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Proposed Rule2025-12787

Regulatory Capital Rule: Modifications to the Enhanced Supplementary Leverage Ratio Standards for U.S. Global Systemically Important Bank Holding Companies and Their Subsidiary Depository Institutions; Total Loss-Absorbing Capacity and Long-Term Debt Requirements for U.S. Global Systemically Important Bank Holding Companies

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Published

July 10, 2025

Issuing agencies

Treasury DepartmentComptroller of the CurrencyFederal Reserve SystemFederal Deposit Insurance Corporation

Abstract

The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and Federal Deposit Insurance Corporation (FDIC) are inviting public comment on a notice of proposed rulemaking (proposal) to modify the enhanced supplementary leverage ratio standards applicable to U.S. bank holding companies identified as global systemically important bank holding companies (GSIBs) and their depository institution subsidiaries. Specifically, the proposal would modify the enhanced supplementary leverage ratio buffer standard applicable to GSIBs to equal 50 percent of the bank holding company's method 1 surcharge as determined by the Board's GSIB risk-based capital surcharge framework. The proposal would also 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. The proposed modifications would help ensure that the enhanced supplementary leverage ratio standards serve as a backstop to risk-based capital requirements rather than as a constraint that is frequently binding over time and through most points in the economic and credit cycle, thus reducing potential disincentives for GSIBs and their depository institution subsidiaries to participate in low-risk, low-return businesses. The Board is also proposing to amend its total loss-absorbing capacity and long-term debt requirements to maintain alignment between these requirements and the enhanced supplementary leverage ratio standards. The OCC is proposing to revise the methodology it uses to identify which national banks and Federal savings associations are subject to the enhanced supplementary leverage ratio standards to better align with the agencies' regulatory tailoring framework for large banking organizations and ensure that the standards apply only to those national banks and Federal savings associations that are subsidiaries of a GSIB. The Board is also proposing to make conforming amendments to relevant regulatory reporting forms. The Board and FDIC are also proposing to make certain technical corrections to the capital rule.

Full Text

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[Federal Register Volume 90, Number 130 (Thursday, July 10, 2025)]
[Proposed Rules]
[Pages 30780-30817]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-12787]

[[Page 30779]]

Vol. 90

Thursday,

No. 130

July 10, 2025

Part II

Department of the Treasury

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Office of the Comptroller of the Currency

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12 CFR Parts 3 and 6

Federal Reserve System

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12 CFR Parts 208, 217, and 252

Federal Deposit Insurance Corporation

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12 CFR Part 324

Regulatory Capital Rule: Modifications to the Enhanced Supplementary
Leverage Ratio Standards for U.S. Global Systemically Important Bank
Holding Companies and Their Subsidiary Depository Institutions; Total
Loss-Absorbing Capacity and Long-Term Debt Requirements for U.S. Global
Systemically Important Bank Holding Companies; Proposed Rule

Federal Register / Vol. 90 , No. 130 / Thursday, July 10, 2025 /
Proposed Rules

[[Page 30780]]

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 3 and 6

[Docket ID OCC--2025-0006]
RIN 1557-AF31

FEDERAL RESERVE SYSTEM

12 CFR Parts 208, 217, and 252

[Regulations H, Q, and YY; Docket No. R-1867]
RIN 7100-AG96

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AG11

Regulatory Capital Rule: Modifications to the Enhanced
Supplementary Leverage Ratio Standards for U.S. Global Systemically
Important Bank Holding Companies and Their Subsidiary Depository
Institutions; Total Loss-Absorbing Capacity and Long-Term Debt
Requirements for U.S. Global Systemically Important Bank Holding
Companies

AGENCY: Office of the Comptroller of the Currency, Treasury; the Board
of Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), and Federal Deposit
Insurance Corporation (FDIC) are inviting public comment on a notice of
proposed rulemaking (proposal) to modify the enhanced supplementary
leverage ratio standards applicable to U.S. bank holding companies
identified as global systemically important bank holding companies
(GSIBs) and their depository institution subsidiaries. Specifically,
the proposal would modify the enhanced supplementary leverage ratio
buffer standard applicable to GSIBs to equal 50 percent of the bank
holding company's method 1 surcharge as determined by the Board's GSIB
risk-based capital surcharge framework. The proposal would also 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. The proposed modifications would
help ensure that the enhanced supplementary leverage ratio standards
serve as a backstop to risk-based capital requirements rather than as a
constraint that is frequently binding over time and through most points
in the economic and credit cycle, thus reducing potential disincentives
for GSIBs and their depository institution subsidiaries to participate
in low-risk, low-return businesses. The Board is also proposing to
amend its total loss-absorbing capacity and long-term debt requirements
to maintain alignment between these requirements and the enhanced
supplementary leverage ratio standards. The OCC is proposing to revise
the methodology it uses to identify which national banks and Federal
savings associations are subject to the enhanced supplementary leverage
ratio standards to better align with the agencies' regulatory tailoring
framework for large banking organizations and ensure that the standards
apply only to those national banks and Federal savings associations
that are subsidiaries of a GSIB. The Board is also proposing to make
conforming amendments to relevant regulatory reporting forms. The Board
and FDIC are also proposing to make certain technical corrections to
the capital rule.

DATES: Comments must be received on or before: August 26, 2025.

ADDRESSES: Comments should be directed to:
OCC: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal. Please use the title ``Regulatory Capital
Rule: Modifications to the Enhanced Supplementary Leverage Ratio
Standards for U.S. Global Systemically Important Bank Holding Companies
and Their Subsidiary Depository Institutions; Total Loss-Absorbing
Capacity and Long-Term Debt Requirements for U.S. Global Systemically
Important Bank Holding Companies'' to facilitate the organization and
distribution of the comments. You may submit comments by any of the
following methods:
<bullet> Federal eRulemaking Portal--<a href="http://Regulations.gov">Regulations.gov</a>:
Go to <a href="https://regulations.gov/">https://regulations.gov/</a>. Enter ``Docket ID OCC-2025-0006''
in the Search Box and click ``Search.'' Public comments can be
submitted via the ``Comment'' box below the displayed document
information or by clicking on the document title and then clicking the
``Comment'' box on the top-left side of the screen. For help with
submitting effective comments, please click on ``Commenter's
Checklist.'' For assistance with the <a href="http://Regulations.gov">Regulations.gov</a> site, please call
1-866-498-2945 (toll free) Monday-Friday, 8 a.m.-7 p.m. ET, or email
<a href="/cdn-cgi/l/email-protection#31435456445d5045585e5f4259545d415554425a715642501f565e47">[email&#160;protected]</a>.
<bullet> Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
<bullet> Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
``Docket ID OCC-2025-0006'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the <a href="http://Regulations.gov">Regulations.gov</a> website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this action by the following methods:
<bullet> Viewing Comments Electronically--<a href="http://Regulations.gov">Regulations.gov</a>:
Go to <a href="https://regulations.gov/">https://regulations.gov/</a>. Enter ``Docket ID OCC-2025-0006''
in the Search Box and click ``Search.'' Click on the ``Dockets'' tab
and then the document's title. After clicking the document's title,
click the ``Browse All Comments'' tab. Comments can be viewed and
filtered by clicking on the ``Sort By'' drop-down on the right side of
the screen or the ``Refine Comments Results'' options on the left side
of the screen. Supporting materials can be viewed by clicking on the
``Browse Documents'' tab. Click on the ``Sort By'' drop-down on the
right side of the screen or the ``Refine Results'' options on the left
side of the screen checking the ``Supporting & Related Material''
checkbox. For assistance with the <a href="http://Regulations.gov">Regulations.gov</a> site, please call 1-
866-498-2945 (toll free) Monday-Friday, 8 a.m.-7 p.m. ET, or email
<a href="/cdn-cgi/l/email-protection#f6849391839a97829f9998859e939a869293859db6918597d8919980">[email&#160;protected]</a>.
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.
Board: You may submit comments, identified by Docket No. R-1867 and
RIN 7100-AG96, by any of the following methods:
Agency Website: <a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a>.
Follow the instructions for submitting comments,

[[Page 30781]]

including attachments. Preferred Method.
Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Follow the
instructions for submitting comments.
Email: <a href="/cdn-cgi/l/email-protection#94e4e1f6f8fdf7f7fbf9f9f1fae0e7d4f2e6f6baf3fbe2">[email&#160;protected]</a>. You must include docket number and
RIN in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail, Courier and Hand Delivery: Ann Misback, Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
Instructions: All public comments are available from the Board's
website at <a href="https://www.federalreserve.gov/apps/proposals/">https://www.federalreserve.gov/apps/proposals/</a> as submitted,
unless modified for technical reasons. Accordingly, comments will not
be edited to remove any identifying or contact information. Public
comments may also be viewed electronically or in paper form in Room M-
4365A, 2001 C Street NW, Washington, DC 20551, between 9:00 a.m. and
5:00 p.m. on federal weekdays. For security reasons, the Board requires
that visitors make an appointment to inspect comments. You may do so by
calling (202) 452-3684. Upon arrival, visitors will be required to
present valid government-issued photo identification and to submit to
security screening in order to inspect and photocopy comments. For
users of TTY-TRS, please call 711 from any telephone, anywhere in the
United States.
FDIC: You may submit comments to the FDIC, identified by RIN 3064-
AG11, by any of the following methods:
Agency Website: <a href="https://www.fdic.gov/federal-register-publications">https://www.fdic.gov/federal-register-publications</a>.
Follow instructions for submitting comments on the FDIC's website.
Mail: Jennifer M. Jones, Deputy Executive Secretary, Attention:
Comments/Legal OES (RIN 3064-AG11), Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
Hand Delivered/Courier: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street NW, building (located on F
Street NW) on business days between 7 a.m. and 5 p.m. eastern time.
Email: <a href="/cdn-cgi/l/email-protection#a3c0cccecec6cdd7d0e3e5e7eae08dc4ccd5">[email&#160;protected]</a>. Include the RIN [3064-AG11] on the
subject line of the message.
Public Inspection: Comments received, including any personal
information provided, may be posted without change to <a href="https://www.fdic.gov/federal-register-publications">https://www.fdic.gov/federal-register-publications</a>. Commenters should submit
only information that the commenter wishes to make available publicly.
The FDIC may review, redact, or refrain from posting all or any portion
of any comment that it may deem to be inappropriate for publication,
such as irrelevant or obscene material. The FDIC may post only a single
representative example of identical or substantially identical
comments, and in such cases will generally identify the number of
identical or substantially identical comments represented by the posted
example. All comments that have been redacted, as well as those that
have not been posted, that contain comments on the merits of this
notice will be retained in the public comment file and will be
considered as required under all applicable laws. All comments may be
accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT:
OCC: Venus Fan, Risk Expert, Benjamin Pegg, Technical Expert,
Capital Policy, (202) 649-6370; Carl Kaminski, Assistant Director, Ron
Shimabukuro, Senior Counsel, Scott Burnett, Counsel, Chief Counsel's
Office, (202) 649-5490, Office of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing,
or have a speech disability, please dial 7-1-1 to access
telecommunications relay services.
Board: Anna Lee Hewko, Associate Director, (202) 530-6260; Juan
Climent, Deputy Associate Director, (202) 872-7526; Brian Chernoff,
Manager, (202) 731-8914; Missaka Warusawitharana, Manager, (202) 452-
3461; Akos Horvath, Principal Economist, (202) 452-3048; Anthony
Sarver, Senior Financial Institution Policy Analyst, (202) 475-6317;
Nadya Zeltser, Senior Financial Institution Policy Analyst, (202) 452-
3164, Division of Supervision and Regulation; Skander Van den Heuvel,
Associate Director, (202) 452-2903, Division of Financial Stability; or
Jay Schwarz, Deputy Associate General Counsel, (202) 731-8852; Mark
Buresh, Senior Special Counsel, (202) 499-0261; Ryan Rossner, Senior
Attorney, (202) 430-1368; Isabel Echarte, Attorney, (202) 945-2412,
Legal Division, Board of Governors of the Federal Reserve System, 20th
and C Streets NW, Washington, DC 20551. For the hearing impaired only,
Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section (703) 254-
0778; Michael Maloney, Senior Policy Analyst (703) 254-0792; Kyle
McCormick, Senior Policy Analyst (703) 254-0743; Keith Bergstresser,
Senior Policy Analyst (703) 254-0754; Eric Schatten, Senior Policy
Analyst (703) 254-0838; Soo Jeong Kim, Policy Analyst (703) 254-0405;
Matthew Park, Financial Analyst (703) 562-2742; Capital Markets and
Accounting Policy Branch, Division of Risk Management Supervision;
Catherine Wood, Counsel (202) 898-3788; Merritt Pardini, Counsel (202)
898-6680; Kevin Zhao, Senior Attorney (202) 898-3682; Jimi Du, Senior
Attorney, (202) 898-3646; Legal Division, <a href="/cdn-cgi/l/email-protection#a3d1c6c4d6cfc2d7ccd1dac0c2d3cad7c2cfe3c5c7cac08dc4ccd5">[email&#160;protected]</a>,
(202) 898-6888; Federal Deposit Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
A. Overview of Leverage Capital Requirements for Large Banking
Organizations
B. Objective of Rulemaking
C. Overview of the Proposal
II. Proposed Modification to the Enhanced Supplementary Leverage
Ratio Standards
A. Calibration of the Holding Company and Depository Institution
Standards
B. Potential Modification to the Supplementary Leverage Ratio
Calculation
C. Modification to the Form of the Depository Institution
Standard
III. Amendments to Total Loss-Absorbing Capacity and Long-Term Debt
Requirements
IV. Applicability Thresholds of the eSLR Standard for OCC-Supervised
Institutions
V. Technical Corrections
VI. Economic Analysis
A. Introduction
B. Baseline
1. The Role of Banking Organizations as Investors in U.S.
Treasury Markets
2. Treasury Securities Held by Banking Organizations Subject to
Category I to III Standards
C. Proposed Policy Change
D. Reasonable Alternatives
E. Changes in the Supplementary Leverage Ratio and Tier 1
Capital Requirements
F. Benefits
G. Costs
H. Analysis of Proposed TLAC and Long-Term Debt Requirement
Changes
1. Baseline
2. Changes in Requirements
3. Anticipated Economic Effects
I. Conclusion
J. Appendix
1. Estimating the Available Capacity of Holding Companies for
Additional Reserves and U.S. Treasury Securities Held as Investment
Securities at Depository Institution Subsidiaries
2. Estimating the Available Capacity of Holding Companies for
Additional U.S. Treasury Securities Held at Broker-Dealer
Subsidiaries, Assuming Perfect Hedging
VII. Administrative Law Matters
A. Paperwork Reduction Act
B. Regulatory Flexibility Act Analysis

[[Page 30782]]

C. Plain Language
D. Riegle Community Development and Regulatory Improvement Act
of 1994
E. Executive Orders 12866, 13563, and 14192
F. OCC Unfunded Mandates Reform Act of 1995
G. Providing Accountability Through Transparency Act of 2023

I. Introduction

The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), and Federal Deposit
Insurance Corporation (FDIC) (collectively, the agencies) are proposing
to modify the enhanced supplementary leverage ratio (eSLR) standards
that apply to U.S. bank holding companies identified as global
systemically important bank holding companies (GSIBs) and their
depository institution subsidiaries.\1\
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\1\ See 12 CFR part 217, subpart H (GSIB surcharge framework). A
bank holding company subject to the GSIB surcharge framework must
determine whether it is a GSIB by applying a multifactor methodology
based on size, interconnectedness, substitutability, complexity, and
cross-jurisdictional activity. See 12 CFR 217.402.
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The proposal would adjust the calibration of the eSLR standards, as
discussed in section II.A of this SUPPLEMENTARY INFORMATION, to help
ensure that such standards generally serve as a backstop to risk-based
capital requirements through the economic and credit cycle, rather than
as a regularly binding constraint.\2\ This recalibration would reduce
disincentives for GSIBs and their depository institution subsidiaries
to participate in low-risk, low-return businesses, such as U.S.
Treasury market intermediation conducted by broker-dealer subsidiaries
of GSIBs.
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\2\ Under the capital rule, banking organizations are required
to satisfy multiple minimum capital requirements, which are
augmented by the capital buffer framework. In addition, insured
depository institutions are subject to the prompt corrective action
framework. In the context of this Supplementary Information, a
banking organization's ``binding tier 1 capital requirement'' refers
to the highest of all of its tier 1 capital requirements, inclusive
of the capital buffer framework and the prompt corrective action
framework, expressed in dollar terms.
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In section II.B of this SUPPLEMENTARY INFORMATION, the Board
invites comment on the advantages and disadvantages of a potential
modification to the supplementary leverage ratio calculation to help
further address concerns regarding undesired disincentives of a
regularly binding supplementary leverage ratio requirement on U.S.
Treasury market intermediation. This potential modification would
exclude from the denominator of the supplementary leverage ratio held-
for-trading Treasury securities of a broker-dealer subsidiary of a
depository institution holding company that is not a subsidiary of a
depository institution.
The proposal would also modify the form of the eSLR standard for
depository institution subsidiaries of GSIBs, as discussed in section
II.C of this SUPPLEMENTARY INFORMATION, to align with the eSLR standard
applicable at the parent GSIB level.
In addition, the Board is proposing to amend its total loss-
absorbing capacity (TLAC) and long-term debt requirements, as discussed
in section III of this SUPPLEMENTARY INFORMATION, to reflect the
proposed change to the eSLR standard. Elements of these requirements
were calibrated to align with the eSLR standard, and the proposal would
maintain such alignment.
The OCC is proposing to modify the criteria it uses to determine
applicability of the eSLR standard for depository institutions, such
that the standard would apply to those national banks and federal
savings associations that are subsidiaries of U.S. GSIBs identified by
the Board. This proposed change is discussed in section IV of this
SUPPLEMENTARY INFORMATION. The Board and FDIC are also proposing to
make certain technical corrections to the capital rule, as discussed in
section V of this SUPPLEMENTARY INFORMATION.
Section VI of this SUPPLEMENTARY INFORMATION presents the economic
analysis of the proposed changes.
The agencies seek comment on all aspects of the proposal.

