[Federal Register Volume 79, Number 84 (Thursday, May 1, 2014)]
[Rules and Regulations]
[Pages 24528-24541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09367]



[[Page 24528]]

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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 6

[Docket ID OCC-2013-0008]
RIN 1557-AD69

FEDERAL RESERVE SYSTEM

12 CFR Parts 208 and 217

[Regulation H and Q; Docket No. R-1460]
RIN 7100-AD 99

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AE01


Regulatory Capital Rules: Regulatory Capital, Enhanced 
Supplementary Leverage Ratio Standards for Certain Bank Holding 
Companies and Their Subsidiary Insured Depository Institutions

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

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) (collectively, the agencies) are 
adopting a final rule that strengthens the agencies' supplementary 
leverage ratio standards for large, interconnected U.S. banking 
organizations (the final rule). The final rule applies to any U.S. top-
tier bank holding company (BHC) with more than $700 billion in total 
consolidated assets or more than $10 trillion in assets under custody 
(covered BHC) and any insured depository institution (IDI) subsidiary 
of these BHCs (together, covered organizations). In the revised 
regulatory capital rule adopted by the agencies in July 2013 (2013 
revised capital rule), the agencies established a minimum supplementary 
leverage ratio of 3 percent, consistent with the minimum leverage ratio 
adopted by the Basel Committee on Banking Supervision (BCBS), for 
banking organizations subject to the agencies' advanced approaches 
risk-based capital rules. The final rule establishes enhanced 
supplementary leverage ratio standards for covered BHCs and their 
subsidiary IDIs. Under the final rule, an IDI that is a subsidiary of a 
covered BHC must maintain a supplementary leverage ratio of at least 6 
percent to be well capitalized under the agencies' prompt corrective 
action (PCA) framework. The Board also is adopting in the final rule a 
supplementary leverage ratio buffer (leverage buffer) for covered BHCs 
of 2 percent above the minimum supplementary leverage ratio requirement 
of 3 percent. The leverage buffer functions like the capital 
conservation buffer for the risk-based capital ratios in the 2013 
revised capital rule. A covered BHC that maintains a leverage buffer of 
tier 1 capital in an amount greater than 2 percent of its total 
leverage exposure is not subject to limitations on distributions and 
discretionary bonus payments under the final rule.
    Elsewhere in today's Federal Register, the agencies are proposing 
changes to the 2013 revised capital rule's supplementary leverage 
ratio, including changes to the definition of total leverage exposure, 
which would apply to all advanced approaches banking organizations and 
thus, if adopted, would affect banking organizations subject to this 
final rule.

DATES: The final rule is effective January 1, 2018.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Roger Tufts, Senior Economic Advisor, (202) 649-6981; Nicole 
Billick, Risk Expert, (202) 649-7932, Capital Policy; or Carl Kaminski, 
Counsel; or Henry Barkhausen, Attorney, Legislative and Regulatory 
Activities Division, (202) 649-5490, Office of the Comptroller of the 
Currency, 400 7th Street SW., Washington, DC 20219.
    Board: Constance M. Horsley, Assistant Director, (202) 452-5239; 
Juan C. Climent, Senior Supervisory Financial Analyst, (202) 872-7526; 
or Sviatlana Phelan, Senior Financial Analyst, (202) 912-4306, Capital 
and Regulatory Policy, Division of Banking Supervision and Regulation; 
or Benjamin McDonough, Senior Counsel, (202) 452-2036; April C. Snyder, 
Senior Counsel, (202) 452-3099; or Mark C. Buresh, Attorney, (202) 452-
5270, 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: George French, Deputy Director, [email protected]; Bobby R. 
Bean, Associate Director, [email protected]; Ryan Billingsley, Chief, 
Capital Policy Section, [email protected]; Karl Reitz, Chief, 
Capital Markets Strategies Section, [email protected]; Capital Markets 
Branch, Division of Risk Management Supervision, 
[email protected] or (202) 898-6888; or Mark Handzlik, 
Counsel, [email protected]; Michael Phillips, Counsel, 
[email protected]; Rachel Ackmann, Senior Attorney, 
[email protected]; Supervision Branch, Legal Division, Federal Deposit 
Insurance Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

I. Background

    On August 20, 2013, the agencies published in the Federal Register, 
for public comment, a joint notice of proposed rulemaking (the 2013 
NPR) to strengthen the agencies' supplementary leverage ratio standards 
for large, interconnected U.S. banking organizations.\1\ As noted in 
the 2013 NPR, the recent financial crisis showed that some financial 
companies had grown so large, leveraged, and interconnected that their 
failure could pose a threat to overall financial stability. The sudden 
collapses or near-collapses of major financial companies were among the 
most destabilizing events of the crisis. As a result of the imprudent 
risk taking of major financial companies and the severe consequences to 
the financial system and the economy associated with the disorderly 
failure of these companies, the U.S. government (and many foreign 
governments in their home countries) intervened on an unprecedented 
scale to reduce the impact of, or prevent, the failure of these 
companies and the attendant consequences for the broader financial 
system.
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    \1\ 78 FR 51101 (August 20, 2013).
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    A perception persists in the markets that some companies remain 
``too big to fail,'' posing an ongoing threat to the financial system. 
First, the perception that certain companies are ``too big to fail'' 
reduces the incentives of shareholders, creditors and counterparties of 
these companies to discipline excessive risk-taking by the companies. 
Second, it produces competitive distortions because those companies can 
often fund themselves at a lower cost than other companies. This 
distortion is unfair to smaller companies, damaging to fair 
competition, and may artificially encourage further consolidation and 
concentration in the financial system.
    An important objective of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (Dodd-Frank Act) is to mitigate the 
threat to financial stability posed by systemically-

