Agencies Propose Supplementary Leverage Ratio Relief for Custodial Banks

On March 29, 2019, the FDIC released a joint proposal with the other federal banking agencies to modify the supplementary leverage ratio requirement to permit “custodial banks” to exclude certain central bank deposits from the denominator of the SLR.

The Proposal would implement section 402 of the Economic Growth, Regulatory Relief and Consumer Protection Act, enacted in May 2018.  Section 402 requires the Agencies to amend their rules on the SLR to provide relief to banking organizations “predominantly engaged in custody, safekeeping and asset servicing activities.”

The Proposal would implement Section 402 without broadening its application beyond the three largest U.S. custody banks—Bank of New York Mellon, State Street and Northern Trust.

The Proposal does not address the Agencies’ pending proposal (from April 2018) to recalibrate the “enhanced” supplementary leverage ratio with respect to G-SIBs to include a buffer of half the applicable G-SIB surcharge rather than the 2-3% buffer currently applied over the 3% SLR minimum.  Moreover, the Proposal would not revise the SLR‑based requirements in the Federal Reserve’s TLAC standard, although the Agencies request comment on whether the proposed relief should be broadened accordingly.

This Alert includes a high-level overview of the Proposal and “Key Takeaways” addressing the Proposal’s expected impact and its interplay with other regulatory initiatives.