A. Overview of Leverage Capital Requirements for Large Banking
Organizations

In 2013, the agencies adopted a revised regulatory capital rule
(capital rule) to address weaknesses that became apparent during the
financial crisis of 2007-08.\3\ The agencies' capital rule includes two
leverage-based requirements for large banking organizations.\4\ The
tier 1 leverage ratio, measured as the ratio of a banking
organization's tier 1 capital to average total consolidated assets,
applies to all banking organizations subject to the capital rule. Under
this requirement, a banking organization is required to maintain a
minimum leverage ratio of at least four percent, and an insured
depository institution is required to maintain a leverage ratio of at
least five percent to be considered ``well capitalized'' under the
prompt corrective action framework.\5\ The supplementary leverage
ratio, measured as the ratio of a banking organization's tier 1 capital
to its total leverage exposure, applies only to banking organizations
subject to Category I-III capital standards.\6\ Each of these banking
organizations must maintain a supplementary leverage ratio of at least
three percent. Total leverage exposure includes certain off-balance
sheet exposures in addition to all on-balance sheet assets.\7\
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\3\ See 12 CFR part 3 (OCC); 12 CFR part 217 (Board); 12 CFR 324
(FDIC). The Board and the OCC issued a joint final rule on October
11, 2013 (78 FR 62018), and the FDIC issued a substantially
identical interim final rule on September 10, 2013 (78 FR 55340).
The FDIC adopted the interim final rule as a final rule with no
substantive changes on April 14, 2014 (79 FR 20754).
\4\ See 12 CFR 3.10(a) (OCC); 12 CFR 217.10(a) (Board); 12 CFR
324.10(a) (FDIC). The term ``banking organizations,'' as used in
this SUPPLEMENTARY INFORMATION, includes national banks; state
member banks; state nonmember banks; Federal savings associations;
state savings associations; top-tier bank holding companies
domiciled in the United States not subject to the Board's Small Bank
Holding Company and Savings and Loan Holding Company Policy
Statement (12 CFR part 225 App'x. C); U.S. intermediate holding
companies of foreign banking organizations; and top-tier savings and
loan holding companies domiciled in the United States, except for
certain savings and loan holding companies that are significantly
engaged in commercial activities and certain savings and loan
holding companies that are subject to the Small Bank Holding Company
and Savings and Loan Holding Company Policy Statement.
\5\ See 12 CFR 6.4(b)(1)(i)(D), 3.10(a)(1)(iv), (OCC); 12 CFR
208.43(b)(1)(i)(D), 217.10(a)(1)(iv) (Board); 12 CFR
324.10(a)(1)(iv) 324.403(b)(1)(i)(D) (FDIC); see also 12 CFR 3.12
(OCC); 12 CFR 217.12 (Board); 12 CFR 324.12 (FDIC).
\6\ In 2019, the agencies adopted rules establishing four
categories of capital standards for U.S. banking organizations with
$100 billion or more in total assets and foreign banking
organizations with $100 billion or more in combined U.S. assets.
Under this framework, Category I standards apply to GSIBs and their
depository institution subsidiaries. Category II standards apply to
banking organizations with at least $700 billion in total
consolidated assets or at least $75 billion in cross-jurisdictional
activity and their depository institution subsidiaries. Category III
standards apply to banking organizations with total consolidated
assets of at least $250 billion or at least $75 billion in weighted
short-term wholesale funding, nonbank assets, or off-balance sheet
exposure and their depository institution subsidiaries. Category IV
standards apply to banking organizations with total consolidated
assets of at least $100 billion that do not meet the thresholds for
a higher category and their depository institution subsidiaries. See
12 CFR 3.2 (OCC), 12 CFR 238.10, 12 CFR 252.5, (Board), 12 CFR 324.2
(FDIC); ``Prudential Standards for Large Bank Holding Companies,
Savings and Loan Holding Companies, and Foreign Banking
Organizations,'' 84 FR 59032 (November 1, 2019); and ``Changes to
Applicability Thresholds for Regulatory Capital and Liquidity
Requirements,'' 84 FR 59230 (November 1, 2019).
\7\ See 12 CFR 3.10(c) (OCC); 12 CFR 217.10(c) (Board); 12 CFR
324.10(c) (FDIC).
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In 2014, the agencies adopted a final rule that requires GSIBs and
their insured depository institution subsidiaries to meet enhanced
supplementary leverage ratio

[[Page 30783]]

standards.\8\ Specifically, each GSIB must maintain a supplementary
leverage ratio of at least three percent plus a leverage buffer greater
than two percent to avoid limitations on the GSIB's capital
distributions and certain discretionary bonus payments.\9\ In addition,
any insured depository institution subsidiary of a GSIB must maintain a
supplementary leverage ratio of at least six percent to be ``well
capitalized'' under the prompt corrective action framework of the
Board, OCC, or FDIC, as applicable.\10\
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\8\ See ``Regulatory Capital Rules: Regulatory Capital, Enhanced
Supplementary Leverage Ratio Standards for Certain Bank Holding
Companies and Their Subsidiary Insured Depository Institutions,'' 79
FR 24528 (May 1, 2014). The eSLR standards were originally
applicable to bank holding companies with more than $700 billion in
total consolidated assets or $10 trillion in assets under custody
and their subsidiary depository institutions. The Board revised the
applicability of the eSLR standards in its rules to apply to GSIBs
and their subsidiary depository institutions in connection with the
GSIB surcharge rule. See 80 FR 49082 (August 14, 2015). The FDIC
made an equivalent change in 2020 and the OCC would make an
equivalent change as part of this proposal. See 85 FR 74257
(November 20, 2020).
\9\ The leverage buffer requirement follows the same general
mechanics and structure as the capital conservation buffer
requirement that applies to all banking organizations subject to the
capital rule, though the capital conservation buffer requirement is
calibrated differently. Specifically, a GSIB that maintains a
leverage buffer of more than two percent of its total leverage
exposure would not be subject to limitations on its distributions
and certain discretionary bonus payments. A GSIB that maintains a
leverage buffer of two percent or less would be subject to
increasingly strict limitations on such payouts. See 12 CFR 217.11.
\10\ See 12 CFR 6.4(b)(1)(i)(D)(2) (OCC); 12 CFR
208(b)(1)(i)(D)(2) (Board); 12 CFR 324.403(b)(1)(ii) (FDIC).
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Statutory Authority for the Agencies' Supplementary Leverage Ratio
Framework
Congress has authorized the agencies to establish leverage capital
requirements and standards for banking organizations subject to this
proposal. Section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act),\11\ as amended by section 401 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act,\12\
requires the Board to establish leverage limits for bank holding
companies with $250 billion or more in total consolidated assets.\13\
It also provides that the Board may apply any prudential standard
established under section 165 to any bank holding company or bank
holding companies with $100 billion or more in total consolidated
assets to which the prudential standard does not otherwise apply, under
certain circumstances.\14\ The prompt corrective action framework in
section 38 of the Federal Deposit Insurance Act requires the agencies
to prescribe capital standards for insured depository institutions that
include a leverage limit and provides that the agencies may establish
any additional relevant capital measures to carry out the purpose of
that section.\15\
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\11\ Dodd-Frank Wall Street Reform and Consumer Protection Act,
Public Law 111-203, 124 Stat. 1376 (2010).
\12\ Economic Growth, Regulatory Relief, and Consumer Protection
Act, Public Law 115-174, 132 Stat. 1296 (2018).
\13\ See 12 U.S.C. 5365(a)(1), (b)(1)(A)(i). These provisions
also apply to foreign banks or companies that are treated as a bank
holding company for purposes of the Bank Holding Company Act. See 12
U.S.C. 3106(a), 5311(a)(1). See also section 401(g) of the Economic
Growth, Regulatory Relief, and Consumer Protection Act (regarding
the Board's authority to establish enhanced prudential standards for
foreign banking organizations with total consolidated assets of $100
billion or more).
\14\ 12 U.S.C. 5365(a)(2)(C).
\15\ See 12 U.S.C. 1831o(c)(1)(A), (B)(i).
---------------------------------------------------------------------------

Furthermore, various statutory authorities provide the agencies
with broad discretionary authority to set capital requirements and
standards for banking organizations supervised by the agencies,
including national banking associations, state-chartered banks, savings
associations, and depository institution holding companies.\16\
---------------------------------------------------------------------------

\16\ See 12 U.S.C. 93a (national banking associations); 12
U.S.C. 248(i), 324, 327, 329 (state member banks); 12 U.S.C. 1463
(savings associations); 12 U.S.C. 1467a(g)(1) (savings and loan
holding companies); 12 U.S.C. 1844(b) (bank holding companies); 12
U.S.C. 3106 (certain U.S. operations of foreign banking
organizations); 12 U.S.C. 3902(1)-(2), 3907(a), 3909(a), (c)(1)-(2)
(depository institutions; affiliates of depository institutions,
including holding companies; and certain U.S. operations of foreign
banking organizations); 12 U.S.C. 5371 (insured depository
institutions, depository institution holding companies, and nonbank
financial companies supervised by the Board).
---------------------------------------------------------------------------

B. Objective of Rulemaking

The 2007-08 financial crisis demonstrated the importance of strong
regulatory capital standards for the safety and soundness of individual
banking organizations, as well as for the financial system as a whole.
Within the regulatory capital framework, leverage and risk-based
capital requirements play complementary roles, with each addressing
potential risks not addressed by the other.\17\ Risk-based capital
requirements that are commensurate with the risk profile of a banking
organization's exposures help to encourage prudent behavior by
requiring a banking organization to maintain higher levels of capital
for activities and exposures that present greater risk. Historical
experience, however, has demonstrated that risk-based measures alone
may be insufficient to support loss-absorbing capacity at banking
organizations through economic cycles. For example, the 2007-08
financial crisis highlighted weaknesses in the design and calibration
of risk-based capital requirements. Leverage capital requirements,
which do not take into account the risks of a banking organization's
exposures, can help to mitigate underestimations of risk both by
banking organizations and risk-based capital requirements.\18\
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\17\ The regulatory capital framework is designed to help ensure
that banking organizations maintain sufficient resources to absorb
losses and prevent the distress or failure of a banking
organization. See 12 CFR 3.1 (OCC); 12 CFR 217.1 (Board); 12 CFR
324.1 (FDIC). The regulatory capital framework is comprised of both
risk-based and leverage capital requirements. Risk-based capital
requirements establish a minimum amount of regulatory capital a
banking organization must maintain based on the risk profile of its
on- and off-balance sheet exposures, whereas leverage capital
requirements establish minimum risk-insensitive capital
requirements. See 12 CFR 3.10 (OCC); 12 CFR 217.10 (Board); 12 CFR
324.10 (FDIC).
\18\ Risk-based and leverage capital measures can also contain
complementary information about a banking organization's condition.
See, e.g., Arturo Estrella, Sangkyun Park, and Stavros Peristiani,
``Capital Ratios as Predictors of Bank Failure,'' Federal Reserve
Bank of New York Economic Policy Review (2000).
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An appropriately calibrated leverage capital requirement sets a
simple and transparent limit on a banking organization's leverage. In
addition, leverage capital requirements can be useful to address cases
where the level of risk at a particular banking organization or across
the financial system is difficult to measure. However, when a leverage
capital requirement is calibrated too high and becomes a banking
organization's regularly binding capital requirement, it can create
incentives for a banking organization to engage in higher-risk
activities in search of higher returns and to reduce participation in
lower-risk, lower-return activities. A banking organization that has a
leverage capital requirement as its binding capital requirement can, on
the margin, replace a lower-risk asset with a higher-risk asset without
a corresponding increase in its overall regulatory capital requirement,
a suboptimal outcome that runs counter to objectives of the regulatory
capital framework.
As a notable example of concerns regarding the incentive effects of
a binding supplementary leverage ratio requirement, a regularly binding
leverage capital requirement could disincentivize large banking
organizations from intermediating in the U.S. Treasury market. Market
participants have suggested that such disincentives could, under
certain circumstances, impede the orderly functioning of the U.S.
Treasury market

[[Page 30784]]

and of U.S. and global financial markets more broadly.\19\ The U.S.
Treasury market is one of the deepest and most liquid markets in the
world and serves as a source of safe and liquid assets that are used
for a variety of purposes in the financial markets.\20\ Confidence in
the efficient functioning of the U.S. Treasury market, including during
times of stress, is critical to the stability of the domestic and
global banking and financial systems.
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\19\ See, e.g., Z. He, S. Nagel, & Z. Song, Treasury
Inconvenience Yields During the COVID-19 Crisis. 143 J. Fin.
Econ.57-79 (2022); Group of Thirty Working Group on Treasury Market
Liquidity, U.S. Treasury Markets: Steps Toward Increased Resilience
(2021).
\20\ See U.S. Department of the Treasury, Board of Governors of
the Federal Reserve System, Federal Reserve Bank of New York, U.S.
Securities and Exchange Commission, and U.S. Commodity Futures
Trading Commission, Enhancing the Resilience of the U.S. Treasury
Market: 2023 Staff Progress Report (November 6, 2023).
---------------------------------------------------------------------------

Large banking organizations play important roles in all segments of
the U.S. Treasury market. Many large banking organizations have broker-
dealer subsidiaries that act as primary dealers in Treasury security
auctions, serve as brokers and market makers in the secondary markets
for Treasury securities and in related derivatives markets, and
intermediate in securities financing transactions with Treasury
securities as collateral. They also have depository institution
subsidiaries that perform some of these functions, act as custodians
holding Treasury securities on behalf of clients, and also transact in
Treasury securities for investment, liquidity, and risk-management
purposes. When large banking organizations become bound by leverage
capital requirements, they can potentially face incentives to limit
their intermediation in low-risk, low-return activities in the U.S.
Treasury markets and reduce holdings of low-risk assets in general.
Appropriate calibration of regulatory capital requirements involves
a balancing of considerations. A banking organization should maintain
sufficient capital to absorb losses and remain a going concern over a
range of conditions. In addition, it is important for the capital
framework to not create potential disincentives for a banking
organization to prudently act as a financial intermediary and to
otherwise engage in low-risk activities or important market functions.
The agencies regularly review the regulatory capital framework to help
ensure requirements are appropriate in view of evolving risks and
financial innovations and that the framework is functioning as
intended. In reviewing the eSLR framework, the agencies considered
factors such as alignment of requirements with risks; incentives for a
banking organization to perform critical financial services over a
range of economic conditions; and ways to enhance the efficiency of the
framework.
Since the adoption of the eSLR standards, the agencies have
observed that such standards have, for certain banking organizations,
become a regularly binding constraint relative to risk-based capital
requirements, as discussed in section VI of this SUPPLEMENTARY
INFORMATION. Consequently, the Board and the OCC in 2018 proposed to
recalibrate the eSLR standards for GSIBs and their insured depository
institution subsidiaries from the fixed two percent, which applies to
each GSIB, and three percent, which applies to their insured depository
institutions, to equal 50 percent of the banking organization's GSIB
risk-based capital surcharge to help ensure that the eSLR standards
generally serve as a backstop to risk-based capital requirements.\21\
---------------------------------------------------------------------------

\21\ See ``Regulatory Capital Rules: Regulatory Capital,
Enhanced Supplementary Leverage Ratio Standards for U.S. Global
Systemically Important Bank Holding Companies and Certain of Their
Subsidiary Insured Depository Institutions; Total Loss-Absorbing
Capacity Requirements for U.S. Global Systemically Important Bank
Holding Companies,'' 83 FR 17317 (April 18, 2018). The Board and the
OCC did not finalize this proposal.
---------------------------------------------------------------------------

In 2020, the agencies finalized a rule to implement section 402 of
the Economic Growth, Regulatory Relief, and Consumer Protection Act, to
exclude from the denominator of the supplementary leverage ratio
certain central bank deposits of banking organizations predominately
engaged in custody, safekeeping, and asset servicing activities.\22\
Also in 2020, as the onset of the COVID pandemic significantly and
adversely affected global financial markets, large banking
organizations faced reduced balance sheet capacity under the
supplementary leverage ratio due to customer draws on credit lines,
acquisition of significant amounts of Treasury securities, substantial
increases in deposits in their accounts at Federal Reserve Banks, and
other financial intermediation activities. In response, the agencies
adjusted the denominator of the supplementary leverage ratio to exclude
Treasury securities and deposits at Federal Reserve Banks (reserves) on
a temporary basis to provide these banking organizations additional
flexibility to continue to act as financial intermediaries.\23\
---------------------------------------------------------------------------

\22\ ``Regulatory Capital Rule: Revisions to the Supplementary
Leverage Ratio to Exclude Certain Central Bank Deposits of Banking
Organizations Predominantly Engaged in Custody, Safekeeping, and
Asset Servicing Activities,'' 85 FR 4569 (Jan. 27, 2020).
\23\ For example, during the March 2020 economic turmoil, U.S.
Treasury market liquidity rapidly deteriorated as a result of
supply-demand imbalance, while primary dealers were reluctant to
increase their holdings of U.S. Treasury securities, prompting
market participants and regulators to consider enhancements to the
resilience of the U.S. Treasury market. On April 1, 2020, the Board
provided holding companies a temporary exclusion for U.S. Treasury
securities and deposits at the Federal Reserve from the denominator
of the supplementary leverage ratio through March 31, 2021. On May
15, 2020, the Board, the OCC, and the FDIC extended comparable
treatment to depository institutions, which could elect this
exclusion subject to capital action preapproval. Both interim final
rules expired as scheduled on March 31, 2021. See ``Temporary
Exclusion of U.S. Treasury Securities and Deposits at Federal
Reserve Banks from the Supplementary Leverage Ratio,'' 85 FR 20578
(April 14, 2020) and ``Regulatory Capital Rule: Temporary Exclusion
of U.S. Treasury Securities and Deposits at Federal Reserve Banks
from the Supplementary Leverage Ratio for Depository Institutions,''
85 FR 32980 (June 1, 2020).
---------------------------------------------------------------------------

In light of the experience gained since the initial adoption of the
eSLR standards, and to avoid potential negative outcomes due to
regularly binding eSLR standards, the agencies are proposing to
recalibrate the eSLR standards to reduce the likelihood and frequency
of the eSLR standards becoming a binding capital requirement for GSIBs
and their depository institution subsidiaries. In addition, the
proposed recalibration of the eSLR standards seeks to reduce
disincentives for banking organizations to participate in U.S. Treasury
market intermediation and reduce the need for temporary adjustments in
the event of severe market stress, as occurred in 2020.