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important financial companies.\2\ The agencies have sought to address 
this concern through enhanced supervisory programs, including 
heightened supervisory expectations for large, complex institutions and 
stress testing requirements. In addition, the Dodd-Frank Act mandates 
the implementation of a multi-pronged approach to address this concern: 
A new orderly liquidation authority for financial companies (other than 
banks and insurance companies); the establishment of the Financial 
Stability Oversight Council, empowered with the authority to designate 
nonbank financial companies for Board supervision (designated nonbank 
financial companies); stronger regulation of large BHCs and designated 
nonbank financial companies through enhanced prudential standards; and 
enhanced regulation of over-the-counter (OTC) derivatives, other core 
financial markets and financial market utilities.
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    \2\ See, e.g., Public Law 111-203, 124 Stat. 1376, 1394, 1571, 
1803 (2010).
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    This final rule builds on these efforts by adopting enhanced 
supplementary leverage ratio standards for the largest and most 
interconnected U.S. banking organizations. The agencies have broad 
authority to set regulatory capital standards.\3\ As a general matter, 
the agencies' authority to set regulatory capital requirements and 
standards for the institutions they regulate derives from the 
International Lending Supervision Act (ILSA) \4\ and the PCA provisions 
\5\ of the Federal Deposit Insurance Act (FDIA). In enacting ILSA, 
Congress codified its intentions, providing that ``it is the policy of 
the Congress to assure that the economic health and stability of the 
United States and the other nations of the world shall not be adversely 
affected or threatened in the future by imprudent lending practices or 
inadequate supervision.'' \6\ ILSA encourages the agencies to work with 
their international counterparts to establish effective and consistent 
supervisory policies, standards, and practices and specifically 
provides the agencies authority to set broadly applicable minimum 
capital levels \7\ as well as individual capital requirements.\8\ 
Additionally, ILSA specifically directs U.S. regulators to encourage 
governments, central banks, and bank regulatory authorities in other 
major banking countries to work toward maintaining and, where 
appropriate, strengthening the capital bases of banking institutions 
involved in international banking.\9\ With its focus on international 
lending and the safety of the broader financial system, ILSA provides 
the agencies with the authority to consider an institution's 
interconnectedness and other systemic factors when setting capital 
standards.
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    \3\ The agencies have authority to establish capital 
requirements for depository institutions under the prompt corrective 
action provisions of the Federal Deposit Insurance Act (12 U.S.C. 
1831o). In addition, the Federal Reserve has broad authority to 
establish various regulatory capital standards for BHCs under the 
Bank Holding Company Act and the Dodd-Frank Act. See, for example, 
sections 165 and 171 of the Dodd-Frank Act (12 U.S.C. 5365 and 12 
U.S.C. 5371).
    \4\ 12 U.S.C. 3901-3911.
    \5\ 12 U.S.C. 1831o.
    \6\ 12 U.S.C. 3901(a).
    \7\ ``Each appropriate Federal banking agency shall cause 
banking institutions to achieve and maintain adequate capital by 
establishing levels of capital for such banking institutions and by 
using such other methods as the appropriate Federal banking agency 
deems appropriate.'' 12 U.S.C. 3907(a)(1).
    \8\ ``Each appropriate Federal banking agency shall have the 
authority to establish such minimum level of capital for a banking 
institution as the appropriate Federal banking agency, in its 
discretion, deems to be necessary or appropriate in light of the 
particular circumstances of the banking institution.'' 12 U.S.C. 
3907(a)(2).
    \9\ 12 U.S.C. 3907(b)(3)(C).
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    As part of the overall prudential framework for bank capital, the 
agencies have long expected institutions to maintain capital well above 
regulatory minimums and have monitored banking organizations' capital 
adequacy through the supervisory process in accordance with this 
expectation. This expectation is also codified for IDIs in the 
statutory PCA framework, which requires the agencies to establish 
capital ratio thresholds for both leverage and risk-based capital that 
banking organizations must satisfy to be considered well capitalized.
    Additionally, section 165 of the Dodd-Frank Act requires the Board 
to develop enhanced prudential standards for BHCs with total 
consolidated assets of $50 billion or more and for designated nonbank 
companies (together, section 165 covered companies).\10\ The Dodd-Frank 
Act requires that prudential standards for section 165 covered 
companies include enhanced leverage standards. In general, the Dodd-
Frank Act directs the Board to implement enhanced prudential standards 
that strengthen existing micro-prudential supervision and regulation of 
individual companies and incorporate macro-prudential considerations to 
reduce threats posed by section 165 covered companies to the stability 
of the financial system as a whole. The enhanced prudential standards 
must increase in stringency based on the systemic footprint and risk 
characteristics of individual companies. When differentiating among 
companies for purposes of applying the standards established under 
section 165, the Board may consider the companies' size, capital 
structure, riskiness, complexity, financial activities, and any other 
risk-related factors the Board deems appropriate.\11\
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    \10\ See 12 U.S.C. 5365; 77 FR 593 (January 5, 2012); and 77 FR 
76627 (December 28, 2012).
    \11\ 12 U.S.C. 5365(a)(2)(A).
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    In the agencies' experience, strong capital is an important 
safeguard that helps financial institutions navigate periods of 
financial or economic stress. Maintenance of a strong capital base at 
the largest, systemically important institutions is particularly 
important because capital shortfalls at these institutions can 
contribute to systemic distress and can have material adverse economic 
effects. Higher capital standards for these institutions would place 
additional private capital at risk, thereby reducing the risks for the 
Deposit Insurance Fund while improving the ability of these 
institutions to serve as a source of credit to the economy during times 
of economic stress. Furthermore, the agencies believe that the enhanced 
supplementary leverage ratio standards would reduce the likelihood of 
resolutions, and would allow regulators to tailor resolution efforts 
were a resolution to become necessary. By further enhancing the capital 
strength of covered organizations, the enhanced supplementary leverage 
ratio standards could counterbalance possible funding cost advantages 
that these organizations may enjoy as a result of being perceived as 
``too big to fail.''

