ICBA opposed the federal banking regulators’ proposal to modify the enhanced supplementary leverage ratio standard that applies to the largest banking organizations.
Details: In a letter to the OCC, FDIC, and Federal Reserve, ICBA said that while it supports thoughtful regulatory modernization, the proposal fundamentally undermines critical safeguards and creates unacceptable systemic risks that exceed any claimed benefits. ICBA noted:
The proposal would increase the systemic risks posed by too-big-to-fail firms.
It would disrupt the competitive landscape and tilt the playing field even further in favor of the largest institutions.
The justification for the proposal—that it would support the smooth functioning of the Treasury market—is speculative and fails to outweigh the potential harms.
Impact on Largest Banks: The interagency proposal would modify regulatory capital standards for GSIBs, the largest banking organizations. The agencies estimate that the proposal would reduce the tier 1 capital requirement for GSIB depository institution subsidiaries by an aggregate of 27%.
Background: Federal banking regulators in June issued a proposed rule to modify the eSLR standard that applies to the largest banking organizations. The proposal would:
Modify the enhanced supplementary leverage ratio buffer standard applicable to global systemically important bank holding companies to equal 50% of the bank holding company’s method 1 surcharge as determined by the Federal Reserve Board’s GSIB risk-based capital surcharge framework.
Modify the enhanced supplementary leverage ratio standard for depository institution subsidiaries of GSIBs to have the same form and calibration as the GSIB parent level standard.
ICBA Advocacy: ICBA has opposed recent efforts that would loosen capital and supervisory requirements for the largest banks while leaving community banks subject to existing standards:
ICBA recently urged the Fed not to finalize proposed revisions to the large financial institution rating system. In its letter, ICBA said the Fed should seek to appropriately supervise and manage the risks posed by the largest firms, not lower its standards and permit the largest firms to expand while failing to adequately address safety and soundness risks.
In a June comment letter on the stress capital buffer, ICBA encouraged the Fed to consider the safety and soundness implications of proposed changes to capital rules and requirements for the largest banks, noting these institutions pose the greatest threat to financial stability, the economy, and consumers.