C. Overview of the Proposal

The proposal would make changes to the eSLR standards to reduce the
likelihood of the eSLR standards being the binding regulatory capital
constraint for GSIBs and their depository institution subsidiaries.
Specifically, the Board is proposing to recalibrate the eSLR buffer
standard for GSIBs to equal 50 percent of a GSIB's method 1 surcharge
calculated under the Board's GSIB surcharge framework, rather than the
current leverage buffer standard of two percent.\24\ Similarly, the
agencies

[[Page 30785]]

would modify the eSLR standard for depository institution subsidiaries
of GSIBs from the current six percent ``well capitalized'' threshold
under the prompt corrective action framework to an eSLR buffer standard
equal to 50 percent of the parent GSIB's method 1 surcharge
calculation. As a result, the eSLR standards would be the same in both
form and calibration at the bank holding company and subsidiary
depository institution levels.\25\
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\24\ The Board's capital rule requires a GSIB to calculate its
GSIB risk-based surcharge in two ways, known as method 1 and method
2, and apply the higher of the two results. Under the rule, a firm
identified as a GSIB must calculate its GSIB surcharge under two
methods and be subject to the higher surcharge. See 12 CFR 217.402,
subpart H. The first method (method 1) is based on five categories
that are correlated with systemic importance--size,
interconnectedness, cross-jurisdictional activity, substitutability,
and complexity. The second method (method 2) uses similar inputs but
replaces substitutability with the use of short-term wholesale
funding and is calibrated in a manner that generally will result in
surcharge levels for GSIBs that are higher than those calculated
under method 1.
\25\ As a result of this change, certain national bank
subsidiaries, specifically, uninsured national banks chartered
pursuant to 12 U.S.C. 27(a), would become subject to the eSLR
standard. This change in scope is a result of the prompt corrective
action framework's applicability to insured depository institutions
and the capital rule's applicability to certain uninsured depository
institutions.
---------------------------------------------------------------------------

In addition to these changes, the OCC is proposing to revise the
methodology it uses to identify which national banks and Federal
savings associations are subject to the eSLR standard to align with the
agencies' regulatory tailoring framework and ensure that the standard
applies only to those national banks and Federal savings associations
that are subsidiaries of a GSIB. The Board is also proposing to make
conforming modifications to the leverage-based components of the
Board's total loss-absorbing capacity and long-term debt requirements
that currently incorporate the eSLR standard's fixed two percent buffer
construct. Lastly, the agencies are proposing to make certain technical
corrections to the capital rule.
As further discussed in the economic analysis in section VI of this
SUPPLEMENTARY INFORMATION, recalibrating the eSLR buffer standards for
GSIBs and their depository institution subsidiaries would reduce
unintended incentives for these banking organizations to engage in
higher-risk activities and create significant balance sheet capacity
for GSIBs and their depository institution subsidiaries to engage in
lower-risk activities. Moreover, by recalibrating the eSLR standards
such that they more often serve as a backstop than a binding
constraint, the regulatory capital framework for these banking
organizations would be more aligned with risk, supporting these banking
organizations' role as financial intermediaries. The additional
capacity for GSIBs could also help support the orderly functioning of
U.S. Treasury markets, as their broker-dealer subsidiaries play a key
role in intermediating these markets.
The proposal would lead to a less-than-two percent aggregate
reduction in the tier 1 capital requirement for GSIBs and about 27
percent aggregate reduction in the tier 1 capital requirement for their
depository institution subsidiaries. Although the capital requirements
of the depository institution subsidiaries of GSIBs would decline,
capital requirements applicable to GSIBs would remain approximately at
their present level and with better incentive effects from leverage-
based requirements declining below risk-based requirements. GSIBs would
not be able to significantly increase dividend payments or other
capital distributions, due to bank holding company capital
requirements. The proposal would instead provide GSIBs greater
discretion to determine the optimal allocation of capital within the
consolidated organization. In addition, the capital rule would continue
to require these banking organizations, notwithstanding the minimum
requirements under the capital rule, to maintain capital commensurate
with the level and nature of all risks to which they are exposed, to
have a process for assessing their overall capital adequacy in relation
to their risk profile, and to have a comprehensive strategy for
maintaining an appropriate level of capital.\26\
---------------------------------------------------------------------------

\26\ 12 CFR 3.10(e) (OCC); 12 CFR 217.10(e) (Board); 12 CFR
324.10(e) (FDIC).
---------------------------------------------------------------------------

As discussed further in section VI.H of this SUPPLEMENTARY
INFORMATION, under the proposal, aggregate TLAC requirements that apply
to GSIBs would decline by approximately five percent, and aggregate
long-term debt requirements would decline by approximately 16 percent.
Although the reduction in long-term debt and TLAC requirements could
reduce overall loss-absorbing capacity, including gone-concern
resources available in resolution, the proposal would maintain the
existing alignment of long-term debt and TLAC requirements with capital
requirements, consistent with the approaches used to calibrate these
requirements. The proposal is expected to support increased lending and
economic activity and would be consistent with international
standards.\27\
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\27\ The decline in long-term debt requirements can primarily be
viewed as a compositional shift within the instruments needed to
meet the TLAC requirements and thus unlikely to have a significant
effect on lending or economic activity.
---------------------------------------------------------------------------

Overall, the agencies assess that the benefits of the proposal
justify the costs.

II. Proposed Modifications to the Enhanced Supplementary Leverage Ratio
Standards

A. Calibration of the Holding Company and Depository Institution
Standards

The proposal would modify the eSLR standard applicable to GSIBs by
recalibrating the fixed two percent eSLR buffer standard to equal 50
percent of a GSIB's method 1 surcharge as determined under the Board's
GSIB surcharge framework.\28\ The proposal would also align the
calibration and, as discussed further in section II.C of this
SUPPLEMENTARY INFORMATION, the form, of the eSLR standard applicable to
depository institution subsidiaries of GSIBs with that applicable to
their GSIB parent holding companies. Since the eSLR standards took
effect in 2018, the current calibration has frequently become a binding
capital constraint for GSIBs, as discussed in section VI.A of this
SUPPLEMENTARY INFORMATION. Recalibrating the eSLR buffer standard to
equal 50 percent of a GSIB's method 1 surcharge would reduce the
supplementary leverage ratio requirement relative to risk-based
requirements at the holding company level and allow leverage capital
requirements and standards to generally serve as a backstop to risk-
based capital requirements rather than as a regularly binding
constraint.\29\
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\28\ In September 2023, the Board issued a notice of proposed
rulemaking to amend the GSIB surcharge framework and related
Systemic Risk Report (FR Y-15) to improve the precision of the GSIB
surcharge and better measure systemic risk under the framework. See
``Regulatory Capital Rule: Risk-Based Capital Surcharges for Global
Systemically Important Bank Holding Companies; Systemic Risk Report
(FR Y-15),'' 88 FR 60385 (September 1, 2023). Any change to the GSIB
surcharge framework could impact the magnitude of the eSLR buffer
standards under this proposal.
\29\ For about half of depository institution subsidiaries of
GSIBs, the tier 1 leverage ratio requirement would continue to
exceed the risk-based requirement. Changing the tier 1 leverage
requirement would implicate section 171 of the Dodd-Frank Act. See
12 U.S.C. 5371.
---------------------------------------------------------------------------

Calibration based on the GSIB surcharge framework would take a
GSIB's systemic footprint into account in the determination of its eSLR
buffer standard. This approach would align with the purposes of the
eSLR standards to strengthen the ability of these banking organizations
to remain a going concern during times of economic stress and to
minimize the likelihood that problems at these organizations would
contribute to financial instability.\30\ At

[[Page 30786]]

the time the agencies adopted the eSLR standards, the Board had not yet
proposed the GSIB surcharge framework. Using a GSIB's method 1
surcharge, rather than the higher of its method 1 or method 2 surcharge
that determines its risk-based surcharge, produces a generally lower
calibration that is consistent with the objective for leverage capital
requirements to act as a backstop to risk-based capital requirements. A
calibration based on the GSIB surcharge framework would also help
promote consistency in the eSLR standards for large, complex, and
internationally active banking organizations across jurisdictions, as
it would be consistent with the leverage ratio framework published by
the Basel Committee on Banking Supervision (Basel Committee).\31\
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\30\ See 79 FR 24529 (May 1, 2014). Consistent with the original
design of the eSLR standards, depository institution subsidiaries of
GSIBs would be subject to requirements on the basis of their
positions as components of the consolidated GSIBs, and often as
major components in terms of size, operations, and business
activity. The proposal would align GSIB and subsidiary eSLR
standards, removing the discrepancy in requirements in the current
eSLR standards.
\31\ See Basel Committee, ``Basel III leverage ratio framework
and disclosure requirements'' (January 2014) available at <a href="http://www.bis.org/publ/bcbs270.htm">http://www.bis.org/publ/bcbs270.htm</a>. The Basel Committee is an
international coordinating committee of banking supervisory
authorities, established by the central bank governors of the G-10
countries in 1975, and comprised of representatives from supervisory
authorities of 28 jurisdictions, that develops prudential minimum
standards. More information regarding the Basel Committee and its
membership is available at <a href="https://www.bis.org/bcbs/about.htm">https://www.bis.org/bcbs/about.htm</a>.
Documents issued by the Basel Committee are available through the
Bank for International Settlements website at <a href="https://www.bis.org">https://www.bis.org</a>.
---------------------------------------------------------------------------

Where appropriate and consistent with the agencies' statutory
authorities and policy objectives, general alignment of domestic
financial regulatory policy with international standards can generate
significant benefits, particularly regarding large, internationally
active banking organizations. For example, international alignment can
enhance the resilience of the U.S. financial system by limiting the
potential for a global ``race to the bottom'' on prudential standards.
The U.S. financial system is highly interconnected with the global
financial system. By supporting robust prudential standards across the
world, international alignment can enhance the resilience of the U.S.
financial system by reducing the likelihood of distress or other
problems that arise in a foreign jurisdiction from having negative
effects in the United States.\32\
---------------------------------------------------------------------------

\32\ For example, the Basel Committee was originally formed
after the failure of Herstatt Bank in Germany in 1974, which
contributed to serious disruptions to foreign currency and banking
markets within and beyond Germany, demonstrating the need for better
coordination among bank regulators in different jurisdictions. See
<a href="https://www.bis.org/bcbs/history.htm">https://www.bis.org/bcbs/history.htm</a>. See, e.g., 12 U.S.C. 1828
note, 3901, 3907, 3911, and 5373; see also 22 U.S.C. 9522 note;
Federal Deposit Insurance Corporation Improvement Act of 1991 Sec.
305(b)(2), Public Law 102-242, 105 Stat. 2236, 2355.
---------------------------------------------------------------------------

The proposed recalibration of the eSLR standards would help
mitigate potential disincentives for GSIBs and their depository
institution subsidiaries to engage in low-risk, low-return, balance-
sheet-intensive activities, such as intermediation by GSIBs' broker-
dealer subsidiaries in markets for Treasury securities, and from
holding low-risk assets in general. GSIBs and their depository
institution subsidiaries play a key role in supporting market liquidity
and providing financing in Treasury markets, as discussed above.
The proposal would differ from the agencies' 2020 temporary
exclusion of Treasury securities and reserves in that it would maintain
the principle that the denominator of the supplementary leverage ratio
should be broad and not create preferences for certain low-risk assets
over others. Additionally, the recalibration approach of the proposal
would better achieve the objectives of the proposal than would the 2020
exclusion approach. It would more comprehensively address the undesired
incentive effects of binding leverage ratio requirements. It would also
provide large banking organizations significant additional flexibility
and capacity to maintain or increase low-risk, low-return activities,
including but not limited to U.S. Treasury market intermediation. This
flexibility would be beneficial throughout economic and credit
cycles.\33\
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\33\ Excluding exposures from total leverage exposure would also
differ from the leverage capital standard published by the Basel
Committee. The Basel standard provides for a potential temporary
exclusion of central bank reserves, but solely under exceptional
macroeconomic circumstances and only when paired with an upward
calibration of the minimum requirement. See the Basel standard's
provision LEV30.4, available at <a href="https://www.bis.org/basel_framework/chapter/LEV/30.htm?inforce=20191215&published=20191215">https://www.bis.org/basel_framework/chapter/LEV/30.htm?inforce=20191215&published=20191215</a>.
---------------------------------------------------------------------------

As discussed in section VI of this SUPPLEMENTARY INFORMATION, the
proposed change to the calibration of the eSLR standard for bank
holding companies would reduce the eSLR standard relative to risk-based
capital requirements for GSIBs, which would reduce the frequency of the
eSLR standards being these banking organizations' binding capital
constraint without significantly reducing their overall level of
required capital. Accordingly, this proposed change would reduce
undesired incentive effects from a regularly binding or near-binding
leverage capital requirement, while not materially altering the risk
profile of these banking organizations.
As further discussed in section VI of this SUPPLEMENTARY
INFORMATION, since depository institution subsidiaries of GSIBs are not
subject to the more stringent risk-based capital buffers and surcharges
applicable to their GSIB parent holding companies, risk-based capital
requirements for such depository institutions tend to be generally
lower relative to leverage capital requirements.\34\ Therefore,
addressing bindingness of the eSLR standard for depository institution
subsidiaries of GSIBs would more significantly reduce levels of
required capital relative to the reduction in required capital of their
parent holding companies. Although the proposal would reduce tier 1
capital requirements for these depository institutions, almost all of
this capital would need to be retained within their consolidated
holding companies because the proposal would only slightly reduce GSIB
holding company tier 1 capital requirements.
---------------------------------------------------------------------------

\34\ For example, the capital conservation buffer for depository
institutions is set to 2.5 percent of risk-weighted assets and is
not expanded by the stress capital buffer and GSIB surcharge
applicable at the top-tier GSIB level.
---------------------------------------------------------------------------

Question 1: What are the advantages and disadvantages of replacing
the fixed two percent eSLR buffer standard applicable to a GSIB with a
buffer standard equal to 50 percent of a GSIB's method 1 risk-based
surcharge? What other modifications should the Board consider for
purposes of ensuring that the eSLR buffer standard generally does not
serve as the binding capital constraint for GSIBs, and why? Please
provide any rationale or data that may be helpful for the Board to
consider.
Question 2: What are the advantages and disadvantages of the
proposed calibration of the eSLR buffer standard for a depository
institution subsidiary of a GSIB? What alternative calibration, such as
a fixed buffer lower than three percent, should the agencies consider,
and why? What would be the advantages and disadvantages of adding a
fixed component for the eSLR buffer of depository institution
subsidiaries (for example, 50 percent of a GSIB's method 1 surcharge
plus a fixed component in the range of 0.5 percent to 1 percent)?
Question 3: What other potential modifications to the regulatory
capital framework should the agencies consider to address the binding
nature of the supplementary leverage ratio requirements relative to
risk-based capital requirements, consistent with safety and soundness?
For example, what would be the advantages and disadvantages of
establishing a risk-based surcharge for depository

[[Page 30787]]

institution subsidiaries of GSIBs? Please provide any rationale or data
that may be helpful for the agencies to consider.
Question 4: How, if at all, would the proposed calibration of the
eSLR standards affect business decisions of GSIBs and their depository
institution subsidiaries, such as their ability to serve as a source of
credit to the economy during periods of economic stress? How, if at
all, would the proposal change the incentives for GSIBs and their
depository institution subsidiaries to participate in low-risk, low-
return businesses? How, if at all, would the proposed calibration of
the eSLR standards affect safety and soundness? Please provide any
rationale or data that may be helpful for the agencies to consider.

B. Potential Modification to the Supplementary Leverage Ratio
Calculation

In contrast to risk-based capital requirements, leverage capital
requirements generally do not differentiate the amount of capital
required by exposure type. A banking organization is required to
include all of its on-balance sheet assets, including Treasury
securities and other low-risk exposures, and certain off-balance sheet
exposures in total leverage exposure, the denominator of the
supplementary leverage ratio.
The proposed recalibration of the eSLR standards is intended to
reduce the likelihood that such standards become a regularly binding
capital constraint for GSIBs and their depository institution
subsidiaries and thus reduce disincentives for these banking
organizations to participate in low-risk activities that might be
associated with important market functions. Although all depository
institution holding companies subject to the supplementary leverage
ratio requirement or eSLR standards would have substantial balance-
sheet capacity under the proposal before these requirements or
standards become binding, as discussed in section VI of this
SUPPLEMENTARY INFORMATION, the Board is considering the benefits and
drawbacks of an additional approach to complement the proposed
recalibration.
In particular, the ability of a banking organization to hold
certain assets, such as Treasury securities, is essential to U.S.
Treasury market functioning, financial intermediation, and funding
market activity, particularly in periods of financial uncertainty.
Therefore, the Board is seeking comment on a potential modification to
the calculation of total leverage exposure for depository institution
holding companies to exclude Treasury securities that are reported as
trading assets on the organizations' balance sheets and that are held
at broker-dealer subsidiaries (and foreign equivalents thereof) that
are not subsidiaries of a depository institution (broker-dealer
subsidiaries) (narrow exclusion approach).\35\ The narrow exclusion
approach could provide further certainty such that, if these holding
companies' balance sheets or activities change in the future, they
would not face disincentives to Treasury market intermediation due to a
binding supplementary leverage ratio requirement.
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\35\ Under the narrow exclusion approach, a broker-dealer
subsidiary would be covered if it is registered with the U.S.
Securities and Exchange Commission or is a foreign equivalent to a
registered broker-dealer.
---------------------------------------------------------------------------

This narrow exclusion approach would provide an automatic ``safety
valve'' for Treasury market intermediation for cases in which balance
sheets rapidly expand, as they did in 2020. In addition, this approach
would enable a larger group of depository institution holding
companies, including those subject to Category II or III capital
standards in addition to GSIBs, to increase their U.S. Treasury market
intermediation without affecting the required amount of tier 1 capital
under the supplementary leverage ratio requirement and the potential
for it to become a regularly binding regulatory capital constraint.\36\
---------------------------------------------------------------------------

\36\ As discussed in section VI of this SUPPLEMENTARY
INFORMATION, supplementary leverage ratio requirements are not
currently binding for any banking organizations subject to Category
II or III standards.
---------------------------------------------------------------------------

The narrow exclusion approach would focus on the legal entities and
balance sheet exposures directly involved in making markets in U.S.
Treasury securities. It thus attempts to balance the incentive goals
discussed above with the conceptual basis of the supplementary leverage
ratio requirement, which broadly includes exposures in total leverage
exposure in order to serve as a risk-insensitive backstop to risk-based
capital requirements. A potential drawback of this approach is that
excluding exposures from the denominator of the supplementary leverage
ratio could lead to requests to exclude additional exposures. Excluding
material quantities or categories of exposures from the supplementary
leverage ratio would undermine its effectiveness as a risk-insensitive
backstop and would differ from the international leverage standard
published by the Basel Committee.
Importantly, under the narrow exclusion approach, most banking
organizations' exposures to excluded Treasury securities would continue
to be subject to regulatory capital requirements. Specifically, for
banking organizations subject to the market risk capital framework, the
interest-rate risk of the excluded Treasury securities would be
captured by the market risk elements of the risk-based capital
framework.\37\ In addition, under U.S. GAAP, Treasury securities
classified as trading are measured at fair value, with profits and
losses recorded in the organization's consolidated income statement. As
such, the associated earnings volatility and its effects on regulatory
capital could limit incentives for regulatory arbitrage.
---------------------------------------------------------------------------

\37\ See 12 CFR 217, subpart F.
---------------------------------------------------------------------------

The Board requests comment on all aspects of the narrow exclusion
approach.
Question 5: What would be the advantages and disadvantages of
incorporating the narrow exclusion approach in any final rule, and why?
What, if any, challenges would banking organizations have in
identifying the securities to be excluded from total leverage exposure
as described above and what clarifications would be helpful to address
any such challenges?
Question 6: What modifications, if any, to the narrow exclusion
approach should the Board consider, and why?
Question 7: What incentive effects would exempting only Treasury
securities classified as trading and held by broker-dealer subsidiaries
have on capital allocation or the conduct of activities within a
consolidated banking organization, and what adjustments should the
Board consider due to such effects?
Question 8: To what extent do legal entities other than broker-
dealers within consolidated banking organizations engage in material
U.S. Treasury market intermediation? What would be the advantages and
disadvantages of including some or all Treasury securities held by such
entities in any exclusion from the supplementary leverage ratio, and
why? What alternative methods of targeting exclusions from the
supplementary leverage ratio should the agencies consider (for example,
based on specific activities such as Treasury-based repurchase or
reverse repurchase arrangements), and why? In such cases, how could the
agencies address boundary issues to ensure that the exclusion targets
Treasury market intermediation? Please provide any supporting data and
rationale that the agencies should consider.