A. The Supplementary Leverage Ratio

    The 2013 revised capital rule comprehensively revises and 
strengthens the capital regulations applicable to banking 
organizations.\12\ It strengthens the definition of regulatory capital, 
increases the minimum risk-based capital requirements for all banking 
organizations, and modifies the requirements for how banking 
organizations calculate risk-weighted assets. The 2013 revised capital 
rule also retains the generally applicable leverage ratio requirement 
(generally applicable leverage ratio) that the agencies believe to be a 
simple and transparent measure of capital adequacy that is credible to 
market participants and ensures a meaningful amount of capital is 
available to absorb losses. The minimum generally applicable leverage

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ratio requirement \13\ of 4 percent applies to all IDIs, and is the 
``generally applicable'' leverage ratio for purposes of section 171 of 
the Dodd-Frank Act. Accordingly, the minimum tier 1 leverage ratio 
requirement for depository institution holding companies is also 4 
percent.\14\
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    \12\ 78 FR 55340 (September 10, 2013) (FDIC) and 78 FR 62018 
(October 11, 2013) (OCC and Board). On April 8, 2014, the FDIC 
adopted as final the 2013 revised capital rule, with no substantive 
changes.
    \13\ The generally applicable leverage ratio under the 2013 
revised capital rule is the ratio of a banking organization's tier 1 
capital to its average total consolidated assets as reported on the 
banking organization's regulatory report minus amounts deducted from 
tier 1 capital.
    \14\ 12 U.S.C. 5371.
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    In the 2013 revised capital rule, the agencies established a 
minimum supplementary leverage ratio requirement of 3 percent for 
banking organizations subject to the banking agencies' advanced 
approaches rules (advanced approaches banking organizations) \15\ based 
on the BCBS's Basel III leverage ratio (Basel III leverage ratio) as it 
was established at the time.\16\ The agencies believe the introduction 
of the leverage ratio by the BCBS is an important step in improving the 
framework for international capital standards. The Basel III leverage 
ratio is a non-risk-based measure of tier 1 capital relative to an 
exposure amount that includes both on- and off-balance sheet exposures. 
The agencies implemented the Basel III leverage ratio through the 
supplementary leverage ratio, which the agencies believe to be 
particularly relevant for large, complex organizations that are 
internationally active and often have substantial off-balance sheet 
exposures.
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    \15\ A banking organization is subject to the advanced 
approaches rule if it has consolidated assets of at least $250 
billion, if it has total consolidated on-balance sheet foreign 
exposures of at least $10 billion, if it elects to apply the 
advanced approaches rule, or it is a subsidiary of a depository 
institution, bank holding company, or savings and loan holding 
company that uses the advanced approaches to calculate risk-weighted 
assets. See 78 FR 62018, 62204 (October 11, 2013); 78 FR 55340, 
55523 (September 10, 2013).
    \16\ The BCBS is a committee of banking supervisory authorities, 
which was established by the central bank governors of the G-10 
countries in 1975. It currently consists of senior representatives 
of bank supervisory authorities and central banks from Argentina, 
Australia, Belgium, Brazil, Canada, China, France, Germany, Hong 
Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, 
the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, 
Sweden, Switzerland, Turkey, the United Kingdom, and the United 
States. Documents issued by the BCBS are available through the Bank 
for International Settlements Web site at http://www.bis.org. See 
BCBS, ``Basel III: A global regulatory framework for more resilient 
banks and banking systems'' (December 2010 (revised June 2011)), 
available at http://www.bis.org/publ/bcbs189.htm.
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    The agencies' supplementary leverage ratio is the arithmetic mean 
of the ratio of an advanced approaches banking organization's tier 1 
capital to total leverage exposure (each as defined in the 2013 revised 
capital rule) calculated as of the last day of each month in the 
reporting quarter. In contrast to the denominator of the agencies' 
generally applicable leverage ratio, which includes only on-balance 
sheet assets, the denominator for the supplementary leverage ratio is 
based on a banking organization's total leverage exposure, which 
includes all on-balance sheet assets and many off-balance sheet 
exposures. The 2013 revised capital rule requires that an advanced 
approaches banking organization calculate and report its supplementary 
leverage ratio beginning in 2015 and maintain a supplementary leverage 
ratio of at least 3 percent beginning in 2018.
    Because total leverage exposure includes off-balance sheet 
exposures, for any given company with material off-balance sheet 
exposures the amount of capital required to meet the supplementary 
leverage ratio will exceed the amount of capital that is required to 
meet the generally applicable leverage ratio, assuming that both ratios 
are set at the same level. To illustrate, as the agencies noted in the 
2013 NPR, based on supervisory estimates for a group of advanced 
approaches banking organizations using supervisory data as of third 
quarter 2012,\17\ a 5 percent supplementary leverage ratio corresponds 
to roughly a 7.2 percent generally applicable leverage ratio and a 6 
percent supplementary leverage ratio corresponds to roughly an 8.6 
percent generally applicable leverage ratio. According to supervisory 
estimates, 2013 data yield similar results. These estimates represent 
averages and the numbers vary from institution to institution.
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    \17\ The supervisory estimates were generated using CCAR 
September 2012 and CCAR September 2013 data.
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    The agencies noted in the 2013 revised capital rule and in the 2013 
NPR that the BCBS planned to collect additional data from institutions 
in member countries and potentially make adjustments to the Basel III 
leverage ratio requirement. The agencies indicated that they would 
review any modifications to the Basel III leverage ratio made by the 
BCBS and consider proposing to modify the supplementary leverage ratio 
consistent with those revisions, as appropriate.
    In June 2013, the BCBS published and requested comment on a 
consultative paper that proposed significant modifications to the 
denominator of the Basel III leverage ratio (consultative paper).\18\ 
The consultative paper proposed a number of approaches that generally 
would increase the denominator of the leverage ratio originally set out 
in the 2010 Basel III framework. Based on its review of comments on the 
consultative paper, in January 2014, the BCBS adopted certain aspects 
of the proposals in the consultative paper as well as other changes to 
the denominator (BCBS 2014 revisions).\19\ The BCBS has indicated that 
it will continue to study the Basel III leverage ratio through the 
implementation phase into 2017 and will consider further modifications 
to the ratio.
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    \18\ See BCBS ``Revised Basel III leverage ratio framework and 
disclosure requirements--consultative document'' (June 2013) 
available at http://www.bis.org/publ/bcbs251.htm.
    \19\ See BCBS ``Basel III leverage ratio framework and 
disclosure requirements'' (January 2014) available at http://www.bis.org/publ/bcbs270.htm.
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    As discussed further below, several commenters raised concerns 
about the agencies' intention to adopt the proposed enhanced 
supplementary leverage ratio standards while the BCBS continues to 
revise the Basel III leverage ratio. The agencies believe that it is 
important to maintain consistency with international standards, as 
appropriate, for internationally active banking organizations and, 
accordingly, have published a separate notice of proposed rulemaking 
elsewhere in today's Federal Register that seeks public comment on 
revisions to the denominator of the supplementary leverage ratio that 
would be applicable to advanced approaches banking organizations (2014 
NPR). These proposed revisions are generally consistent with the BCBS 
2014 revisions.
    The agencies also believe that it is important to establish 
enhanced supplementary leverage ratio standards for the largest, most 
interconnected banking organizations to strengthen the overall 
regulatory capital framework in the United States. Therefore, after 
reviewing comments on the 2013 NPR, the agencies are finalizing the 
enhanced supplementary leverage ratio standards substantially as 
proposed, based on the methodology for determining the supplementary 
leverage ratio in the 2013 revised capital rule. As discussed further 
below, the agencies believe the proposed changes to the supplementary 
leverage ratio denominator in the 2014 NPR would be responsive to some 
of the concerns that commenters raised in connection with the 2013 NPR. 
The agencies will carefully consider all comments received on the 
proposed revisions to the supplementary leverage

