of certain publications listed in this AD

as of June 5, 2014.

ADDRESSES: For service information

identified in this AD, contact Boeing

Commercial Airplanes, Attention: Data

& Services Management, P.O. Box 3707,

MC 2H–65, Seattle, Washington 98124–

2207; telephone 206–544–5000,

extension 1; fax 206–766–5680; Internet

https://www.myboeingfleet.com. You

may view this referenced service

information at the FAA, Transport

Airplane Directorate, 1601 Lind Avenue

SW., Renton, WA. For information on

the availability of this material at the

FAA, call 425–227–1221.

Examining the AD Docket

You may examine the AD docket on

the Internet at http://

www.regulations.gov by searching for

and locating Docket No. FAA–2010–

1160; or in person at the Docket

Management Facility between 9 a.m.

and 5 p.m., Monday through Friday,

except Federal holidays. The AD docket

contains this AD, the regulatory

evaluation, any comments received, and

other information. The address for the

VerDate Mar<15>2010

16:24 Apr 30, 2014

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