[[Page 30788]]

Question 9: In addition to the changes to the supplementary
leverage ratio requirements being considered in this proposal, what
other changes to the bank regulatory framework, if any, should the
agencies consider to reduce regulatory impediments to well-functioning
U.S. Treasury markets while appropriately taking into consideration the
objectives of the framework? For example, what additional changes
should the agencies consider in the context of the mandatory central
clearing of certain U.S. Treasury transactions? How might repo-style
transactions, including transactions with the Federal Reserve, be more
appropriately reflected in the supplementary leverage capital
requirements or other areas of the regulatory framework? What are the
potential costs and benefits of such changes?
Question 10: What additional or alternative changes to the capital
rule should the agencies consider to ensure that the capital rule is
able to function appropriately throughout the business cycle and
particularly during periods of stress? What, if any, additional
``safety valves'' should the agencies consider incorporating into the
capital rule to better respond to periods of stress and to reduce the
risk that emergency action may be necessary (for example, a more
specific reservation of authority, in addition to 12 CFR 3.1(d)(4),
217.1(d)(4), 324.1(d)(4))?

C. Modification to the Form of the Depository Institution Standard

The proposal would remove the eSLR threshold for a depository
institution subsidiary of a GSIB to be considered ``well capitalized''
under the prompt corrective action framework and instead implement the
eSLR for such banking organizations as a buffer standard.
The prompt corrective action framework establishes capital
categories at which an insured depository institution will become
subject to increasingly stringent limitations on its activities.\38\
Among other measures, this framework includes a three percent
supplementary leverage ratio threshold for any insured depository
institution subject to Category I, II, or III capital standards to be
considered ``adequately capitalized.'' Until the adoption of the eSLR
standards in 2014, the framework did not specify a corresponding
supplementary leverage ratio threshold at which such an insured
depository institution subsidiary would be considered ``well
capitalized.'' The 2014 eSLR standards established a six percent
supplementary leverage ratio threshold at which insured depository
institution subsidiaries of the largest and most complex banking
organizations would be considered ``well capitalized.''
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\38\ Each of the agencies have issued regulations to implement
the statutory Prompt Corrective Action framework, set forth at 12
U.S.C. 1831o, which codifies section 131 of the Federal Deposit
Insurance Corporation Improvements Act of 1991 (FDICIA). Public Law
102-242, 105 Stat. 2253 (December 19, 1991). The Prompt Corrective
Action capital categories are critically undercapitalized,
significantly undercapitalized, undercapitalized, adequately
capitalized, and well capitalized. See 12 CFR part 6 (national banks
and Federal savings associations) (OCC); 12 CFR part 208, subpart D
(state member banks) (Board); 12 CFR part 324, subpart H (state
nonmember banks and state savings associations) (FDIC).
---------------------------------------------------------------------------

In April 2018, the Board and OCC jointly proposed certain
modifications to the eSLR standards for GSIB holding companies and
Board- and OCC-regulated insured depository institution subsidiaries
(2018 proposal) that would have relied on a requirement derived from
the GSIB surcharge framework to determine a banking organization's
applicable eSLR standard (similar to the approach included in this
proposal).\39\ As part of the 2018 proposal, the two agencies requested
comment on the appropriateness of an alternative that would have
implemented the proposed eSLR standard for GSIBs' depository
institution subsidiaries as a capital buffer standard instead of as a
threshold for such banking organizations to be considered ``well
capitalized.'' Specifically, under this approach, the prompt corrective
action framework would have retained the three percent supplementary
leverage ratio requirement to be considered ``adequately capitalized,''
but would have no longer included the heightened six percent
supplementary leverage ratio threshold to be considered ``well
capitalized.'' Instead, the eSLR standard would have been applied to
depository institution subsidiaries of GSIBs alongside the existing
capital conservation buffer (in the same manner that the eSLR standard
applies to GSIBs). In considering this alternative, the two agencies
noted that tying a banking organization's eSLR standard to its GSIB
surcharge meant that the ``well capitalized'' threshold could change
from year to year depending on the activities of the organization.
---------------------------------------------------------------------------

\39\ 83 FR 17317 (April 18, 2018).
---------------------------------------------------------------------------

The majority of commenters on the 2018 proposal supported the
alternative form of the eSLR as a buffer standard at the depository
institution level. Several of these commenters supported this approach
as a means of harmonizing and aligning with the eSLR standard
applicable to holding companies. Two of these commenters stated that
the payout restriction of a buffer provided a type of ``early warning''
threshold that should trigger changes in capital management before the
more severe consequences of prompt corrective action framework
limitations apply.\40\ Further to this point, one of these commenters
stated that in the context of risk-based capital requirements, the
agencies calibrated the capital conservation buffer requirement and
risk-based prompt corrective action well-capitalized thresholds so that
insured depository institutions would be subject to payout restrictions
under the buffer requirements before losing well-capitalized status.
Another of these commenters expressed concern that maintaining the eSLR
standard as part of the prompt corrective action framework, which
historically has used fixed ratios to establish uniform standards
across insured depository institutions, could result in different
standards being used across banking organizations as a result of
surcharges that can differ across GSIBs.
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\40\ The ``well capitalized'' threshold is used to determine
eligibility for a variety of regulatory purposes, such as
streamlined application procedures, status as a financial holding
company for parent bank holding companies, the ability to control or
hold a financial interest in a financial subsidiary, and in certain
expansionary interstate applications. See e.g., 12 U.S.C. 24a; 12
U.S.C.1831u(b)(4); 12 U.S.C. 1842(d); 12 U.S.C. 1843(j)(4)(A).
Insured depository institutions that do not meet the requirements to
be considered ``well capitalized'' under the prompt corrective
action framework face restrictions on their operations; for example,
such insured depository institutions may not control or own an
interest in a financial subsidiary. 12 U.S.C. 1831o. They also face
restrictions on accepting brokered deposits without a waiver from
the FDIC, a prohibition from accepting employee benefit plan
deposits, limits on exposure to interbank liabilities, potential
restrictions on opening a branch, and in certain situations,
potential effects on Deposit-Insurance Fund premiums. 12 U.S.C.
371b-2 (implemented in 12 CFR part 206); 12 U.S.C.
1821(a)(1)(D)(ii); 12 U.S.C. 1831f; 12 U.S.C. 1831o(e)(4); 12 CFR
part 327.

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[[Page 30789]]

Based on further consideration by the agencies on the form of the
eSLR standard at the depository institution level, including
considerations raised in comments the Board and OCC received on the
2018 proposal, the agencies are proposing to implement the eSLR
standard for depository institutions as a buffer standard rather than
as a threshold to be considered ``well capitalized'' within the prompt
corrective action framework.\41\ This approach would align the form of
the depository institution eSLR standard with that of the holding
company, which could enhance effective capital management across a
banking organization. In addition, a buffer approach may have less pro-
cyclical effects because a banking organization may choose to use its
buffer during times of economic stress, which could lessen the
likelihood that the banking organization would reduce lending and other
activities during such times. At the same time, the payout restrictions
of a leverage buffer framework would continue to provide an incentive
for covered depository institutions to maintain sufficient capital and
reduce the risk that their capital levels would fall below their
minimum requirements during economic downturns. A leverage buffer
framework would provide ``early warning'' benefits relative to prompt
corrective action thresholds, consistent with commenters' views on the
2018 proposal.
---------------------------------------------------------------------------

\41\ As discussed supra n.25, as a result of this change,
certain national bank subsidiaries, specifically, uninsured national
banks chartered pursuant to 12 U.S.C. 27(a), would become subject to
the eSLR standard. This change in scope is a result of the prompt
corrective action framework's applicability to insured depository
institutions and the capital rule's applicability to certain
uninsured depository institutions.
---------------------------------------------------------------------------

Specifically, under the proposal, a depository institution
subsidiary of a GSIB would have an eSLR buffer standard equal to 50
percent of its parent company's method 1 surcharge in order to avoid
facing restrictions on capital distributions and certain discretionary
bonus payments. The proposed leverage buffer framework would follow the
same general mechanics and structure as the capital conservation buffer
contained in the agencies' respective capital rules.\42\ For example,
if a GSIB calculates a method 1 surcharge of 1.5 percent, a depository
institution subsidiary of the GSIB would be subject to an eSLR buffer
standard of 0.75 percent (one-half of the parent GSIB's 1.5 percent
method 1 surcharge). Therefore, the depository institution subsidiary
would need to have a supplementary leverage ratio greater than 3.75
percent (three percent minimum supplementary leverage ratio plus 0.75
percent eSLR buffer standard) to avoid limitations on capital
distributions and certain discretionary bonus payments.
---------------------------------------------------------------------------

\42\ See 12 CFR 3.11(a) (OCC); 12 CFR 217.11(a) (Board); 12 CFR
324.11(a) (FDIC).
---------------------------------------------------------------------------

If the depository institution subsidiary of a GSIB maintains a
leverage buffer that is less than or equal to 100 percent of its
leverage buffer standard, a payout limitation would apply in accordance
with Table 1 below. The leverage buffer's potential limitations on
distributions and discretionary bonus payments would be applied to a
covered depository institution alongside any limitations imposed by the
capital conservation buffer or any other supervisory or regulatory
measures. Similar to its parent GSIB, if the depository institution
subsidiary of a GSIB is constrained by either or both a capital
conservation buffer and the leverage buffer, the depository institution
would be required to apply the more binding payout ratio.

Table 1--Calculation of Maximum Leverage Payout Amount
------------------------------------------------------------------------
Maximum payout ratio
(as a percentage of
Leverage buffer eligible retained
income)
------------------------------------------------------------------------
Greater than the depository institution's No payout ratio
leverage buffer standard. limitation applies.
Less than or equal to 100 percent of the 60 percent.
depository institution's leverage buffer
standard, and greater than 75 percent of the
depository institution's leverage buffer
standard.
Less than or equal to 75 percent of the 40 percent.
depository institution's leverage buffer
standard, and greater than 50 percent of the
depository institution's leverage buffer.
Less than or equal to 50 percent of the 20 percent.
depository institution's leverage buffer
standard, and greater than 25 percent of the
depository institution's leverage buffer
standard.
Less than or equal to 25 percent of the 0 percent.
depository institution's leverage buffer
standard.
------------------------------------------------------------------------

Continuing the earlier example, assume the depository institution
subsidiary described above reported a supplementary leverage ratio of
3.5 percent on its most recent Call Report. Although the depository
institution exceeds its three percent minimum supplementary leverage
ratio requirement, its reported supplementary leverage ratio is less
than 100 percent of the depository institution's leverage buffer
standard. The depository institution has a leverage buffer standard of
0.75 percent, but maintains a leverage buffer of only 0.5 percent.
Because the depository institution's leverage buffer is approximately
only 67 percent of its leverage buffer standard, according to the Table
1 above, the depository institution would be subject to a 40 percent
maximum payout ratio (assuming it does not face any further constraints
imposed by the current capital conservation buffer or any other
supervisory or regulatory measures).
The proposal would retain the minimum supplementary leverage ratio
threshold of three percent to be considered ``adequately capitalized''
under the prompt corrective action framework.
Question 11: What are the advantages and disadvantages of applying
the eSLR standard as a leverage buffer rather than as part of the
prompt corrective action framework for depository institution
subsidiaries of GSIBs? What alternatives, if any, should the agencies
consider, and why?

III. Amendments to Total Loss-Absorbing Capacity and Long-Term Debt
Requirements

The Board requires GSIBs to maintain outstanding minimum levels of
TLAC based on risk-based and leverage-based measures and to meet
buffers on top of both the risk-weighted asset and leverage components
of the TLAC requirements in order to avoid limitations on the firm's
capital distributions and certain discretionary

[[Page 30790]]

bonus payments.\43\ The leverage-based TLAC buffer is equal to two
percent, above the 7.5 percent minimum leverage component of a GSIB's
external TLAC requirement.\44\ This buffer amount was expressly
designed to align with the eSLR buffer standard applicable to these
firms.\45\ Accordingly, the Board is proposing to replace the two
percent TLAC leverage buffer with a new TLAC leverage buffer equal to
the eSLR buffer standard under the proposal. This change would maintain
the original alignment of the TLAC leverage buffer and the eSLR
standards. The Board is not proposing to change the minimum level of
TLAC that a GSIB is required to maintain.\46\
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\43\ See 12 CFR part 252, subpart G.
\44\ See 12 CFR 252.63. There is no buffer requirement over the
leverage-based minimum total loss-absorbing capacity requirement for
a U.S. intermediate holding company of a foreign banking
organization subject to TLAC requirements. The TLAC requirement
based on total leverage exposure for a U.S. intermediate holding
company of a foreign banking organization subject to the TLAC
framework is either 6.75 percent or six percent, depending on the
planned resolution strategy of the company's parent global
systemically important foreign banking organization. 12 CFR 252.165.
\45\ See ``Total Loss-Absorbing Capacity, Long-Term Debt, and
Clean Holding Company Requirements for Systemically Important U.S.
Bank Holding Companies and Intermediate Holding Companies of
Systemically Important Foreign Banking Organizations,'' 82 FR 8266
(Jan. 24, 2017), 8276.
\46\ This proposal would not impact the total loss-absorbing
capacity or long-term debt requirements applicable to any U.S.
intermediate holding company required to be established pursuant to
12 CFR 252.153 that is controlled by a global systemically important
foreign banking organization, as such requirements were not
calibrated based on the eSLR framework. 12 CFR part 252, subpart P.
---------------------------------------------------------------------------

The Board also requires GSIBs to maintain a minimum leverage-based
external long-term debt amount equal to a GSIB's total leverage
exposure multiplied by 4.5 percent. As described in the preamble to the
final rule that established the long-term debt requirement, the
requirement was calibrated primarily on the basis of a ``capital
refill'' framework.\47\ According to the capital refill framework, the
objective of the external long-term debt requirement is to ensure that
each GSIB has a minimum amount of eligible external long-term debt such
that, if the GSIB's going-concern capital is depleted and the covered
bank holding company fails and enters resolution, the eligible external
long-term debt can be used to replenish the GSIB's going-concern
capital. GSIBs are therefore subject to an external long-term debt
requirement equal to 4.5 percent of their total leverage exposure (the
five percent eSLR standard minus a balance-sheet depletion allowance of
0.5 percent). As a result, the leverage-based component of the external
long-term debt requirement seeks to ensure that if the GSIB's tier 1
capital is depleted, and the GSIB fails and enters resolution, the
eligible external long-term debt would be sufficient to fully
recapitalize the GSIB by replenishing its capital to at least the
amount required to meet the minimum leverage capital requirement and
buffer applicable to GSIBs.
---------------------------------------------------------------------------

\47\ 82 FR 8266, 8275.
---------------------------------------------------------------------------

When establishing the long-term debt requirement, the Board stated
that it would consider updating the requirement in the event that it
updated capital requirements for GSIBs in a way that materially changes
their structure or calibration.\48\ Accordingly, the Board is proposing
to revise the minimum leverage-based external long-term debt
requirement to reflect the proposed change to the eSLR standard. The
proposed minimum leverage-based external long-term debt requirement
would therefore be total leverage exposure multiplied by 2.5 percent
(the minimum supplementary leverage ratio of three percent minus 0.5
percent to allow for balance sheet depletion) plus the eSLR buffer
standard under the proposal as discussed in section II.A of this
Supplementary Information.
---------------------------------------------------------------------------

\48\ Id.
---------------------------------------------------------------------------

As discussed further in section VI.H of this Supplementary
Information, the proposed changes would reduce GSIBs' TLAC leverage-
based buffer and long-term debt leverage-based minimum requirement by
between 0.75 and 1.50 percentage points. The Board's TLAC and long-term
debt framework applicable to GSIBs would continue to be consistent with
and exceed international standards developed by the Financial Stability
Board, which do not include a minimum long-term debt amount and have a
somewhat lower minimum leverage-based TLAC requirement.
Question 12: What are the advantages and disadvantages of the
proposed modification of the external TLAC leverage buffer and long-
term debt requirements to align with the proposed changes to the eSLR
standard, and why? What, if any, alternative approaches should the
Board consider with respect to the calibration of total leverage
exposure-based TLAC and long-term debt requirements and why?
Question 13: What effect, if any, would the proposed modification
to the external TLAC leverage buffer and long-term debt requirements
have on the potential for an orderly resolution of a failed GSIB? With
respect to any adverse effects that may be identified, what
alternatives should the Board consider, and why?
Question 14: In light of the proposed changes to the external TLAC
leverage buffer and long-term debt requirements, what other adjustments
to the long-term debt and TLAC framework should the Board consider, if
any? What would be the advantages and disadvantages of reducing by 50
percent the amount of long-term debt principal that is due to be paid
in one year or more but less than two years that can be considered for
purposes of the minimum TLAC requirements and buffers? What would be
the advantages and disadvantages of adjusting the amount of balance
sheet run-off embedded in the minimum long-term debt requirement, or of
removing the assumption of balance sheet run-off entirely from the
minimum long-term debt requirement?