[[Page 24531]]

ratio calculation in the 2014 NPR, including those related to the 
impact of the proposed changes on advanced approaches banking 
organizations' capital requirements.

B. The Proposed Enhanced Supplementary Leverage Ratio Standards

    The 2013 NPR proposed applying enhanced supplementary leverage 
standards to any U.S. top-tier BHC that has more than $700 billion in 
total consolidated assets or more than $10 trillion in assets under 
custody and any IDI subsidiary of such a BHC.\20\ As explained in the 
2013 NPR, the list of covered BHCs identified by these thresholds is 
consistent with the list of banking organizations that meet the BCBS 
definition of a global systemically important bank (G-SIB), based on 
year-end 2011 data.\21\ In November 2011, the BCBS released a document 
entitled, Global Systemically Important Banks (G-SIBs): Assessment 
methodology and the additional loss absorbency requirement, which sets 
out a framework for a new capital surcharge for G-SIBs (BCBS G-SIB 
framework).\22\ The BCBS G-SIB framework incorporates five broad 
characteristics of a banking organization that the agencies consider to 
be good proxies for, and correlated with, systemic importance: Size, 
complexity, interconnectedness, lack of substitutes, and cross-border 
activity. Further, the Board believes that the criteria and methodology 
used by the BCBS to identify G-SIBs are consistent with the criteria it 
must consider under the Dodd-Frank Act when tailoring enhanced 
prudential standards based on the systemic footprint and risk 
characteristics of individual section 165 covered companies.\23\
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    \20\ Under the 2013 NPR, applicability of the proposed enhanced 
supplementary leverage ratio standards would have been determined 
based on assets reported on a BHC's most recent Consolidated 
Financial Statement for Bank Holding Companies (FR Y-9C) or based on 
assets under custody as reported on a BHC's most recent Banking 
Organization Systemic Risk Report (FR Y-15).
    \21\ In November 2012, the Financial Stability Board and BCBS 
published a list of banks that meet the BCBS definition of a G-SIB 
based on year-end 2011 data. A revised list based on year-end 2012 
data was published November 11, 2013 (available at http://www.financialstabilityboard.org/publications/r_131111.pdf). The 
U.S. top-tier bank holding companies that are currently identified 
as G-SIBs are Bank of America Corporation, The Bank of New York 
Mellon Corporation, Citigroup Inc., Goldman Sachs Group, Inc., JP 
Morgan Chase & Co., Morgan Stanley, State Street Corporation, and 
Wells Fargo & Company.
    \22\ Available at http://www.bis.org/publ/bcbs207.pdf. The BCBS 
published a revised version of this document in July 2013, available 
at http://www.bis.org/publ/bcbs255.pdf.
    \23\ See 12 U.S.C. 5365(a).
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    Under the 2013 NPR, a covered BHC would have been subject to a 
leverage buffer composed of tier 1 capital, in addition to the minimum 
3 percent supplementary leverage ratio requirement established in the 
2013 revised capital rule. Under the 2013 NPR, a covered BHC that 
maintains a leverage buffer of tier 1 capital in an amount greater than 
2 percent of its total leverage exposure would not have been subject to 
limitations on its distributions and discretionary bonus payments. If a 
covered BHC were to maintain a leverage buffer of 2 percent or less, it 
would have been subject to increasingly strict limitations on its 
distributions and discretionary bonus payments. The proposed leverage 
buffer followed the same general mechanics and structure as the capital 
conservation buffer contained in the 2013 revised capital rule. Any 
constraints on distributions and discretionary bonus payments resulting 
from a covered BHC maintaining a leverage buffer of 2 percent or less 
would have been independent of any constraints imposed by the capital 
conservation buffer or other supervisory or regulatory measures.
    As noted in the 2013 NPR, the 2013 revised capital rule 
incorporated the 3 percent supplementary leverage ratio minimum 
requirement into the PCA framework as an adequately capitalized 
threshold for IDIs subject to the advanced approaches risk-based 
capital rules, but did not establish a well-capitalized threshold for 
this ratio. Under the 2013 NPR, an IDI that is a subsidiary of a 
covered BHC would have been required to satisfy a 6 percent 
supplementary leverage ratio to be considered well-capitalized for PCA 
purposes.

