Regulatory Practice Letter #14-17 | October 23, 2014 | KPMG | US

Regulatory Practice Letter #14-17 | October 23, 2014

Regulatory Practice Letter #14-17 | October 23, 2...

Supplementary Leverage Ratio - Revisions to the Final Rule


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Executive Summary

The Federal Reserve Board (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (collectively, the Agencies) approved a joint final rule on September 3, 2014 (September Final Rule), which revises the definition of "total leverage exposure" that serves as the denominator of the supplementary leverage ratio (SLR) adopted by the Agencies as part of their July 2013 final rule to implement the Basel III capital framework in the United States (U.S. Basel III rule). All banks, savings associations, bank holding companies (BHCs), and savings and loan holding companies (together, Banking Organizations) that are subject to the Agencies’ Advanced Approaches risk-based capital rules (AA Banks), as defined in the U.S. Basel III rule, are subject to the SLR.

The September Final Rule is similar to the proposed rule released in April 2014 (please refer to Regulatory Practice Letter 14-08) though certain clarifications and adjustments have been made in response to the comments received. Broadly, the definition of "total leverage exposure" has been revised to:

  • Include the effective notional principal amount of credit derivatives and other similar instruments through which a Banking Organization provides credit protection (sold credit protection);
  • Modify the calculation of total leverage exposure for derivative and repo-style transactions; and
  •  Amend the credit conversion factors (CCFs) applied to certain off-balance sheet exposures.

The revisions also change the frequency with which certain components of the SLR are calculated (i.e., on-balance sheet items must be calculated as the average of each day of the reporting quarter and off-balance sheet items must be calculated as the average of the three month end amounts for the reporting quarter) and establish the public disclosure requirements of certain items associated with the SLR.

AA banks must disclose their SLRs beginning January 1, 2015 and comply with a minimum SLR of 3 percent beginning January 1, 2018. Certain Banking Organizations that are deemed to be globally systemic will also be expected to meet an enhanced SLR (equal to the minimum SLR plus a leverage buffer) beginning January 1, 2018. The new definition of "total leverage exposure" becomes effective January 1, 2015 and is to be used in each of these calculations.

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