IV. Applicability Thresholds of the eSLR Standard for OCC-Supervised
Institutions

When the agencies adopted a final rule that established the eSLR
standards in 2014, the final rule applied to U.S. top-tier bank holding
companies with consolidated assets over $700 billion or more than $10
trillion in assets under custody and their insured depository
institution subsidiaries. Subsequently, in 2015, the Board adopted a
final rule establishing the GSIB surcharge framework, which provides
for a methodology for identifying a holding company as a GSIB and
applies a risk-based capital surcharge to such a banking
organization.\49\ As part of the GSIB surcharge framework, the Board
revised the scope of application of the eSLR standards to any holding
company identified as a GSIB and to each Board-regulated insured
depository institution subsidiary of a GSIB. In November 2020, the FDIC
issued a final rule to align the applicability of the eSLR standard
with the revisions implemented by the Board, to cover only FDIC-
supervised institutions that are subsidiaries of GSIBs.\50\
---------------------------------------------------------------------------

\49\ 12 CFR part 217, subpart H; see also ``Regulatory Capital
Rules: Implementation of Risk-Based Capital Surcharges for Global
Systemically Important Bank Holding Companies,'' 80 FR 49082 (August
14, 2015).
\50\ 12 CFR 324.403(b)(1)(ii); 85 FR 74257 (November 20, 2020).
---------------------------------------------------------------------------

The OCC's current eSLR standard applies to national banks and
Federal savings associations with more than $700 billion in total
consolidated assets or more than $10 trillion total in assets under
custody, or that are subsidiaries of holding companies that meet those
thresholds. To be consistent with the Board's regulations for
identifying

[[Page 30791]]

GSIBs and applying the eSLR standards for holding companies and their
depository institution subsidiaries, and consistent with the FDIC's
regulations, the OCC is proposing to modify the scope of application of
the eSLR standard for OCC-supervised banks. Specifically, the OCC
proposes to remove the existing asset size thresholds and instead apply
the eSLR standard to those national banks and federal savings
associations that are subsidiaries of GSIBs identified by the Board's
GSIB surcharge framework. Currently, the asset thresholds the OCC uses
to determine applicability of the eSLR standard scope in all the
national bank and federal savings association subsidiaries of GSIBs,
but no other institutions. As a result, this proposed change would not
have any impact on the current application of the eSLR standard.
Additionally, this proposed change would also result in a consistent
scope of application of the eSLR standards across the Federal banking
agencies and would be consistent with the regulatory tailoring
framework for large banking organizations adopted by the agencies in
2019.\51\
---------------------------------------------------------------------------

\51\ See 84 FR 59230 (Nov. 1, 2019).
---------------------------------------------------------------------------

Question 15: What, if any, unintended consequences may result from
removing the current asset size and assets under custody thresholds of
the eSLR standard for OCC-supervised institutions, and why?

V. Technical Corrections

The proposal includes certain technical corrections. The Board is
proposing to revise 12 CFR 217.11(c)(3)(ii)(A)-(C) to correct certain
cross references. Those paragraphs had erroneously referred to 12 CFR
217.10(c)(1)(ii), (c)(2)(ii), and (c)(3)(ii), respectively; the
proposed technical correction would replace those references with the
appropriate references to 12 CFR 217.10(d)(1)(ii), (d)(2)(ii), and
(d)(3)(ii), respectively. Second, the FDIC is proposing to remove
outdated references in its prompt corrective action regulation to the
supplementary leverage ratio's effective date of January 1, 2018.

VI. Economic Analysis

A. Introduction

As discussed in section I.B of this Supplementary Information, the
proposal aims generally for the supplementary leverage ratio
requirement to be a backstop to risk-based tier 1 capital requirements
for GSIBs and their depository institution subsidiaries.\52\ The
rationale for the proposed recalibration of the eSLR standards is
twofold. First, this change would reduce the likelihood and frequency
of the supplementary leverage ratio requirement being a binding tier 1
capital requirement for these banking organizations. Second, this
change would reduce disincentives for these banking organizations to
participate in low-risk, low-return activities, such as U.S. Treasury
market intermediation.
---------------------------------------------------------------------------

\52\ Throughout the economic analysis section, the agencies use
the term ``supplementary leverage ratio requirement'' to refer to
the combination of the supplementary leverage ratio minimum
requirement, which is three percent for all banking organizations
subject to Category I to III standards, plus the eSLR standards,
which are an additional two percent for GSIBs and an additional
three percent for their depository institution subsidiaries. See
section I.A of this Supplementary Information for a detailed
description of the eSLR standards.
---------------------------------------------------------------------------

In recent years, the supplementary leverage ratio requirement has
regularly been the binding tier 1 capital requirement for many GSIBs
and most of their depository institution subsidiaries. This can create
unintended incentives for these banking organizations to engage in
higher-risk activities and to reduce their participation in low-risk,
low-return activities. The proposal would address these incentives by
reducing the calibration of the eSLR standards, thereby enabling most
GSIBs to increase their U.S. Treasury market intermediation activities
up to their available capacity without causing the supplementary
leverage ratio requirement to become binding, which would also reduce
the need for temporary adjustments in the event of severe market
stress.
The agencies estimate that, in the period from Q2 2021 to Q4 2024,
the supplementary leverage ratio requirement was the binding tier 1
capital requirement 60 percent of the time, on average, for seven out
of the eight GSIBs. In the same period, the supplementary leverage
ratio requirement was the binding tier 1 capital requirement 87 percent
of the time, on average, for ``major'' depository institution
subsidiaries of GSIBs.\53\
---------------------------------------------------------------------------

\53\ For each GSIB, this calculation reflects its largest
depository institution subsidiary as well as any of its depository
institution subsidiaries with total assets greater than $50 billion
at the end of any quarter in 2024 (``major'' depository institution
subsidiaries).
---------------------------------------------------------------------------

When the binding capital requirement for a banking organization is
a leverage ratio requirement, it can discourage the banking
organization from engaging in low-risk activities, especially in high-
volume, low-return activities, while creating incentives for the
banking organization to conduct higher-risk activities. These
incentives are due to what may be called the ``level effect'' and the
``marginal effect'' of a binding leverage ratio requirement.
Specifically, for a given amount of tier 1 capital, the level effect of
a binding leverage ratio requirement restricts the growth of the
banking organization because it cannot engage in even low-risk
activities without further increasing its tier 1 capital requirement.
Additionally, the marginal effect of a binding leverage ratio
requirement makes the banking organization prefer higher-risk
activities to low-risk activities because both activities need to be
financed by the same amount of tier 1 capital under the supplementary
leverage ratio requirement, while higher-risk activities typically have
higher expected returns. This marginal effect could incentivize the
banking organization to forego investments in low-risk activities or,
in the extreme, substitute its existing low-risk exposures with higher-
risk ones. Such unintended incentives are further amplified by the fact
that low-risk activities tend to be balance sheet intensive because
their typically low expected returns make them profitable only if they
are conducted in large volumes. Overall, general economic theory
predicts that a binding leverage ratio requirement can discourage
banking organizations from engaging in low-risk activities, which might
reduce social welfare.
A prime example of such low-risk, low-return, high-volume
activities conducted by banking organizations is intermediation in the
U.S. Treasury market, a key financial market.\54\ Acting as
intermediaries in this market, banking organizations enter into
temporary positions in U.S. Treasury securities, classified as trading
assets on their balance sheets. Most of these trading assets are held
by the broker-dealer subsidiaries of banking organizations to
facilitate transactions across different participants and segments in
the U.S. Treasury market.\55\ These broker-dealers play a critical role
in the U.S. Treasury market by providing liquidity to market
participants through both market making and securities financing
activities; in particular, GSIBs' primary

[[Page 30792]]

dealer subsidiaries are the largest U.S. Treasury securities
dealers.\56\
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\54\ The U.S. Treasury market is a key financial market because
it (i) constitutes an important channel through which the Federal
Reserve can conduct its monetary policy; (ii) enables the U.S.
government to obtain financing at a low and stable cost; (iii)
provides the yield curve widely used as a risk-free benchmark in the
valuation of other financial assets and derivatives; and (iv) offers
a large supply of safe and liquid assets for global investors.
\55\ See the discussion related to Table 5 in section VI.B of
this Supplementary Information.
\56\ The activities of U.S. Treasury securities dealers extend
well beyond buying and selling U.S. Treasury securities outright in
the primary and secondary markets. In particular, these entities
also act as key counterparties in secured financing and derivatives
transactions. For a detailed analysis of how the activities and
positions of the broker-dealer subsidiaries of GSIBs evolved over
time, see P. Cochran et al., Dealers' Treasury Market Intermediation
and the Supplementary Leverage Ratio, FEDS Notes, Board of Governors
of the Federal Reserve System (August 3, 2023).
---------------------------------------------------------------------------

Both the U.S. Treasury market and primary dealers' U.S. Treasury
securities positions have grown rapidly over the last decade. As Table
2 shows, the amount of U.S. Treasury securities outstanding, excluding
holdings of the Federal Reserve System Open Market Account, has
expanded by 139 percent, from $10 trillion to $24 trillion, since
2014.\57\ Meanwhile, the U.S. Treasury securities positions of primary
dealers have grown by 155 percent, reaching $0.6 trillion in aggregate.
This expansion in primary dealers' U.S. Treasury securities positions
reflects both the abundant supply of these securities and the central
role of these broker-dealer subsidiaries of banking organizations as
intermediaries in this market. Notably, despite the rapid increase in
primary dealers' U.S. Treasury securities positions, measured in dollar
terms, the size of these positions relative to the size of the market
has been stable over time. Specifically, relative to the amount of U.S.
Treasury securities outstanding, excluding holdings of the Federal
Reserve System Open Market Account, the U.S. Treasury securities
positions of primary dealers stayed at about 2.5 percent over the last
decade, which indicates the strong connection between the size of the
U.S. Treasury market and the magnitude of market intermediation
activities by these broker-dealers.\58\
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\57\ To assess the size of the U.S. Treasury market from the
perspective of broker-dealers, the agencies exclude the U.S.
Treasury securities holdings of Federal Reserve System Open Market
Account because market intermediation activity is closely related to
U.S. Treasury securities held by the public sector.
\58\ The positive empirical relationship between the size of the
U.S. Treasury market and primary dealers' U.S. Treasury securities
positions is also documented in P. Cochran et al., Assessment of
Dealer Capacity to Intermediate in Treasury and Agency MBS Markets,
FEDS Notes, Board of Governors of the Federal Reserve System
(October 22, 2024).
---------------------------------------------------------------------------

Table 2--Growth of the U.S. Treasury Market, U.S. Primary Dealers, and
the U.S. Treasury Securities Holdings of U.S. Primary Dealers Over the
Last Decade 59
---------------------------------------------------------------------------

\59\ In this table, the agencies use publicly available data
reported in field FL313161105 of the Financial Accounts of the
United States (Z.1) for the amount of U.S. Treasury securities
outstanding; the Federal Reserve Bank of New York's public reports
for the amount of U.S. Treasury securities holdings in the System
Open Market Account of the Federal Reserve (see: <a href="https://www.newyorkfed.org/markets/soma-holdings">https://www.newyorkfed.org/markets/soma-holdings</a>); publicly available data
reported in SEC Form X-14A-5 Part IIA filings for the total assets
of primary dealers; and the sum of the values reported in fields
GSWA M438, N749, M440, M442, M444, M446, M448, M450, LF56, LF58,
M452, M454, M456, M458 of the confidential FR 2004A filings for the
amount of long U.S. Treasury securities positions of primary
dealers, measured at the end of 2014 and 2024.
---------------------------------------------------------------------------

This table shows the aggregate amounts of U.S. Treasury securities
outstanding, the total assets of primary dealers, and the long U.S.
Treasury securities positions of primary dealers, measured in trillions
of dollars at the end of 2014 and 2024. The right column shows
percentage changes in these aggregates from 2014 to 2024. The amount of
U.S. Treasury securities outstanding excludes the amount of U.S.
Treasury securities holdings in the System Open Market Account (SOMA)
of the Federal Reserve. The last row shows the percentage ratio of the
amount of U.S. Treasury securities held by primary dealers to the
amount of U.S. Treasury securities outstanding, excluding SOMA
holdings.

----------------------------------------------------------------------------------------------------------------
2014 2024 Growth (%)
----------------------------------------------------------------------------------------------------------------
U.S. Treasury securities outstanding $10.0tr................... $24.0tr................... 139
(excl. SOMA holdings).
Total assets of primary dealers......... $3.3tr.................... $4.2tr.................... 29
Primary dealer U.S. Treasury securities $0.24tr................... $0.61tr................... 155
positions (long only).
Relative to U.S. Treasury securities 2.4%...................... 2.5%...................... ..............
outstanding.
----------------------------------------------------------------------------------------------------------------

The rapid growth of the U.S. Treasury market has raised concerns
about its liquidity and resiliency, especially considering that the
balance sheets of primary dealers, key intermediaries in this market,
have grown at a more moderate pace (by 29 percent, in aggregate, since
2014).\60\ These concerns partly drove the agencies' decision to
temporarily exclude deposits at Federal Reserve Banks and U.S. Treasury
securities holdings from the calculation of total leverage exposure for
banking organizations subject to Category I to III standards in the
wake of the COVID-19 market stress.\61\ Empirical evidence in BCBS
(2021) suggests that the exclusions enabled these banking
organizations, and especially GSIBs, which had smaller supplementary
leverage ratio management buffers than holding companies subject to
Category II and III standards, to significantly expand their U.S.
Treasury securities holdings.\62\
---------------------------------------------------------------------------

\60\ See, e.g., the discussion of concerns about U.S. Treasury
market functioning and proposed solutions, for example, in D.
Duffie, Still the World's Safe Haven? Redesigning the U.S. Treasury
Market After the COVID-19 Crisis, Hutchins Center on Fiscal and
Monetary Policy, Brookings (June 22, 2020) and N. Liang and P.
Parkinson, Enhancing Liquidity of the U.S. Treasury Market Under
Stress, Hutchins Center on Fiscal and Monetary Policy, Brookings
(December 16, 2020).
\61\ See the Board's and the agencies' interim final rules
temporarily excluding these assets from the calculation of total
leverage exposure for holding companies subject to Category I to III
standards, as well as their depository institution subsidiaries,
effective April 14, 2020, and June 1, 2020. 85 FR 20578 (April 14,
2020); 85 FR 32980 (June 1, 2020).
\62\ Basel Committee on Banking Supervision, Early lessons from
the Covid-19 pandemic on the Basel reforms, Bank for International
Settlements (July 2021) (``BCBS (2021)''). Throughout the economic
analysis section, the agencies use the term ``management buffer'' to
refer to the amount of regulatory capital that a company has in
excess of the sum of its minimum regulatory capital requirements and
any regulatory capital buffer requirements.
---------------------------------------------------------------------------

There are several factors that influence broker-dealers' decisions
to engage in financial market intermediation.\63\ Academic studies also
provide support for the concern that the supplementary leverage ratio
requirement could potentially discourage U.S. Treasury market
intermediation by the broker-dealer subsidiaries of large banking
organizations. Favara, Infante, Rezende (2022) find that large and
unexpected increases to GSIBs' balance sheets

[[Page 30793]]

discourage GSIBs' broker-dealer subsidiaries from participating in the
U.S. Treasury market, with the estimated effect being stronger for
GSIBs with smaller supplementary leverage ratio management buffers.\64\
Duffie et al. (2023) show that U.S. Treasury market liquidity measures
deteriorate as primary dealers face capacity constraints, suggesting
that a lack of ability by broker-dealers to participate in U.S.
Treasury markets can have a detrimental effect on market liquidity.\65\
The empirical findings in Br[auml]uning and Stein (2024) indicate that
the primary dealer subsidiaries of banking organizations subject to
Category I to III standards that face relatively more binding
supplementary leverage ratio requirements or internal risk limits
reduce their U.S. Treasury securities positions relative to less
constrained primary dealers, which in turn leads to a decrease in
market liquidity in the form of lower aggregate turnover and wider bid-
ask spreads.\66\ Overall, the academic literature suggests that
reducing the supplementary leverage ratio requirement's bindingness
could improve the functioning of the U.S Treasury market.
---------------------------------------------------------------------------

\63\ For example, Li, Petrasek, Tian (2024) finds that internal
risk limits are important determinants of broker-dealers' capacity
and willingness to intermediate financial markets. D. Li, L.
Petrasek, and M. H. Tian, Risk-Averse Dealers in a Risk-Free
Market--The Role of Internal Risk Limits, SSRN (March 1, 2024)
(``Li, Petrasek, Tian (2024)'').
\64\ G. Favara, S. Infante, and M. Rezende, Leverage Regulations
and Treasury Market Participation: Evidence from Credit Line
Drawdowns, SSRN (August 4, 2022) (``Favara, Infante, Rezende
(2022)'').
\65\ D. Duffie et al., Dealer Capacity and U.S. Treasury Market
Functionality, Federal Reserve Bank of New York Staff Report (August
2023, rev. October 2023) (``Duffie et al. (2023)'').
\66\ F. Br[auml]uning and H. Stein, The Effect of Primary Dealer
Constraints on Intermediation in the Treasury Market, Federal
Reserve Bank of Boston Research Department Working Papers (2024)
(``Br[auml]uning and Stein (2024)'').
---------------------------------------------------------------------------

The structure of the economic analysis is as follows. Section VI.B
describes the baseline for the impact assessment, which is the current
regulatory framework, and the data sources used. Sections VI.C and VI.D
present the proposal and four reasonable policy alternatives to the
proposal. Section VI.E estimates the change in the supplementary
leverage ratio requirement and the binding tier 1 capital requirement
for banking organizations subject to Category I to III standards under
the proposal and the policy alternatives, relative to the baseline.
Sections VI.F and VI.G evaluate the economic benefits and costs,
respectively, of the proposal and the policy alternatives. Section VI.H
analyzes the impact of the proposed changes to the long-term debt and
total loss-absorbing capacity buffer requirements. Section VI.I
concludes the economic analysis.