II. Summary of Comments on the 2013 NPR

    The agencies sought comment on all aspects of the 2013 NPR and 
received approximately 30 public comments from banking organizations, 
trade associations representing the banking or financial services 
industry, supervisory authorities, public interest advocacy groups, 
private individuals, members of Congress, and other interested parties. 
In general, comments from financial services firms, banking 
organizations, banking trade associations and other industry groups 
were critical of the 2013 NPR, while comments from organizations 
representing smaller banks or their supervisors, public interest 
advocacy groups and the public generally were supportive of the 2013 
NPR. A detailed discussion of commenters' concerns and the agencies' 
response follows.

A. Timing of the Final Rule

    A number of commenters made reference to the BCBS consultative 
paper that proposed to revise the denominator for the Basel III 
leverage ratio.\24\ While the proposals outlined in the BCBS 
consultative paper were not part of the 2013 NPR, commenters stated 
that they believe the final BCBS changes eventually will be 
incorporated into the U.S. supplementary leverage ratio, and that it 
would be premature to finalize the 2013 NPR before the BCBS process is 
complete. Commenters recommended that a final rule adopting the 
proposed enhanced supplementary leverage ratio standards be delayed 
until the BCBS finalized the consultative paper and the Board adopted a 
final rule implementing enhanced prudential standards under section 165 
of the Dodd Frank Act.\25\ In addition, these commenters argued that 
the proposed enhanced supplementary leverage ratio standards, if 
applied in conjunction with the denominator changes proposed in the 
BCBS consultative paper, would result in inappropriately high capital 
charges.
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    \24\ See BCBS, ``Revised Basel III leverage ratio framework and 
disclosure requirements--consultative document'' (June 2013), 
available at http://www.bis.org/publ/bcbs251.htm.
    \25\ The Board's proposed rules to implement the provisions of 
sections 165 and 166 of the Dodd-Frank Act for bank holding 
companies with total consolidated assets of $50 billion or more and 
for nonbank financial firms supervised by the Board (domestic 
proposal) and for foreign banking organizations with total 
consolidated assets of $50 billion or more and foreign nonbank 
financial companies supervised by the Board (foreign proposal) can 
be found at 77 FR 594 (January 5, 2012) and 77 FR 76628 (December 
28, 2012) for the domestic proposal and foreign proposal, 
respectively. The Board's final rule implementing these provisions 
is available at http://www.federalreserve.gov/newsevents/press/bcreg/20140218a.htm.
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    The agencies emphasize that the 2013 NPR did not propose or seek 
comment on the revisions to the supplementary leverage ratio 
denominator that were being considered by the BCBS. The agencies are 
moving forward with the finalization of the proposed enhanced 
supplementary leverage ratio standards to further enhance the capital 
position of covered organizations and to strengthen financial 
stability. As noted earlier, the agencies are seeking comment elsewhere 
in today's Federal Register on the 2014 NPR, which proposes revisions 
to the definition of total leverage exposure in the 2013 revised 
capital rule as well as other proposed requirements relating to the 
supplementary leverage ratio that would reflect the BCBS 2014 
revisions. The

[[Page 24532]]

agencies believe that the proposed revisions to the definition of total 
leverage exposure in the 2014 NPR are responsive to a number of 
concerns that commenters expressed about the relationship between the 
BCBS process and the supplementary leverage ratio. As noted above, the 
agencies will carefully review all comments received on the 2014 NPR.

