Enhanced Supplementary Leverage Ratio Final Rules
On April 8, the OCC, FRB and FDIC released a final rule for implementing an Enhanced Supplementary Leverage Ratio for bank holding companies (BHCs) with more than $700 billion in total consolidated assets or more than $10 trillion in assets under custody.
Under the final rule, an insured depository institution subsidiary of a covered BHC must maintain a supplementary leverage ratio of at least 6 percent to be well capitalized under the PCA framework. Covered BHCs will be subject to a 2 percent leverage ratio buffer above the 3 percent minimum requirement (i.e., a 5% effective supplementary leverage ratio).
|PCA Category||Generally Applicable Leverage Ratio||Supplementary Leverage Ratio for Advanced Approach Institutions||Enhanced Supplementary Leverage Ratio for Covered Depository Institutions|
|Well Capitalized||≥ 5%||N/A||≥ 6%|
|Adequately Capitalized||≥ 4%||≥ 3%||≥ 3%|
All advanced approaches institutions must begin reporting their supplementary leverage ratios beginning in the first quarter of 2015. However, the enhanced supplementary leverage ratio standards for covered BHCs and depository institution subsidiaries do not become effective until January 1, 2018.
Supplementary Leverage Ratio Denominator NPR
In addition to issuing the final rule for the enhanced supplementary leverage ratio, the U.S. banking regulators also issued a proposed rule to revise the denominator of the supplementary leverage ratio calculation. The proposed changes are consistent with recent changes agreed to by the Basel Committee.
In general, the changes are designed to strengthen the supplementary leverage ratio by more appropriately capturing the exposure of a banking organization’s on- and off-balance sheet items.
The deadline for comments is June 13, 2014.
Basel Committee Final Standards for Counterparty Credit Risk Exposures and Exposures to Central Counterparties
In March, the BCBS released a final standard to update the standardized approach for measuring counterparty credit risk exposures (“SA-CCR”) in the context of OTC derivatives, exchange-traded derivatives and long-settlement transactions. The SA-CCR replaces both the Current Exposure Method (CEM) and the Standardized Method (SM) in the capital adequacy framework.
The following is an excerpt from the BCBS publication providing a high-level explanation of the new standard.
The SA-CCR retains the same general structure as that used in the CEM, consisting of two key regulatory components: replacement cost and potential future exposure. An alpha factor is applied to the sum of these components in arriving at the exposure at default (EAD). The EAD is multiplied by the risk weight of a given counterparty in accordance with either the Standardized or Internal Ratings-Based approaches for credit risk to calculate the corresponding capital requirement.
In April, the BCBS also released a final standard for the capital treatment of exposures to central counterparties (CCPs).
Both final standards are scheduled to become effective January 1, 2017.
JCT Revenue Estimates of Obama Budget Proposal
On April 15, the JCT released its estimated budget effects of the President’s Fiscal Year 2015 Budget Proposal. Last month, we compared the JCT’s revenue estimates for Representative Camp’s tax proposal to the Treasury’s estimates for the Obama budget proposal. This month, we have added a column for the JCT estimates for the Obama budget proposal. The estimates are for the ten year period (2015-2024).
|264(f) Interest Expense Disallowance||$7.3 billion||$5.5 billion||$7.4 billion|
|Proration Rules for Life Insurance Companies||$4.5 billion||$6.3 billion||$5.9 billion|
|Increase in DAC Tax||$11.7 billion||No provision||No provision|
|Life Settlements / Transfer for Value||$200 million||$500 million||$900 million|
|Computation of Life Insurance Tax Reserves||$24.5 billion||No provision||No provision|