B. Baseline

The economic analysis uses the current regulatory framework as a
baseline, which includes the current supplementary leverage ratio
requirement, described in section I.A of this Supplementary
Information. The baseline represents the state of banking organizations
subject to Category I to III standards in the absence of a policy
change. Accordingly, throughout the analysis, the agencies assess the
economic impact of the proposal and the policy alternatives considered,
described in sections VI.C and VI.D of this Supplementary Information,
respectively, by comparing outcomes estimated under the proposal and
the alternatives to the outcome estimated under the baseline.
The analysis uses the year 2024 as the sample period to produce
quantitative estimates, which reflects a recent state of banking
organizations subject to Category I to III standards. Unless stated
otherwise, the calculations and estimates in the analysis take the
average values of balance sheet quantities and ratios measured at the
end of each quarter in 2024. A review of balance sheets of banking
organizations subject to Category I to III standards from 2021 to 2024
indicates that using a longer sample period would yield similar
estimates.
Unless stated otherwise, the analysis uses publicly available data
reported in FR Y-9C filings for holding companies and FFIEC Call
Reports for depository institutions.\67\ In certain calculations
related to the total leverage exposure of holding companies, the
agencies use publicly available data reported in FFIEC 101 filings.\68\
The agencies calculate method 1 and method 2 surcharges by using
publicly available data from FR Y-15 filings as well as the aggregate
global systemic indicator amounts published annually by the Board.\69\
The agencies calculate the amount of U.S. Treasury securities holdings
of primary dealers by using confidential data from FR 2004A
filings.\70\
---------------------------------------------------------------------------

\67\ From FR Y-9C filings, the agencies use the fields BHCA8274,
BHCAA223, BHCWA223, BHCAA224, BHCK2170, BHCK3368, BHCM3531,
BHCK0211, BHCK0213, BHCK1286, BHCK1287, BHCALE85. From FFIEC Call
Reports, the agencies use the fields RCFA8274, RCFAA223, RCFWA223,
RCFAA224, RCFD2170, RCFAH015, RCFD3531, RCFD0211, RCFD0213,
RCFD1286, RCFD1287, RCFD0090, RCON0090.
\68\ From FFIEC 101 filings, the agencies use the field
AAABH015.
\69\ From FR Y-15 filings, the agencies use the fields RISK
Y832, M362, M370, M376, M390, M405, M408, M411, N255, G506, M422,
M426, Y896. Additionally, in method 1 surcharge calculations, the
agencies use the aggregate global indicator amounts published by the
Board at <a href="https://www.federalreserve.gov/supervisionreg/basel/denominators.htm">https://www.federalreserve.gov/supervisionreg/basel/denominators.htm</a>.
\70\ From FR 2004A filings, the agencies use the sum of the
values reported in fields GSWA M438, N749, M440, M442, M444, M446,
M448, M450, LF56, LF58, M452, M454, M456, M458 to calculate the
amount of long U.S. Treasury securities positions of primary
dealers.
---------------------------------------------------------------------------

In calculations involving the depository institution subsidiaries
of holding companies subject to Category I to III standards, the
agencies focus on each holding company's largest depository institution
subsidiary as well as any of its depository institution subsidiaries
with total assets greater than $50 billion at the end of any quarter in
2024 (``major'' depository institution subsidiaries). The rest of their
depository institution subsidiaries, with total assets less than $50
billion in 2024, account for 0.7 percent of the consolidated total
assets of these holding companies, in aggregate.\71\
---------------------------------------------------------------------------

\71\ These depository institution subsidiaries include the
uninsured national trust bank subsidiaries of GSIBs that would
become subject to the eSLR standard under the proposal, as discussed
in section I.C of this Supplementary Information. There are six such
uninsured national trust bank subsidiaries, which account for 0.01
percent of the total assets of GSIBs, in aggregate.
---------------------------------------------------------------------------

Table 3 compares the baseline levels of the different tier 1
capital requirements, inclusive of buffer requirements, for banking
organizations subject to Category I to III standards in 2024.\72\ On
average, for GSIBs, the supplementary leverage ratio requirement is at
a similar level to the risk-based tier 1 capital requirement. On
average, for the major depository institution subsidiaries of GSIBs,
the supplementary leverage ratio requirement is higher than the risk-
based tier 1 capital requirement. On average, for banking organizations
subject to Category II and III standards, the risk-based tier 1 capital
requirement is higher than the tier 1 leverage ratio requirement, which
in turn is higher than the supplementary leverage ratio requirement.
---------------------------------------------------------------------------

\72\ The agencies calculated tier 1 capital requirements for
banking organizations subject to Category I to III standards as per
the applicable rules. See 12 CFR 3.10 and 3.11, 12 CFR 6.4 (OCC); 12
CFR 208.43, 12 CFR 217.10 and 217.11 (Board); 12 CFR 324.10, 324.11,
and 324.403 (FDIC).
---------------------------------------------------------------------------

Table 3--Baseline Tier 1 Capital Requirements (Percentage of Total
Leverage Exposure)

This table shows the tier 1 capital requirements for holding
companies subject to Category I and Category II/III standards (Panel
A), and their ``major'' depository institution subsidiaries (Panel B),
expressed as a percentage of their total leverage exposures, under the
baseline. The numbers represent

[[Page 30794]]

averages calculated across banking organizations in each category over
the four quarters of 2024, weighted by their total assets. The data
used in this table are described in section VI.B of this Supplementary
Information.

Panel A: Holding Companies
----------------------------------------------------------------------------------------------------------------
Supplementary
Risk-based Leverage ratio leverage ratio
----------------------------------------------------------------------------------------------------------------
Category I...................................................... 5.1 3.4 5.0
Category II/III................................................. 5.2 3.5 3.0
----------------------------------------------------------------------------------------------------------------

Panel B: Depository Institutions
----------------------------------------------------------------------------------------------------------------
Supplementary
Risk-based Leverage ratio leverage ratio
----------------------------------------------------------------------------------------------------------------
Category I...................................................... 4.0 4.2 6.0
Category II/III................................................. 5.0 4.3 3.0
----------------------------------------------------------------------------------------------------------------

The agencies estimate that the supplementary leverage ratio
requirement is the binding tier 1 capital requirement for five out of
the eight GSIBs and eight out of their nine major depository
institution subsidiaries under the baseline. By contrast, for almost
all holding companies subject to Category II and III standards, as well
as for nine out of their 12 major depository institution subsidiaries,
the risk-based tier 1 capital requirement is the binding tier 1 capital
requirement.
Table 3 also shows that, compared to the risk-based tier 1
requirement, the relative level of the supplementary leverage ratio
requirement is significantly lower for GSIBs than for their major
depository institution subsidiaries under the baseline. For GSIBs, the
level of the supplementary leverage ratio requirement ranges from 87 to
111 percent of the risk-based tier 1 capital requirement, whereas for
their major depository institution subsidiaries, the level of the
supplementary leverage ratio requirement ranges from 128 to 244 percent
of the risk-based tier 1 capital requirement. This difference between
GSIBs and their depository institution subsidiaries in the level of the
supplementary leverage ratio requirement is due to the lower risk-based
capital buffer requirements and the higher eSLR standard at the
depository institutions.\73\ Accordingly, any adjustment to the eSLR
standards that aims for the supplementary leverage ratio requirement to
be a backstop to risk-based capital requirements would lead to a larger
reduction in tier 1 capital requirements for GSIBs' depository
institution subsidiaries than for GSIBs.
---------------------------------------------------------------------------

\73\ Risk-based capital buffer requirements are higher for GSIBs
than for their depository institution subsidiaries because of the
GSIB surcharge and the stress capital buffer.
---------------------------------------------------------------------------

The proposal also affects requirements and buffer standards for
TLAC and long-term debt. The agencies present a baseline analysis for
these standards in section VI.H of this Supplementary Information.
1. Role of Banking Organizations as Investors in U.S. Treasury Markets
In addition to their critical role as intermediaries in the U.S.
Treasury market, banking organizations also act as investors in this
market. Specifically, in addition to U.S. Treasury securities held as
trading assets, banking organizations also hold such securities as
investment securities on their balance sheets, typically for longer
periods, and possibly until maturity.\74\ Most of these investment
securities are held by depository institution subsidiaries.\75\
---------------------------------------------------------------------------

\74\ Under U.S. GAAP, investment securities holdings can be
classified as ``available-for-sale'' or ``held-to-maturity''
securities on banking organizations' balance sheets.
\75\ See the discussion related to Table 5 in section VI.B of
this Supplementary Information.
---------------------------------------------------------------------------

Over the last decade, banking organizations have increased their
market share as investors in the U.S. Treasury market, with the growth
of U.S. Treasury securities held by depository institutions outpacing
the expansion of the market. Indeed, Table 4 shows that the amount of
U.S. Treasury securities outstanding has expanded by 125 percent, from
$12.5 trillion to $28.1 trillion, whereas the U.S. Treasury securities
holdings of U.S. depository institutions have grown by 264 percent,
reaching $1.54 trillion in aggregate. Hence, the aggregate market share
of depository institutions has increased from 3.4 percent to 5.5
percent.

Table 4--Growth of the U.S. Treasury Market, U.S. Depository
Institutions, and Their U.S. Treasury Securities Holdings Over the Past
Decade 76
---------------------------------------------------------------------------

\76\ In this table, the agencies use publicly available data
reported in the Financial Accounts of the United States (Z.1): field
FL313161105 for the amount of U.S. Treasury securities outstanding;
field FL764194005 for the total assets of U.S. depository
institutions; and field LM763061100 for the U.S. Treasury securities
holdings of U.S. depository institutions, measured at the end of
2014 and 2024.
---------------------------------------------------------------------------

This table shows the aggregate amounts of U.S. Treasury securities
outstanding, the total assets of U.S. depository institutions, and the
U.S. Treasury securities of U.S. depository institutions, measured in
trillions of dollars at the end of 2014 and 2024. The right column
shows the percentage changes in these aggregates from 2014 to 2024. The
two rows at the bottom show the percentage ratios of the amount of U.S.
Treasury securities holdings by U.S. depository institutions to the
amount of U.S. Treasury securities outstanding and their total assets,
respectively.

----------------------------------------------------------------------------------------------------------------
2014 2024 Growth
----------------------------------------------------------------------------------------------------------------
U.S. Treasury securities outstanding.... $12.5tr................... $28.1tr................... 125%
Total assets of U.S. depository $14.1tr................... $22.5tr................... 60
institutions.
Treasury securities held by depository $0.42tr................... $1.54tr................... 264
institutions.
Relative to Treasury securities 3.4%...................... 5.5%......................
outstanding.

[[Page 30795]]

Relative to the total assets of 3.0%...................... 6.8%......................
depository institutions.
----------------------------------------------------------------------------------------------------------------

Table 4 shows that while the U.S. Treasury securities holdings of
U.S. depository institutions have grown significantly, their balance
sheets have grown at a more moderate pace, by 60 percent, in aggregate,
since 2014. Consequently, the aggregate share of U.S. Treasury
securities held on their balance sheets has more than doubled, from 3.0
percent to 6.8 percent, which indicates that the relative importance of
U.S. Treasury securities as investment assets has increased for banking
organizations over the last decade. These developments contribute to
the increased bindingness of leverage ratio requirements because U.S.
Treasury securities held on the balance sheet of a depository
institution have zero risk weight under the risk-based capital
framework; hence, increases in such securities holdings can increase
leverage ratio requirements relative to risk-based capital
requirements.
2. Treasury Securities Held by Banking Organizations Subject to
Category I to III Standards
Banking organizations subject to Category I to III standards had
large U.S. Treasury holdings, in both nominal and relative terms, in
2024. As Table 5 shows, measured at fair value at the consolidated
holding company level, these banking organizations held $1.9 trillion
of U.S. Treasury securities, in aggregate, which was almost 7 percent
of the total amount of U.S. Treasury securities outstanding. On
average, these securities holdings constituted 9 percent of GSIBs'
total leverage exposures and 5 percent of the total leverage exposures
of holding companies subject to Category II and III standards.

Table 5--U.S. Treasury Securities Holdings

This table shows the magnitude of U.S. Treasury securities holdings
of banking organizations subject to Category I to III standards. The
numbers represent averages taken across banking organizations within
each category over the four quarters in 2024. The table distinguishes
all U.S. Treasury securities from those reported as trading assets by
these banking organizations. The left side of the table quantifies the
U.S. Treasury securities holdings of holding companies, measured both
in trillions of dollars, at fair value, and as a percentage of total
leverage exposure. The right side of the table shows the percentage
share of consolidated holding companies' U.S. Treasury securities held
by their depository institution subsidiaries, with the last column
reflecting only those consolidated holding companies whose holdings of
U.S. Treasury securities reported as trading assets exceed one percent
of their total leverage exposures. The data used in this table are
described in section VI.B of this Supplementary Information. In
particular, for these holding companies and their depository
institution subsidiaries, the fair value amounts of U.S. Treasury
securities holdings reported as trading assets are obtained from FR Y-
9C and FFIEC Call Report data fields BHCM 3531 and RCFD 3531,
respectively.

----------------------------------------------------------------------------------------------------------------
Holding company Depository institution share
-------------------------------------------------------------------------------
($ trillion) (Percentage of total leverage (Relative to holding company
---------------- exposures) securities holdings)
---------------------------------------------------------------
All All Trading Within all Within trading
----------------------------------------------------------------------------------------------------------------
Category I...................... 1.7 9% 3% 69% 23%
Category II/III................. 0.2 5 2 63 0
----------------------------------------------------------------------------------------------------------------

Table 5 also shows that the two distinct roles of banking
organizations subject to Category I to III standards as intermediaries
and investors in the U.S. Treasury market have a disproportionate
footprint on their balance sheets, both at their consolidated holding
companies and across their subsidiaries. On average across these
banking organizations, about two thirds of U.S. Treasury securities
held on consolidated holding company balance sheets are classified as
investment assets, with the remaining one third classified as trading
assets. In aggregate, the depository institution subsidiaries of these
banking organizations hold the majority of the U.S. Treasury securities
classified as investment assets and a minor share of U.S. Treasury
securities classified as trading assets on the consolidated balance
sheets of their parent holding companies. As noted earlier, most of the
U.S. Treasury holdings classified as trading assets are held by the
broker-dealer subsidiaries of these banking organizations.\77\
---------------------------------------------------------------------------

\77\ Using confidential FR 2004 data for GSIBs' primary dealer
subsidiaries, the agencies confirm that, on average, 92 percent of
the U.S. Treasury securities holdings classified as trading assets
on GSIBs' consolidated balance sheets and not held by their
depository institution subsidiaries are indeed held by their primary
dealer subsidiaries. Section VI.B of this Supplementary Information
describes the data used in this calculation.
---------------------------------------------------------------------------

C. Proposed Policy Change

The proposal would set the eSLR standard for GSIBs to half of their
method 1 surcharge instead of the two percent buffer standard
applicable under the baseline. Additionally, for the depository
institution subsidiaries of GSIBs, the proposal would set the eSLR
buffer standard to half of the method 1 surcharge of their parent
holding companies, removing the six-percent threshold for these
depository institutions to be considered ``well-capitalized'' under the
prompt corrective action framework under the baseline.
The proposal would not change the three percent supplementary
leverage ratio minimum requirement or the calculation of total leverage
exposure for banking organizations subject to Category I to III
standards.

D. Reasonable Alternatives

The analysis considers four reasonable alternatives to the
proposal. The agencies assess the expected benefits and costs of these
alternatives relative to the baseline and compare them to the expected
benefits and costs of the proposal.
Alternative 1 is the ``additional narrow exclusion'' approach
described

[[Page 30796]]

in section II.B of this Supplementary Information. It would include all
proposed changes for GSIBs and their depository institution
subsidiaries and would additionally exclude from the calculation of
total leverage exposure for holding companies subject to Category I to
III standards U.S. Treasury securities that are reported as trading
assets on the holding companies' balance sheets and that are held at
broker-dealer subsidiaries (and foreign equivalents thereof) that are
not subsidiaries of a depository institution.
Alternative 2 is the ``broader exclusion'' approach, which would
not change the eSLR standards like the proposal but would instead
exclude deposits held at Federal Reserve Banks (reserves) and all U.S.
Treasury securities holdings from the calculation of total leverage
exposure for all banking organizations subject to Category I to III
standards. This policy alternative would be similar to the temporary
exclusion of these assets from the calculation of total leverage
exposure implemented by the agencies in 2020.\78\
---------------------------------------------------------------------------

\78\ See the Board's and the agencies' interim final rules
temporarily excluding these assets from the calculation of total
leverage exposure for holding companies subject to Category I to III
standards, as well as their depository institution subsidiaries,
effective April 14, 2020, and June 1, 2020. 85 FR 20578 (April 14,
2020); 85 FR 32980 (June 1, 2020).
---------------------------------------------------------------------------

Alternative 3 (``2018 proposal'') would set the eSLR standards for
GSIBs and their depository institution subsidiaries equal to half of
the higher of method 1 and method 2 surcharges. This policy alternative
would be similar to the notice of proposed rulemaking published in the
Federal Register by the Board and OCC on April 19, 2018, which would
have recalibrated the eSLR standards for these banking
organizations.\79\ This proposed rule was not finalized. Using the
higher of a GSIB's method 1 and method 2 surcharge would be consistent
with the calculation of the GSIB surcharge under the risk-based capital
framework for GSIBs.
---------------------------------------------------------------------------

\79\ See 83 FR 17317 (April 19, 2018).
---------------------------------------------------------------------------

Alternative 4 (``combined'') would be a combination of the proposal
and Alternative 2. As such, this policy alternative would both set eSLR
standards for GSIBs as well as their depository institution
subsidiaries like the proposal and exclude reserves as well as U.S.
Treasury securities holdings from the calculation of total leverage
ratio exposure for all banking organizations subject to Category I to
III standards.

E. Changes in the Supplementary Leverage Ratio and Tier 1 Capital
Requirements

The agencies estimate that the proposal would substantially reduce
the supplementary leverage ratio requirement for GSIBs and their
depository institution subsidiaries relative to the baseline. As Table
6 shows, the proposal would reduce the requirement by 23 percent, on
average, for the holding companies, ranging from 15 to 30 percent
across GSIBs, and by 36 percent, on average, for the major depository
institution subsidiaries of GSIBs, ranging from 29 to 42 percent across
these subsidiaries. Meanwhile, banking organizations subject to
Category II and III standards would see no reduction in the
supplementary leverage ratio requirement because the proposal would not
change their baseline requirement.

Table 6--Estimated Percentage Change in the Supplementary Leverage
Ratio Requirement

This table shows the estimated percentage change in the
supplementary leverage ratio requirement relative to the current (that
is, baseline) requirement, measured in dollars, under the proposal and
the different policy alternatives, described in section VI.D of this
Supplementary Information. The numbers represent averages calculated
across holding companies subject to Category I and Category II/III
standards (Panel A), and their ``major'' depository institution
subsidiaries (Panel B) over the four quarters of 2024, weighted by
their total assets. The data used in this table are described in
section VI.B of this Supplementary Information.