B. Scope of Application

    The 2013 NPR would have applied enhanced supplementary leverage 
ratio standards to the largest, most interconnected U.S. BHCs and their 
subsidiary IDIs (specifically, to any U.S. top-tier BHC with more than 
$700 billion in total consolidated assets or more than $10 trillion in 
assets under custody and any IDI subsidiary of these BHCs).\26\ Several 
commenters criticized the 2013 NPR's scope of application, including 
the proposed quantitative thresholds for determining applicability of 
the enhanced supplementary leverage ratio standards. These commenters 
stated that tying the application of the 2013 NPR to size alone would 
not be appropriate, as size is not always a reliable indicator of the 
degree of risk to financial stability. In addition, commenters stated 
that the quantitative thresholds may capture the G-SIBs today, but 
there is no assurance that this will be the case in the future. A few 
commenters asserted that applicability should be based on the systemic 
risk posed by an institution's failure and not just on quantitative 
thresholds. For instance, one commenter suggested extending the 
applicability of the final rule beyond the largest financial 
institutions to institutions that are smaller, but nonetheless are 
integral parts of the financial system. A few commenters favored 
expanding the quantitative thresholds of the 2013 NPR to include 
additional banking organizations, for example, by applying the proposed 
enhanced supplementary leverage ratio standards to all advanced 
approaches banking organizations. Some commenters asserted that using 
assets under custody as one of the metrics to determine the 2013 NPR's 
applicability significantly overstates the risk of the custody bank 
business model. In addition, several commenters suggested that it is 
not clear that the enhanced supplementary leverage ratio standards are 
necessary or appropriate for any organization. These commenters stated 
that substantial steps have been taken toward addressing ``too big to 
fail'' concerns, and that the 2013 NPR should not be extended to 
banking organizations that, in the commenters' view, may not present 
systemic risk.
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    \26\ Under the 2013 revised capital rule, a ``subsidiary'' is 
defined as a company controlled by another company, and a person or 
company ``controls'' a company if it: (1) Owns, controls, or holds 
with power to vote 25 percent or more of a class of voting 
securities of the company; or (2) consolidates the company for 
financial reporting purposes. See section 2 of the 2013 revised 
capital rule.
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    The agencies have decided to finalize the proposed enhanced 
supplementary leverage ratio standards, including the proposed 
applicability thresholds, substantively as proposed. In the agencies' 
view, the proposed asset thresholds capture banking organizations that 
are so large or interconnected that they pose substantial systemic 
risk. As explained above, these banking organizations have also been 
identified by the BCBS as G-SIBs, which are subject to heightened risk-
based capital standards under the Basel framework. The agencies believe 
the application of the enhanced supplementary leverage ratio standards 
to covered organizations is an appropriate way to further strengthen 
the ability of the these 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.
    The agencies continue to believe that the benefits to financial 
stability of the enhanced supplementary leverage ratio standards are 
most pronounced for these large and systemically important 
institutions, and have decided not to extend these enhanced standards 
to smaller institutions. In addition, as also discussed in the 2013 
NPR, it is anticipated that over time, as the BCBS G-SIB framework is 
implemented in the United States or revised by the BCBS, the agencies 
may consider modifying the scope of application of the enhanced 
supplementary leverage ratio standards to align more closely with the 
scope of application of the BCBS G-SIB framework. In addition, the 
agencies will otherwise continue to evaluate the applicability 
thresholds and may consider revising them in the future to ensure they 
remain appropriate.

C. Calibration of the Enhanced Supplementary Leverage Ratio Standards

    The agencies received several comments expressing concern with the 
proposed calibration of the enhanced supplementary leverage ratio 
standards. Commenters stated that the proposed enhanced supplementary 
leverage ratio standards should be set no higher than those that would 
apply to banking organizations in other jurisdictions to maintain the 
competitive position of covered organizations with respect to their 
foreign competitors. A number of commenters viewed the proposed 
calibration as arbitrary, stating that it should be supported by 
quantitative studies of the cumulative impact of the enhanced 
supplementary leverage ratio standards and other financial reforms on 
the ability of U.S. banking organizations to provide financial services 
to customers and businesses. A number of commenters stated that the 
2013 NPR would cause the supplementary leverage ratio to become the 
binding regulatory capital constraint, rather than a backstop to the 
risk-based capital measures, and expressed concern that an unintended 
consequence of a binding supplementary leverage ratio could be that 
covered organizations would divest lower risk assets and instead assume 
more risk, to the detriment of financial stability.
    Some commenters expressed concern that a binding supplementary 
leverage ratio could have negative consequences, including the creation 
of disincentives for banking organizations to engage in robust risk 
assessment and management practices. Furthermore, according to 
commenters, the 2013 NPR could incentivize banking organizations to 
engage in financial activities with a higher risk-reward profile as 
there would be no regulatory capital benefit for holding low-risk 
assets, potentially resulting in institutions that are less stable. For 
instance, one commenter stated that unsecured commercial loans would be 
more attractive than secured lines of credit because the former have a 
stronger return on assets and both would require equal amounts of 
regulatory capital under the supplementary leverage ratio framework. 
The commenter warned that in the mortgage banking industry, this could 
constrain warehouse lines of credit needed to finance the production of 
new mortgages and mortgage-backed securities. Another commenter stated 
that the proposed enhanced supplementary leverage ratio standards could 
make it uneconomical for covered organizations to hold or provide 
unfunded revolving lines of credit with maturities of less than one 
year, cash, U.S. Treasuries, reverse repurchase agreements, certain 
traditional interest rate swaps, and credit default swaps on corporate 
bonds. Other commenters maintained that the 2013 NPR could incentivize 
banking organizations to hold the lowest quality assets possible within 
the constraints of the other credit quality regulations and, thus, 
would be fundamentally at odds with the

[[Page 24533]]

agencies' proposed liquidity coverage ratio (LCR) by encouraging 
banking organizations to divest low-risk assets above the minimum 
required by the proposed LCR.\27\ In addition, according to commenters, 
banking organizations would find high-volume, low-risk and low-return, 
client-driven financial activities less profitable, such as deposit 
taking. As such, commenters stated that a binding leverage ratio would 
result in higher prices, less liquidity, and reduction of business 
lines that have lower returns on assets.
---------------------------------------------------------------------------

    \27\ On November 29, 2013, the agencies issued a joint notice of 
proposed rulemaking that would implement quantitative liquidity 
requirements for certain banking organizations. See 78 FR 71818 
(November 29, 2013).
---------------------------------------------------------------------------

