Agencies Seek Input on Supplementary Leverage Ratio Increase for BHCs

by Shannon Allen

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”) invite public comment on enhanced supplementary leverage ratio standards for certain Bank Holding Companies (“BHCs”).  The Agencies propose to create a “well capitalized” threshold of 6% for any insured depository institution (“IDI”) that is a subsidiary of a covered BHC.  In addition, the Board proposes that a covered BHC that preserves a “leverage buffer of tier 1 capital in an amount greater than 2 percent of its total leverage exposure” would no longer be held to “limitations on distributions and discretionary bonus payments.”

Financial companies had grown so big, leveraged, and interconnected that their collapse destabilized the financial system and the U.S. government responded.  Congress established the International Lending Supervision Act (“ILSA”) and codified its intentions by stating, “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.”  This joint notice of proposed rulemaking (“NPRM”), builds on regulatory efforts by “increasing leverage standards” for the “largest and most interconnected U.S. banking organizations.”

The Agencies invite input on all aspects of the proposal and specific comments sought include: 

• How the proposal would contribute to financial stability and economic growth;
• Mitigating public-policy concerns; 
• Tools to prevent the failure of large systemically-important banking organization; 
• Risk-reducing incentives;
• Whether the proposed 6 % well-capitalized standard for subsidiary IDIs should be higher or lower; 
•  Challenges institutions would face in meeting the proposed well-capitalized threshold of 6 % beginning on January 1, 2018; 
• Whether the proposal would enhance the competitive position of U.S. banking organizations or put them at a competitive disadvantage relative to foreign banking organizations; 
•  How the proposal would affect counterparty incentives and behavior; 
•  Whether the proposal could cause a shift in favor of lending to individuals and businesses as opposed to markets- based activity by banking organizations; 
• Whether better capitalized BHCs might improve their ability to serve as a source of credit to the economy during periods of economic stress; 
•  How the proposal creates incentives for banking organizations to shrink or otherwise modify their activities; 
•  Incremental costs to banking organizations compared to currently anticipated costs; 
•  Alternatives to the definition of total leverage exposure; and 
• Rulemaking efforts that should be considered for simplification;

Interested parties are encouraged to submit comments electronically and should submit comments by October 21, 2013.

Comments to the OCC should use the following title:  “Regulatory Capital Rules: Regulatory Capital, Enhanced Supplementary Leverage Ratio Standards for Certain Bank Holding Companies and Their Subsidiary Insured Depository Institutions,”  must include “OCC” as the agency name and “Docket ID OCC-2013-0008” in the comment, and may be submitted by any of the following methods: 

• Federal eRulemaking Portal—“regulations.gov”: Go to http://www.regulations.gov. 
• Email: regs.comments@occ.treas.gov. 
•  Mail: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219. 
•  Hand Delivery/Courier: 400 7th Street SW., Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219. 
•  Fax: (571) 465-4326.

Comments to the Board should be identified by Docket No. R-1460 and may be submitted by any of the following methods: 

• Agency Web site: http://www.federalreserve.gov.
• Federal eRulemaking Portal: http://www.regulations.gov. 
•  Email: regs.comments@federalreserve.gov. Include docket number in subject line. 
•  Fax: (202) 452-3819 or (202) 452-3102.
• Mail: Robert de V. Frierson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551.

Comments to the FDIC should be identified by RIN 3064-AE01 and may be submitted by any of the following methods:

•  Agency Web site: http://www.fdic.gov/regulations/laws/federal/propose.html. 
•  Email: Comments@fdic.gov. Include the RIN 3064-AE01 in subject line. 
•  Mail: Robert E. Feldman, Executive Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street NW., Washington, DC 20429. 
• Hand Delivery: Comments may be hand delivered to the guard station at the rear of the 550 17th Street Building (located on F Street) on business days between 7:00 a.m. and 5:00 p.m.