Panel A: Holding Companies
----------------------------------------------------------------------------------------------------------------
Policy alternatives
Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
----------------------------------------------------------------------------------------------------------------
Category I...................... -23 -25 -14 -8 -34
Category II/III................. 0 -1 -11 0 -11
Category I-III.................. -18 -20 -14 -6 -29
----------------------------------------------------------------------------------------------------------------

Panel B: Depository Institutions
----------------------------------------------------------------------------------------------------------------
Policy alternatives
Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
----------------------------------------------------------------------------------------------------------------
Category I...................... -36 -36 -15 -23 -45
Category II/III................. 0 0 -12 0 -12
Category I-III.................. -27 -27 -14 -17 -37
----------------------------------------------------------------------------------------------------------------

Alternative 1 (``additional narrow exclusion'') would have a
quantitatively similar effect to that of the proposal, reducing the
supplementary leverage ratio requirement slightly more, by 25 percent,
on average, for GSIBs and by the same amount, 36 percent, on average,
for their major depository institution subsidiaries. Relative to the
baseline, this policy alternative would slightly reduce the
supplementary leverage ratio requirement for holding companies subject
to Category II and III standards.\80\ This small incremental reduction
in the supplementary leverage ratio requirement for holding companies
would be due to the exclusion of U.S. Treasury securities held by their
broker-

[[Page 30797]]

dealer subsidiaries from the calculation of total leverage exposure for
these holding companies.\81\
---------------------------------------------------------------------------

\80\ Under Alternative 1, the estimated reduction in the
supplementary leverage ratio requirement for holding companies
subject to Category II and III would be modest because it would
solely be driven by the exclusion of U.S. Treasury securities held
by their broker-dealer subsidiaries from the calculation of total
leverage exposure for these holding companies, while their minimum
supplementary leverage ratio requirement would remain unchanged.
\81\ Throughout the economic analysis, for each holding company
subject to Category I to III standards, the agencies approximate the
amount of U.S. Treasury securities classified as trading assets and
held by its broker-dealer subsidiaries by taking the amount of U.S.
Treasury securities reported as trading assets by the consolidated
holding company and subtracting the amount of U.S. Treasury
securities reported as trading assets by its depository institution
subsidiaries.
---------------------------------------------------------------------------

Alternative 2 (``broader exclusion'') would lead to a much smaller
reduction in the supplementary leverage ratio requirement for GSIBs and
their depository institution subsidiaries than the proposal. This
policy alternative would affect GSIBs and banking organizations subject
to Category II to III standards to a similar extent because it would
exclude reserves and all U.S. Treasury securities holdings from the
calculation of total leverage exposure for all of these banking
organizations. Specifically, it would reduce the supplementary leverage
ratio requirement for these banking organizations by 14 percent, on
average. The reduction in the requirement would be similar between
holding companies and depository institution subsidiaries because most
of the excluded assets are held at the depository institution
subsidiaries.
Alternative 3 (``2018 proposal'') would lead to a smaller reduction
in the supplementary leverage ratio requirement for GSIBs and their
depository institution subsidiaries than the proposal. This is because,
as discussed in section VI.D of this Supplementary Information, the
proposal would set the eSLR standards to half of the method 1
surcharge, whereas this policy alternative would set the eSLR standards
to half of the higher of the method 1 and method 2 surcharges.
Specifically, Alternative 3 would reduce the supplementary leverage
ratio requirement by 8 percent, on average, for GSIBs and by 23
percent, on average, for their major depository institution
subsidiaries. Like the proposal, this policy alternative would lead to
a much larger reduction in the supplementary leverage ratio requirement
for the depository institutions than for the holding companies because,
as described in section VI.D of this Supplementary Information, it
would set eSLR standards to the same percentage amount for both GSIBs
and their major depository institution subsidiaries, whereas the eSLR
standard is one percentage point higher for their depository
institution subsidiaries under the baseline. Like the proposal, this
policy alternative would not change the supplementary leverage ratio
requirement for banking organizations subject to Category II and III
standards.
Alternative 4 (``combined'') would combine the effects of the
proposal and the ``broader exclusion'' alternative, reducing the
supplementary leverage ratio requirement by 34 percent and 45 percent,
on average, for GSIBs and their major depository institution
subsidiaries, respectively, and by a little more than 10 percent, on
average, for banking organizations subject to Category II and III
standards.\82\ Similar to the ``additional narrow exclusion''
alternative, the ``combined'' alternative would reduce tier 1 capital
requirements for GSIBs and their depository institution subsidiaries
much more than for banking organizations subject to Category II and III
standards because GSIBs and their depository institution subsidiaries
would be affected by both the reduced calibration of the eSLR standards
and the exclusion of reserves and U.S. Treasury securities holdings
from the calculation of total leverage exposure, while banking
organizations subject to Category II and III standards would only be
affected by the exclusion.
---------------------------------------------------------------------------

\82\ The effect of Alternative 4 would be less than the sum of
the proposal's effect and the effect of Alternative 2 because the
exclusion of reserves and U.S. Treasury securities holdings from the
supplementary leverage ratio's denominator reduces the effect of the
reduced calibration of the eSLR standard under this combined policy
alternative.
---------------------------------------------------------------------------

Turning to the backstop objective of the proposal, the proposal
would meaningfully reduce the supplementary leverage ratio requirement
relative to the risk-based tier 1 capital requirement for GSIBs and
their depository institution subsidiaries. As Table 7 shows, the
proposal would reduce the level of the supplementary leverage ratio
requirement from about 100 percent and 155 percent of the risk-based
tier 1 capital requirement to about 75 percent and 100 percent of it,
on average, for GSIBs and their major depository institution
subsidiaries, respectively. Under the proposal, the level of the
supplementary leverage ratio requirement would range from 61 percent to
86 percent of the risk-based tier 1 requirement for GSIBs and from 75
percent to 143 percent of the risk-based tier 1 requirement for their
major depository institution subsidiaries. Therefore, the proposal
would set the level of the supplementary leverage ratio requirement
below the level of the risk-based tier 1 capital requirement for all
GSIBs, thereby making the supplementary leverage ratio a backstop for
all holding companies subject to Category I to III standards.
Furthermore, the proposal would set the level of the supplementary
leverage ratio requirement below the level of the risk-based tier 1
capital requirement for 6 out of the 9 major depository institution
subsidiaries of GSIBs under the proposal. As explained, the proposal
would not change the supplementary leverage ratio requirement for
banking organizations subject to Category II and III standards.
However, the supplementary leverage ratio requirement is already well
below (about 65 percent of) the risk-based tier 1 capital requirement
for these banking organizations under the baseline.

Table 7--Ratio of the Supplementary Leverage Ratio Requirement to the
Risk-Based Tier 1 Capital Requirement

This table shows the ratio of the supplementary leverage ratio
requirement, measured in dollars, to the higher of the standardized
approach and advanced approaches risk-based tier 1 capital
requirements, measured in dollars. The ratio is calculated under the
baseline, the proposal, and the different policy alternatives described
in section VI.D of this Supplementary Information. The numbers
represent averages calculated across holding companies subject to
Category I and Category II/III standards (Panel A), and their ``major''
depository institution subsidiaries (Panel B) over the four quarters of
2024, weighted by their total assets. The data used in this table are
described in section VI.B of this Supplementary Information.

Panel A: Holding Companies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Policy alternatives
Baseline Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 0.98 0.75 0.74 0.84 0.91 0.65

[[Page 30798]]

Category II/III......................................... 0.65 0.65 0.64 0.58 0.65 0.58
Category I-III.......................................... 0.91 0.73 0.71 0.78 0.85 0.63
--------------------------------------------------------------------------------------------------------------------------------------------------------

Panel B: Depository Institutions
--------------------------------------------------------------------------------------------------------------------------------------------------------
Policy alternatives
Baseline Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 1.54 1.00 1.00 1.31 1.19 0.85
Category II/III......................................... 0.64 0.64 0.64 0.57 0.64 0.57
Category I-III.......................................... 1.32 0.91 0.91 1.12 1.06 0.78
--------------------------------------------------------------------------------------------------------------------------------------------------------

The changes in the relative level of the supplementary leverage
ratio requirement under the policy alternatives would be consistent
with the estimated percentage changes in the supplementary leverage
ratio requirement discussed earlier. The effect of Alternative 1
(``additional narrow exclusion'') would be quantitatively similar to
that of the proposal. Alternative 2 (``broader exclusion'') would
reduce the relative level of the leverage ratio requirement for GSIBs
and their depository institution subsidiaries by less than the
proposal. For banking organizations subject to Category II and III
standards, the reduction would be larger than under the proposal.
Alternative 3 (``2018 proposal'') would reduce the relative level of
the leverage ratio requirement less for GSIBs and their depository
institutions than the proposal. Importantly, Alternatives 2 and 3 would
not achieve the goal of making the supplementary leverage ratio
requirement a backstop for GSIBs because it would exceed the risk-based
tier 1 capital requirement for some GSIBs under these policy
alternatives. Alternative 4 would reduce the relative level of the
leverage ratio requirement the most of all policy alternatives.
However, the supplementary leverage ratio requirement would still
exceed the risk-based tier 1 capital requirement for two depository
institution subsidiaries of GSIBs under this policy alternative.
Turning to changes in tier 1 capital requirements, the agencies
estimate that the proposal would reduce tier 1 requirements for most
GSIBs and their depository institution subsidiaries. Table 8 shows that
the aggregate reduction in tier 1 capital requirement would be $13
billion for GSIBs and $213 billion for their major depository
institution subsidiaries in the long-term under the proposal. For
GSIBs, the estimated reduction in tier 1 capital requirement relative
to the baseline is small, less than 2 percent, in aggregate, ranging
from zero to 7.4 percent. This is because the baseline levels of the
supplementary leverage ratio requirement and the risk-based tier 1
capital requirement, expressed in dollar terms, are similar for GSIBs,
and thus lowering the supplementary leverage ratio requirement reduces
the tier 1 capital requirement only up to the point that other tier 1
capital requirements become binding.\83\ By contrast, for the major
depository institution subsidiaries of GSIBs, the estimated reduction
in tier 1 capital requirement relative to the baseline is sizable,
about 27 percent, in aggregate, ranging from zero to 37 percent. This
is because, for these depository institutions, the baseline level of
the supplementary leverage ratio requirement, in dollar terms, is
significantly higher than the baseline levels of the other tier 1
capital requirements, which implies that the substantial estimated
reduction in the supplementary leverage ratio requirement for these
depository institutions under the proposal would mostly translate to a
reduction in their tier 1 capital requirements.\84\
---------------------------------------------------------------------------

\83\ More precisely, lowering the supplementary leverage ratio
requirement reduces the tier 1 capital requirement only up to the
point that the risk-based tier 1 capital requirement or the tier 1
leverage ratio requirement becomes the binding tier 1 capital
requirement. Under the baseline, the risk-based tier 1 capital
requirement exceeds the tier 1 leverage ratio requirement for all
except one GSIBs.
\84\ Specifically, as discussed in relation to Table 7, the
baseline level of the supplementary leverage ratio requirement is 54
percent higher than the baseline level of the risk-based tier 1
capital requirement for the major depository institution
subsidiaries of GSIBs.
---------------------------------------------------------------------------

Table 8--Estimated Change in Tier 1 Capital Requirement ($ billion)

This table shows the baseline amount of tier 1 capital and the
estimated change in tier 1 capital requirement under the proposal and
the different policy alternatives, described in section VI.D of this
SUPPLEMENTARY INFORMATION. The numbers are measured in billions of
dollars and represent aggregate amounts for Category I and Category II/
III holding companies (Panel A) and their ``major'' depository
institution subsidiaries (Panel B), averaged over the four quarters of
2024. The data used in this table are described in section VI.B of this
SUPPLEMENTARY INFORMATION.

Panel A: Holding Companies
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated change in tier 1 capital requirement
Baseline tier -------------------------------------------------------------------------------
1 capital Policy alternatives
requirement Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 931 -13 -13 -13 +2 -13

[[Page 30799]]

Category II/III......................................... 273 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Total............................................... 1,204 -13 -13 -13 +2 -13
--------------------------------------------------------------------------------------------------------------------------------------------------------

Panel B: Depository Institutions
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated change in tier 1 capital requirement
Baseline tier -------------------------------------------------------------------------------
1 capital Policy alternatives
requirement Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 789 -213 -213 -118 -148 -219
Category II/III......................................... 220 0 0 0 0 0
-----------------------------------------------------------------------------------------------
Total............................................... 1,008 -213 -213 -118 -148 -219
--------------------------------------------------------------------------------------------------------------------------------------------------------

Alternatives 1, 2, and 4 would lead to the same aggregate reduction
in the tier 1 capital requirement for GSIBs as the proposal because all
of these policy alternatives would reduce the supplementary leverage
ratio requirement below the other (risk-based and leverage) tier 1
capital requirements for all GSIBs. By contrast, the agencies estimate
that Alternative 3 would lead to a small, less than $2 billion,
aggregate increase in the tier 1 capital requirement for GSIBs, as one
large GSIB would face an increase in its tier 1 capital requirement.
For major depository institution subsidiaries of GSIBs, the
estimated dollar reduction in tier 1 capital requirements is in line
with the estimated percentage reduction in the supplementary leverage
ratio requirement across policy alternatives, with the exception of
Alternative 4. This ``combined'' alternative would reduce tier 1
capital requirements for the major depository institution subsidiaries
of GSIBs by $6 billion more, in aggregate, than the proposal. Notably,
even though this policy alternative combines the effects of the
proposal and the ``broader exclusion'' alternative, the estimated
reduction under Alternative 4 is only slightly higher than under the
proposal. This is because the proposal would set the supplementary
leverage ratio requirement for most of these depository institutions
below the other (risk-based and leverage) tier 1 capital requirements,
and the additional effect of excluding assets from the calculation of
total leverage exposures under the ``combined'' alternative for these
depository institutions would not lead to a further reduction in their
tier 1 capital requirements.
Similar to the proposal, the policy alternatives considered would
not reduce the tier 1 capital requirements for banking organizations
subject to Category II and III standards because the supplementary
leverage ratio requirement is not the binding tier 1 capital
requirement for these banking organizations under the baseline.
Notably, the estimated changes in tier 1 capital requirements
discussed above in Table 8 do not reflect short-run transition effects
due to risk-based total capital requirements. Thus far, the analysis
has only considered the risk-based tier 1 capital requirements, the
tier 1 leverage ratio requirement, as well as the supplementary
leverage ratio requirement. However, banking organizations must also
meet the risk-based total capital requirement, where total capital
comprises tier 1 capital and tier 2 capital, which includes a limited
percentage of allowance for credit losses on loans and leases as well
as subordinated debt. Therefore, if the baseline tier 2 capital amount
($76 billion, in aggregate) of these depository institutions remains
unchanged in the short run, they would utilize tier 1 capital to
satisfy the remaining total capital requirement. Incorporating this
effect into the calculation, the agencies estimate that the aggregate
reduction in tier 1 requirements for these depository institutions
would be $191 billion. However, over time, or in anticipation of the
policy change, these depository institutions could increase their tier
2 capital, so that the aggregate reduction in tier 1 capital
requirements would be closer to the $213 billion estimate presented in
Table 8.
Up to this point, the analysis has focused on the major depository
institution subsidiaries of holding companies subject to Category I to
III standards, as described in section VI.B of this SUPPLEMENTARY
INFORMATION. The rest of the insured depository institution
subsidiaries of holding companies subject to Category I to III
standards account for 0.7 percent of the consolidated total assets of
these holding companies, in aggregate. These smaller subsidiaries would
slightly add to the aggregate reduction in the supplementary leverage
ratio and the tier 1 capital requirements estimated above.
Finally, the proposal would increase the supplementary leverage
ratio requirement for the uninsured national trust subsidiaries of
GSIBs by expanding the scope of application of the eSLR standard to
these subsidiaries. As noted in section VI.B of this SUPPLEMENTARY
INFORMATION, there are six such subsidiaries, which account for 0.01
percent of the consolidated total assets of GSIBs, in aggregate. Under
the baseline, these small subsidiaries have a supplementary leverage
ratio above 90 percent, on average, well in excess of the requirement
that they would be subject to under the proposal. Therefore, the
agencies expect that the proposal would have little impact on the
uninsured national bank subsidiaries of GSIBs.

F. Benefits

The agencies expect that the reduced calibration of the eSLR
standards for GSIBs and their depository institution

[[Page 30800]]

subsidiaries under the proposal would have two main economic benefits:
(1) it would reduce disincentives for these banking organizations to
engage in low-risk activities as well as unintended incentives to
engage in higher-risk activities; and (2) it could enhance the
functioning of financial markets, including the U.S. Treasury market,
by facilitating intermediation activities of the largest banking
organizations. In the rest of this section, the agencies discuss these
benefits in more detail.
The first benefit would be due to the significant reduction in the
supplementary leverage ratio requirement for these banking
organizations under the proposal, estimated in section VI.E, which
would have both a level effect and a marginal effect, discussed in
section VI.A of this SUPPLEMENTARY INFORMATION. The level effect would
manifest as the reduced calibration of the eSLR standards would enable
these banking organizations to substantially increase low-risk asset
holdings without raising their tier 1 capital requirements. The
marginal effect would manifest as the proposal would set the
supplementary leverage ratio requirement, in dollar terms, below risk-
based tier 1 capital requirements for all GSIBs and most of their
depository institution subsidiaries. By doing so, the proposal would
make the binding tier 1 capital requirement for these banking
organizations more risk sensitive because risk-based requirements are
more closely aligned with the underlying risks of different asset
classes. In particular, under the proposal, increasing low-risk-weight
activities would not lead to a significant increase in tier 1 capital
requirements for these banking organizations, because the risk-based
tier 1 capital requirement would be their binding tier 1 capital
requirement. Moreover, this marginal effect would reduce incentives for
these banking organizations to excessively engage in higher-risk
activities because such activities are required to be backed by more
tier 1 capital under the risk-based capital framework than under the
supplementary leverage ratio requirement.\85\
---------------------------------------------------------------------------

\85\ For example, for each dollar of an asset with 100 percent
risk weight, GSIBs are required to maintain 5 cents of tier 1
capital under the baseline supplementary leverage ratio requirement
and, on average, 12.3 cents of tier 1 capital under the risk-based
capital framework.
---------------------------------------------------------------------------

Similar to the proposal, the ``additional narrow exclusion''
Alternative 1 and the ``combined'' Alternative 4 would reduce these
unintended marginal incentives for GSIBs and their depository
institution subsidiaries. By contrast, this economic benefit would not
fully manifest under the ``broader exclusion'' Alternative 2 and the
``2018 proposal'' Alternative 3, as the supplementary leverage ratio
requirement would remain above the risk-based tier 1 capital
requirement for one GSIB under ``the 2018 proposal'' alternative and
for most depository institution subsidiaries of GSIBs under both policy
alternatives. However, the ``broader exclusion'' alternative would
still reduce unintended marginal incentives for these banking
organizations to hold reserves and U.S. Treasury securities, as this
policy alternative would exclude such assets from the calculation of
total leverage exposure.
As mentioned above, in addition to this marginal effect, the
proposed reduction in the calibration of the eSLR standards for GSIBs
and their depository institution subsidiaries would also have a level
effect, which would increase the capacity of these banking
organizations to hold low-risk assets. The level effect manifests
because banking organizations could add certain low-risk assets to
their balance sheets without increasing their tier 1 capital
requirements as long as their leverage-based tier 1 capital
requirements are below their risk-based tier 1 capital
requirements.\86\ The agencies do not have the information necessary to
precisely estimate what type, and the dollar volume, of low-risk assets
banking organizations would add to their balance sheets if the proposal
were adopted. However, in order to quantify the magnitude of this
effect under the proposal and the policy alternatives considered, the
agencies create a simple estimate for the available capacity of GSIBs
to increase reserves or U.S. Treasury securities held as investment
securities at their depository institution subsidiaries and assess how
the proposal would increase this capacity estimate.\87\ Specifically,
for each GSIB, the agencies define ``available capacity'' as the dollar
amount of such assets that their depository institution subsidiaries
could add to their balance sheets without raising their or their
consolidated holding company's tier 1 capital requirements above
baseline levels.\88\ For a comprehensive assessment of the policy
alternatives considered, the agencies also create this available
capacity estimate for holding companies subject to Category II and III
standards. Additionally, further below in this subsection, the agencies
also estimate GSIBs' available capacity to hold U.S. Treasury
securities at their broker-dealer subsidiaries, which is more closely
tied to U.S. Treasury market intermediation.
---------------------------------------------------------------------------