    Some commenters recommended that the agencies use a more tailored 
approach to calibrate the proposed enhanced supplementary leverage 
ratio standards, for example by proposing a leverage buffer for covered 
BHCs that would be aligned with the capital surcharges provided in the 
BCBS G-SIB framework. These commenters asserted that there is 
significant diversity among G-SIBs in risk profile, operating 
structure, and approaches to balance sheet management and that a one-
size-fits-all approach is unduly punitive for banking organizations 
with significant amounts of highly liquid, low-risk assets.
    In contrast, a few commenters stated that the supplementary 
leverage ratio is a more accurate measure of regulatory capital than 
the risk-based capital ratios, easier to understand, comparable across 
firms, less prone to manipulation and, therefore, should be the binding 
capital standard. Commenters supported a revised calibration as strong, 
or stronger, than the one set forth in the 2013 NPR. For example, some 
commenters suggested substantially increasing the proposed enhanced 
supplementary leverage ratio standards for covered organizations (for 
example, by implementing an 8 percent well-capitalized threshold for 
any IDI subsidiary of a covered BHC and a 4 or 5 percent leverage 
buffer (in addition to the minimum 3 percent) for covered BHCs). These 
commenters argued that incentivizing covered organizations to be better 
capitalized as a group through the proposed standards would improve 
their ability to provide credit during periods of economic stress. 
Others supported either increasing or maintaining the proposed 
calibration of the enhanced supplementary leverage ratio standards by 
emphasizing the importance of constraining the risks large institutions 
pose to the financial system. Other commenters supported strengthening 
the supplementary leverage ratio standards based on their view that the 
risk-based capital framework is subjective and may excessively rely on 
the use of models.
    With regard to the concerns raised by commenters about potential 
competitive disadvantages for covered organizations as a result of the 
proposed enhanced supplementary leverage ratio standards, in the 
agencies' experience, a strong regulatory capital base is a competitive 
strength for banking organizations, rather than a competitive weakness. 
Specifically, strong capital promotes confidence among banking 
organizations' market counterparties and bolsters the ability of 
banking organizations to lend and otherwise serve customers during 
stressed market conditions. The agencies are of the view that a 
strongly capitalized banking system also promotes the resilience of the 
broader economy because it promotes the stability of the financial 
system, which allows a wide range of firms to efficiently access 
funding and liquidity to meet their business needs. The agencies also 
note that banking organizations in the U.S. have long been subject to a 
leverage ratio framework, whereas banking organizations in other 
jurisdictions generally have not been subject to any leverage 
requirement. The agencies do not believe this longstanding difference 
has adversely affected the competitive strength of U.S. banking 
organizations. Finally, the agencies believe that the benefits to the 
banking and financial system from more resilient systemically important 
banking organizations outweigh any potential competitive disadvantages 
of related implementation costs that covered organizations may face.
    With regard to the comments asserting that the proposed enhanced 
supplementary leverage ratio standards were arbitrary, the 2013 NPR 
described the agencies' approach to calibration. According to the 
agencies' analysis, a 3 percent minimum supplementary leverage ratio 
would have been too low to have meaningfully constrained the buildup of 
leverage at the largest institutions in the years leading up to the 
financial crisis. To address this issue the agencies proposed the 
enhanced supplementary leverage ratio standards.
    The agencies believe that the leverage and risk-based capital 
ratios play complementary roles, with each offsetting potential 
weaknesses of the other. The 2013 revised capital rule implemented the 
capital conservation buffer framework (which is only applicable to 
risk-based capital ratios) and increased risk-based capital 
requirements more than it increased leverage requirements, reducing the 
ability of the leverage requirements to act as an effective complement 
to the risk-based requirements, as they had historically. As a result, 
the degree to which covered organizations could potentially benefit 
from active management of risk-weighted assets before they breach the 
leverage requirements may be greater. As described in the 2013 NPR, 
such potential behavior suggests that the increase in stringency of the 
leverage and risk-based standards should be more closely calibrated to 
each other so that they remain in an effective complementary 
relationship. These considerations were important in calibrating the 
enhanced supplementary leverage ratio standards. Specifically, the 2013 
NPR noted that the proposed enhanced supplementary leverage ratio's 
well-capitalized threshold for IDI subsidiaries of covered BHCs and the 
proposed leverage buffer for covered BHCs would retain a degree of 
proportionality with the stronger tier 1 risk-based capital standards 
(including the minimum risk-based capital requirements and the capital 
conservation buffer) under the 2013 revised capital rule.
    Consistent with the calibration goals described in the 2013 NPR, 
the agencies believe that the proposed enhanced supplementary leverage 
ratio standards should broadly preserve the historical relationship 
between the tier 1 leverage and risk-based capital levels for covered 
organizations, rather than fundamentally alter such a relationship as 
several commenters suggest. With respect to IDI subsidiaries of covered 
BHCs, the increase in stringency in terms of the additional tier 1 
capital that would be required to be well capitalized under the 
enhanced supplementary leverage ratio standards is roughly equivalent 
to the increase in stringency resulting from the application of the 
2013 revised capital rule's risk-based capital standards.
    Moreover, in response to comments suggesting that the supplementary 
leverage ratio well-capitalized threshold for an IDI subsidiary of a 
covered BHC should result in the same amount of capital needed by a 
covered BHC to meet the minimum supplementary ratio requirement plus 
the proposed leverage buffer, the agencies note that the PCA framework 
and the proposed leverage buffer were designed for different purposes. 
The PCA framework is intended to ensure that problems at depository 
institutions are addressed promptly and at the least cost to the 
Deposit Insurance Fund. The leverage buffer (as well as the capital

