Final Capital Rules Adopted; Significantly Increased Leverage Ratio Proposed for U.S. G-SIBs

July 10, 2013

On July 2, the Board of Governors of the Federal Reserve System issued a final capital rule that overhauls its existing capital adequacy rules to implement both the Basel III Capital Framework and certain requirements imposed by the Dodd-Frank Act. While the final rule consolidates and largely adopts unchanged the three proposals issued by the federal banking agencies last June, the rule contains several significant burden-reducing modifications adopted in response to comments from community banking organizations. By contrast, the rule provides little relief for the approximately 18 banking organizations subject to the advanced approaches capital rules, and increases the burden on these organizations in certain significant respects.

The FDIC and OCC each adopted the final rule on July 9. At the same time, the FDIC released an interagency notice of proposed rulemaking that would amend the final rule to significantly increase the supplementary leverage ratio requirement applicable to the eight U.S. banking organizations that have been identified as global systemically important banks by the Financial Stability Board. Under this supplementary leverage ratio proposal, the eight U.S. G-SIBs would effectively be subject to a 5% supplementary leverage ratio minimum at the parent level and a 6% supplementary leverage ratio minimum at the level of each bank subsidiary—each of which represents a significant surcharge above the current Basel III 3% minimum leverage ratio applicable from January 1, 2018 to all advanced approaches banking organizations under the final rule.