\86\ Especially, banking organizations would be able to increase
their asset holdings that do not increase their total risk weighted
assets. Such asset holdings include reserves, U.S. Treasury
securities, and Ginnie Mae mortgage-backed securities held as
investment securities.
\87\ Notably, the agencies use this capacity estimate to
illustrate the magnitude of the proposal's effect on the ability of
banking organizations to hold additional low-risk assets. The
capacity estimates are not meant to suggest how or to what extent
any additional capacity may be used.
\88\ Reserves and U.S. Treasury securities held as investment
securities have a zero percent risk weight under the risk-based
capital framework. Accordingly, the agencies estimate the capacity
of holding companies to increase such asset holdings at their
depository institution subsidiaries by calculating how this would
increase supplementary leverage ratio and tier 1 leverage ratio
requirements for both the depository institutions and their
consolidated holdings companies. The calculation also incorporates
the effect on the ``size'' systemic indicator, which could lead to
higher method 1 and method 2 surcharges, which in turn would
increase risk-based tier 1 capital requirements for GSIBs. Section
VI.J.1 of this SUPPLEMENTARY INFORMATION describes the capacity
estimation in detail.
---------------------------------------------------------------------------

Table 9 compares the aggregate estimated amounts of the available
capacity of GSIBs and holding companies subject to Category II and III
standards for reserves and U.S. Treasury securities held as investment
securities at their depository institution subsidiaries under the
baseline, the proposal, and the policy alternatives considered. Under
the proposal, the agencies estimate that GSIBs' available capacity for
such assets would increase from nearly zero to $1.1 trillion, in
aggregate, which is about 6 percent of their aggregate total leverage
exposures or about the size of their aggregate U.S. Treasury securities
held as investment securities under the baseline.\89\ Under both the
proposal and the different policy alternatives considered, the primary
limiting factors to the estimated increase in GSIBs' available capacity
are the effect of increasing reserves or U.S. Treasury securities
holdings on their GSIB surcharge as well as the tier 1 leverage ratio
requirements of their depository institution subsidiaries.
---------------------------------------------------------------------------

\89\ The estimate for GSIBs' available capacity is close to zero
under the baseline because the supplementary leverage ratio
requirement is the binding tier 1 capital requirement for most GSIBs
and their depository institution subsidiaries.
---------------------------------------------------------------------------

Table 9--Estimated Available Capacity of Holding Companies for
Additional Reserves and U.S. Treasury Securities Held as Investment
Securities at Depository Institution Subsidiaries

This table shows the estimated available capacity of holding
companies subject to Category I to III standards for additional
reserves and U.S. Treasury securities held as investment securities at
their depository institution

[[Page 30801]]

subsidiaries, expressed both in trillion dollars (Panel A) and as a
percentage of baseline total leverage exposures of the consolidated
holding companies (Panel B), grouped by size category. Section VI.J.1
of this SUPPLEMENTARY INFORMATION describes the calculations underlying
these capacity estimates in detail.

Panel A: Trillions of Dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
Policy alternatives
Baseline Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 0.0 1.1 1.2 1.4 0.2 1.4
Category II/III......................................... 0.7 0.7 0.7 0.8 0.7 0.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

Panel B: Percentage of Baseline Total Leverage Exposure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Policy alternatives
Baseline Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 0% 6% 6% 8% 1% 8%
Category II/III......................................... 14 14 14 15 14 15
--------------------------------------------------------------------------------------------------------------------------------------------------------

Alternative 1 (``additional narrow exclusion'') would lead to a
similar estimated increase in GSIBs' available capacity for reserves
and U.S. Treasury securities held as investment securities at their
depository institution subsidiaries as the proposal, consistent with
the similar quantitative effect of this alternative on the
supplementary leverage ratio requirement. The agencies estimate that,
of the policy alternatives considered, the ``broader exclusion'' and
the ``combined'' alternatives would lead to the largest estimated
increase in GSIBs' available capacity for such assets. The estimated
increase would be $1.4 trillion, in aggregate, which is about 8 percent
of their aggregate total leverage exposures or about 125 percent of
their aggregate U.S. Treasury securities held as investment securities
under the baseline. This is because these alternatives would exclude
reserves and all U.S. Treasury securities holdings from the calculation
of total leverage exposure.\90\
---------------------------------------------------------------------------

\90\ Notably, increases in reserves or U.S. Treasury securities
holdings would still increase tier 1 leverage ratio requirements, as
well as GSIB method 1 and method 2 scores, which limits the
available capacity estimate under the ``broader exclusion'' and the
``combined'' alternatives.
---------------------------------------------------------------------------

Of the policy alternatives considered, Alternative 3 (``2018
proposal'') would lead to the least estimated increase in GSIBs'
available capacity for such assets. The estimated increase would be
$0.2 trillion, in aggregate, which is less than 1 percent of their
aggregate total leverage exposures under the baseline. This is because
this policy alternative would reduce the calibration of the eSLR
standards for GSIBs and their depository institution subsidiaries less
than the proposal. Finally, under the policy alternatives considered,
there would not be a meaningful increase in the available capacity of
holding companies subject to Category II and III standards for reserves
and U.S. Treasury securities held as investment securities at their
depository institution subsidiaries. However, these banking
organizations have ample available capacity (14 percent of their total
leverage exposures, in aggregate) for such zero-risk-weight assets at
their depository institution subsidiaries under the baseline because
leverage-based requirements are not the highest tier 1 capital
requirements for most of these banking organizations.
Beyond reducing disincentives to holding low-risk assets in
general, the proposal would improve GSIBs' ability to perform their
role as key intermediaries in the U.S. Treasury market, through the
marginal and level effects discussed above. In particular, the marginal
effect would reduce the amount of tier 1 capital required per each
dollar of U.S. Treasury security held by GSIBs' primary dealer
subsidiaries. This is because, under the proposal, the risk-based tier
1 capital requirement would be the binding tier 1 capital requirement
for all GSIBs with primary dealer subsidiaries, and the amount of tier
1 capital that GSIBs are required to have against the U.S. Treasury
securities holdings of their broker-dealer subsidiaries can be lower
under the risk-based capital framework than under the supplementary
leverage ratio requirement.\91\ A reduction in GSIBs' marginal tier 1
capital requirement would lower the marginal funding cost of holding
U.S. Treasury securities for their primary dealer subsidiaries, which
would reduce potential disincentives for these primary dealers to
engage in U.S. Treasury market intermediation and improve their
competitiveness as intermediaries in this market.
---------------------------------------------------------------------------

\91\ Under the market risk framework, the risk-based tier 1
capital requirement for holdings of U.S. Treasury securities by
GSIBs' broker-dealer subsidiaries can be lower than the tier 1
capital requirement under the supplementary leverage ratio
requirement if such securities holdings are sufficiently hedged. As
the business of U.S. Treasury market intermediation inherently
involves providing liquidity to both buyers and sellers in the
market and thus taking opposing (that is, long and short) positions,
the net market risk exposures of such positions are likely small.
---------------------------------------------------------------------------

In addition to the marginal effect, the level effect of the
proposal would enable GSIBs to increase their market intermediation
activities more flexibly in response to short- and long-run changes in
market participants' demand for liquidity. The level effect would
manifest as the proposal would reduce the calibration of the eSLR
standard for GSIBs, thereby increasing the capacity of their broker-
dealer subsidiaries to hold additional U.S. Treasury securities without
raising the tier 1 capital requirements of GSIBs above baseline levels.
In order to quantify the magnitude of this effect under the proposal
and the policy alternatives considered, the agencies create a simple
estimate for the available capacity of GSIBs to increase U.S. Treasury
securities held at their broker-dealer subsidiaries and assess how the
proposal would increase this capacity estimate. Specifically, for each
GSIB, the agencies define ``available capacity'' as the dollar amount
of U.S. Treasury securities that their broker-dealer institution
subsidiaries could add to their balance sheets without raising their
consolidated holding company's tier 1 capital requirements above
baseline levels, assuming that such

[[Page 30802]]

securities holdings are perfectly hedged.\92\ Notably, the capacity
estimates would be meaningfully lower if the securities holdings are
not fully hedged.\93\ For a comprehensive assessment of the policy
alternatives considered, the agencies also create this available
capacity estimate for holding companies subject to Category II and III
standards.
---------------------------------------------------------------------------

\92\ Even though U.S. Treasury securities generally have zero
risk weight under the risk-based capital framework, increasing U.S.
Treasury securities held at broker-dealer subsidiaries can increase
the risk-weighted asset amounts of their consolidated holding
companies because such securities holdings are classified as trading
assets, which are subject to market risk treatment. However, as
explained in the previous footnote, if such U.S. Treasury securities
are perfectly hedged, then they do not add to risk-weighted asset
amounts. With the understanding that much of broker-dealers'
securities holdings related to market intermediation are hedged, the
agencies create a simple estimate for the capacity of holding
companies for such assets by assuming that they would be perfectly
hedged. Hence, in the calculation, the agencies consider how
increasing U.S. Treasury securities holdings at broker-dealer
subsidiaries would increase the supplementary leverage ratio and
tier 1 leverage ratio requirements for their consolidated holdings
companies. The calculation incorporates the related effect on method
1 and method 2 surcharges, increasing because of the increase in
``size'' systemic indicators, which in turn would increase risk-
based tier 1 capital requirements for GSIBs. Section VI.J.2 of this
SUPPLEMENTARY INFORMATION describes the capacity estimation in
detail.
\93\ The estimates for available capacity would be meaningfully
lower for U.S. Treasury securities that are not fully hedged because
increasing such securities holdings on broker-dealers' balance
sheets can increase the risk-weighted asset amounts for consolidated
holding companies, thereby raising their risk-based capital
requirements. This effect would reduce the capacity estimates
because risk-based tier 1 capital requirements are either the
binding tier 1 capital requirement or lie closely below the binding
tier 1 capital requirement for GSIBs under the baseline.
---------------------------------------------------------------------------

Table 10 compares the aggregate estimated amounts of the available
capacity of GSIBs and holding companies subject to Category II and III
standards for U.S. Treasury securities held at their broker-dealer
subsidiaries under the baseline, the proposal, and the policy
alternatives considered. Under the proposal, the agencies estimate that
the available capacity of GSIBs' broker-dealers to hold U.S. Treasury
securities would increase from nearly zero to $2.1 trillion, in
aggregate, which is about 12 percent of GSIBs' aggregate total leverage
exposures or about 350 percent of GSIBs' aggregate U.S. Treasury
securities reported as trading assets under the baseline. Under both
the proposal and the different policy alternatives considered, the
primary limiting factor to the estimated increase in the available
capacity of GSIBs' broker-dealers is the effect of increasing U.S.
Treasury securities holdings on the GSIB surcharge and the tier 1
leverage ratio requirement of their consolidated holding companies.
Relatedly, the capacity estimates in Table 10 are about twice as much
as the estimates for GSIBs' available capacity for reserves and U.S.
Treasury securities held at their depository institution subsidiaries,
shown in Table 9, which also consider leverage-based capital
requirements at the depository institutions.

Table 10--Estimated Available Capacity of Holding Companies for
Additional U.S. Treasury Securities Held at Broker-Dealer Subsidiaries

This table shows the estimated available capacity of holding
companies subject to Category I to III standards for additional U.S.
Treasury securities held as trading securities at their broker-dealer
subsidiaries, expressed both in trillion dollars (Panel A) and as a
percentage of baseline total leverage exposures of the consolidated
holding companies (Panel B), grouped by size category. Section VI.J.2
of this SUPPLEMENTARY INFORMATION describes the calculations underlying
these capacity estimates in detail.

Panel A: Trillions of Dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
Policy alternatives
Baseline Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 0.0 2.1 2.5 2.5 0.2 2.5
Category II/III......................................... 2.4 2.4 2.4 2.4 2.4 2.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

Panel B: Percentage of Baseline Total Leverage Exposure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Policy alternatives
Baseline Proposal ---------------------------------------------------------------
No. 1 No. 2 No. 3 No. 4
--------------------------------------------------------------------------------------------------------------------------------------------------------
Category I.............................................. 0% 12% 14% 14% 1% 14%
Category II/III......................................... 47 47 47 47 47 47
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Alternatives 1, 2, and 4 (``exclusion'' alternatives) would lead to
a larger estimated increase in the available capacity of GSIBs' broker-
dealers for U.S. Treasury securities than the proposal. The estimated
increase would be $2.5 trillion, in aggregate, which is about 14
percent of GSIBs' aggregate total leverage exposures or about 420
percent of GSIBs' aggregate U.S. Treasury securities reported as
trading assets under the baseline. The estimated increase in available
capacity would be larger because all of these policy alternatives
exclude U.S. Treasury securities held at broker-dealer subsidiaries
from the calculation of total leverage exposure for both GSIBs and
holding companies subject to Category II and III standards. Therefore,
beyond meaningfully reducing the likelihood that the supplementary
leverage ratio requirement becomes a binding tier 1 capital requirement
for these holding companies, these policy alternatives would further
mitigate potential constraints to their U.S. Treasury market
intermediation activities, in the event that the supplementary leverage
ratio requirement does become binding in the future.
Of the policy alternatives considered, Alternative 3 (``2018
proposal'') would lead to the least estimated increase in the available
capacity of GSIBs' broker-dealers for U.S. Treasury securities. The
estimated increase would be $0.2 trillion, in aggregate, which is less
than 1 percent of their aggregate total leverage exposures under the
baseline. Finally, under the policy alternatives considered, there
would not be a meaningful increase in the available capacity of holding
companies subject

[[Page 30803]]

to Category II and III standards for U.S. Treasury securities held at
their broker-dealer subsidiaries. However, these banking organizations
already have ample available capacity (47 percent of their total
leverage exposures, in aggregate) for such asset holdings under the
baseline because leverage ratio requirements are not the highest tier 1
capital requirements for most of these banking organizations.
By facilitating U.S. Treasury market intermediation activity by
broker-dealer subsidiaries of GSIBs, the proposal and the ``exclusion''
alternatives could improve the functioning of this market, in both
normal and stressed times. This is because, as discussed in section
VI.A of this SUPPLEMENTARY INFORMATION, these large broker-dealers play
a central role in the U.S. Treasury market, and constraints to their
capacity to act as intermediaries can affect market liquidity. U.S.
Treasury market liquidity is important because it supports the market's
critical economic functions. Indeed, as Goldberg (2020) shows,
decreases in liquidity supplied by dealers in U.S. Treasury markets are
related to declines in the liquidity of corporate bonds and other asset
classes, which in turn are associated with declines in debt issuance
and investment by non-financial firms, with potential real economic
repercussions.\94\ More broadly, by reducing regulatory constraints for
broker-dealer subsidiaries of GSIBs, the proposal and the ``exclusion''
alternatives would support these entities in providing liquidity (for
example, in the form of securities financing transactions) to other
market participants, which in turn could reduce the propagation of
liquidity shocks across financial markets and thus prevent or mitigate
``liquidity spirals,'' discussed in Brunnermeier and Pedersen
(2009).\95\ Notably, this economic benefit would be stronger under the
``exclusion'' alternatives because these policy alternatives would
exclude the U.S. Treasury securities holdings of broker-dealer
subsidiaries from the calculation of total leverage exposure for their
consolidated holding companies. This exclusion would further enhance
the ability of banking organizations subject to Category I to III
standards to flexibly adjust their U.S. Treasury market intermediation
activities in response to short- and long-run changes in market
participants' demand for liquidity.
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\94\ J. Goldberg, Liquidity Supply by Broker-Dealers and Real
Activity, Journal of Financial Economics, 136(3) (April 14, 2020)
(``Goldberg (2020)'').
\95\ M.K. Brunnermeier and L.H. Pedersen, Market Liquidity and
Funding Liquidity, The Review of Financial Studies, 22(6) (June
2009) (``Brunnermeier and Pedersen (2009)'').
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The agencies present the anticipated benefits of the proposal's
changes to TLAC and long-term debt requirements and buffer standards in
section VI.H of this SUPPLEMENTARY INFORMATION.

G. Costs

The economic costs of the proposal and the policy alternatives
considered would be attributable to three main factors: (1) a potential
increase in the leverage of GSIBs and their depository institution
subsidiaries due to the reduction in their tier 1 capital requirements;
(2) a potential increase in the costs associated with the failure of
insured depository institution subsidiaries of GSIBs; and (3) a
potential increase in the risk exposures that are not fully captured by
the risk-based capital framework. In the rest of this section, the
agencies discuss these potential costs in more detail. The agencies
anticipate that the economic costs resulting from the effect of the
proposal and the policy alternatives considered on banking
organizations subject to Category II and III standards would be
negligible because tier 1 capital requirements for these organizations
would remain essentially unchanged.
The agencies anticipate that the proposal, through the reduction in
the supplementary leverage ratio and tier 1 capital requirements for
GSIBs, would enable GSIBs to increase their leverage by increasing the
share of debt financing on their balance sheets. Even though the
reduction in their tier 1 capital requirement would be small ($13
billion, in aggregate, and less than 2 percent, on average), which
would require GSIBs to retain most of their existing tier 1 capital,
the reduction in their supplementary leverage ratio requirement would
be significant, 23 percent, on average, which would enable GSIBs to
increase their leverage in two likely ways. First, under the proposal,
their increased capacity for low-risk assets, discussed in section VI.F
of this SUPPLEMENTARY INFORMATION, would enable GSIBs to expand their
balance sheets by increasing such asset holdings, financing them with
new debt, such as deposits.\96\ Such potential balance sheet growth
would reduce the risk-weighted asset densities of GSIBs, which would be
consistent with the observed growth of these companies and the gradual
decline in their risk-weighted asset densities over the past
decade.\97\ Second, GSIBs could also distribute some of their equity
capital to external shareholders and replace it with new debt, while
keeping the size of their balance sheets, as well as their tier 1
capital management buffers, unchanged relative to the baseline.\98\ A
potential increase in leverage could render GSIBs riskier because the
economic value of their equity capital would become more sensitive to
asset value shocks and therefore more volatile. However, in the case
that GSIBs grow by adding more low-risk assets, the effect of increased
leverage on equity volatility would be mitigated by the relative
stability in the values of the newly added low-risk assets. Therefore,
the agencies expect that the economic costs due to potential changes in
GSIBs' balance sheets would be small under the proposal.
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\96\ More specifically, through reducing the tier 1 capital
requirement for GSIBs, th

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