Close

Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.

Get updates on Compliance Week offerings, including new features, databases, research, and other resources, along with announcements of upcoming Webcasts, conferences, seminars, CPE/CLE opportunities and more.

Published every Thursday, Compliance Week Europe offers a condensed summary of risk, audit, and compliance news either originating in Europe, or of special interest to European compliance professionals. This newsletter will follow developments by the European Commission, as well as those of national governments across the region, or any U.S.-based news that might have consequence across the Atlantic. Frequency: weekly; Thursday a.m.

A fresh edition of Compliance Week delivered via e-mail and online every Tuesday morning, relentlessly focused on the disclosure, reporting and compliance requirements of our 25,000+ paying subscribers.

Published every Friday, Compliance Weekend was launched at the behest of subscribers, and offers a quick Plain English review of the week's key developments. We hope you enjoy this supplement to Compliance Week's Tuesday edition.

Regulators Want Large Banks to Double Leverage Ratio

Joe Mont | July 9, 2013

Banking regulators on Tuesday proposed new rules that would require some large U.S. banks to double their leverage ratio, the calculation of their equity holdings compared to total assets. The requirement is intended to force banks to rely more on equity capital (such as profits and stock proceeds) and less on debt and riskier assets.

The leverage requirement promoted by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation supplements capital and liquidity requirements put in place last week by the Federal Reserve to implement key provisions of the international banking accord known as Basel III.

Bank holding companies with more than $700 billion in consolidated total assets, or $10 trillion in assets under custody (covered BHCs) would be required to maintain a tier 1 capital leverage buffer of at least 2 percent above the minimum supplementary leverage ratio requirement of 3 percent, for a total of 5 percent. Failure to exceed the 5 percent ratio would trigger restrictions on discretionary bonus payments and capital distributions, including dividend payments.

Regulators would also require the federally insured depository institutions of covered BHCs to meet a 6 percent supplementary leverage ratio to be considered “well capitalized.” This would currently apply to the eight largest and “most systemically significant” U.S. banking organizations. This doubles the existing Basel III requirement of 3 percent.

The agencies are proposing a substantial phase-in period for the rule with an effective date of Jan. 1, 2018. The Notice of Proposed Rulemaking will be published in the Federal Register, triggering a 60 day public comment period.

Also on Tuesday, the FDIC Board approved an interim final rule and the OCC approved a final capital rule identical in substance to the rules issued by the Federal Reserve Board on July 2.

Minimum requirements will increase for both the quantity and quality of capital held by banking organizations. This includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5 percent and a common equity tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets that will apply to all supervised financial institutions. The rule also raises the minimum ratio of tier 1 capital to risk-weighted assets from 4 percent to 6 percent, and includes a minimum leverage ratio of 4 percent for all banking organizations.

A full breakdown of the changes implemented by the Fed's final rule can be found here.

The rules include key changes from a June 2012 proposal that are intended to reduce the burden on smaller banks. For example, they do not change the current treatment of residential mortgage exposures, an issue raised by community banking organizations that were concerned about their ongoing ability to service customer credit needs. Additional details on concessions made for smaller institutions can be found here, and in a guide published by the OCC.