[[Page 24534]]

conservation buffer) was designed and calibrated to provide incentives 
to banking organizations to hold sufficient capital to reduce the risk 
that their capital levels would fall below their minimum requirements 
during times of economic and financial stress. In addition, as 
discussed in the 2013 NPR, the relationship between the 5 percent 
supplementary leverage ratio for covered BHCs (resulting from the 3 
percent minimum supplementary leverage ratio plus the 2 percent 
leverage buffer) and the 6 percent supplementary leverage ratio's well-
capitalized threshold for IDI subsidiaries of covered BHCs is generally 
structurally consistent with the relationship between the 4 percent 
minimum leverage ratio for BHCs and the 5 percent well-capitalized 
leverage ratio threshold for IDIs under the generally applicable 
regulatory capital framework, including as revised under the 2013 
revised capital rule.
    The agencies note that the maintenance of a complementary 
relationship between the leverage and risk-based capital ratios is 
designed to mitigate any regulatory capital incentives for covered 
organizations to inappropriately increase their risk profile in 
response to a binding supplementary leverage ratio. Similarly, stress 
testing provides another mechanism to counterbalance the risk that 
these institutions could potentially increase their risk profile in 
response to a binding supplementary leverage ratio. If the 
supplementary leverage ratio is binding and covered organizations 
acquire more higher-risk assets, risk weights should increase until the 
risk-based capital framework becomes binding. Conversely, if a binding 
risk-based capital ratio induces an institution to expand portfolios 
whose risk is insufficiently addressed by the risk-based capital 
framework, its total leverage exposure would increase until the 
leverage ratio becomes binding. Moreover, the agencies believe that 
banking organizations choose their asset mix based on a variety of 
factors, including yields available relative to the overall cost of 
funds, the need to preserve financial flexibility and liquidity, 
revenue generation and the maintenance of market share and business 
relationships, and the likelihood that principal will be repaid.
    The agencies also believe that the enhanced supplementary leverage 
ratio standards, together with the strong risk-based regulatory capital 
framework in the 2013 revised capital rule, will increase stability and 
improve safety and soundness in the banking system. In particular, the 
agencies believe that the complementary relationship between the 
enhanced supplementary leverage ratio standards and the risk-based 
capital framework under the 2013 revised capital rule will strengthen 
capital positions at covered organizations, thereby reducing the 
likelihood that they fail or experience severe difficulties.
    With regard to the comments suggesting that the calibration of the 
enhanced supplementary leverage ratio should vary in accordance with 
the specific systemic footprint of a covered organization, the agencies 
note that such issues are addressed in part by the risk-differentiation 
that exists within the risk-based capital framework. The agencies 
believe that all covered organizations, despite differences in business 
models, are systemically important and highly interconnected and, 
therefore, uniformly-applied leverage capital standards across these 
organizations are warranted.

D. Economic Impact of the 2013 NPR on Specific Types of Securities and 
Credit Transactions and on the Custody Bank Business Model

    Commenters also expressed concern about the effect the 2013 NPR 
would have for particular types of transactions and business models. 
Commenters asserted that the 2013 NPR would directly affect short-term 
securities financing transactions, including repurchase agreements, 
reverse repurchase agreements, and revolving lines of credit, among 
other similar transactions, by imposing additional capital requirements 
on low-risk exposures held by covered organizations when they enter 
into these arrangements. Some commenters argued that the enhanced 
supplementary leverage ratio standards may encourage covered 
organizations to reduce their participation in securities financing 
transactions. One commenter also indicated that the 2013 NPR would 
result in the entrance into the securities financing transactions 
market of smaller, less-experienced, and less well-capitalized 
counterparties who may fall outside existing regulatory oversight, 
resulting in additional systemic risk due to insufficient oversight of 
these counterparties. That commenter argued that the 2013 NPR may 
result in the overexposure to individual counterparties, because 
covered organizations could conclude that securities financing 
transactions are more costly to them and, as a result, may limit the 
availability (or the best terms) of this financing to only those asset 
managers to whom they provide other lines of service. In addition, 
commenters asserted that asset managers might respond by directing 
business to a single large banking organization in order to receive the 
best terms for securities financing transactions.
    Several commenters argued that there would be less flexibility for 
mutual fund managers and insurance companies to execute certain 
transactions with covered organizations as a result of the enhanced 
supplementary leverage ratio standards, which could give rise to less 
liquid markets at the time that liquidity is needed the most. These 
commenters indicated that when mutual fund redemptions rise because 
individual investors desire liquidity, investment managers are required 
to meet those redemption requests immediately, and that if many 
requests come at once, the investment manager will use securities 
financing arrangements to smooth out the flow of capital, rather than 
be forced to sell investments in a rapid or disorderly fashion. 
Commenters also noted that if securities financing arrangements are 
less accessible, an investment manager may incur higher costs related 
to the forced sale of underlying securities.
    Some commenters suggested that the agencies recalibrate the 
enhanced supplementary leverage ratio standards to better reflect the 
business model and risk profile of custody banks, either through an 
approach tied to each covered company's G-SIB risk-based capital 
surcharge (which incorporates various measures to identify systemic 
risk) or an adjustment specific to these organizations, because a one-
size-fits-all approach would be unduly punitive for covered 
organizations with significant amounts of highly liquid, low-risk 
assets. One commenter asserted that custody banks have balance sheets 
that are uniquely constructed as they are built around client deposits 
derived from the provision of core safekeeping and fund administration 
services, whereas most other covered organizations feature extensive 
commercial and investment banking operations. Some commenters asserted 
that the enhanced supplementary leverage ratio standards would 
significantly punish or effectively limit important custody bank 
functions such as those which are associated with central bank deposits 
and committed facilities. These commenters also noted that the enhanced 
supplementary leverage ratio standards may limit the ability of custody 
banks to accept deposits, particularly during periods of systemic 
stress. One commenter asserted that global payment systems could be 
adversely affected by a

[[Page 24535]]

reduction in central bank balances, which are broadly used by banking 
organizations to reduce the risk of payment failures and facilitate 
consistent and smooth payment flows. In addition, some commenters 
asserted that the enhanced supplementary leverage ratio standards would 
reduce incentives to hold low-risk assets and would increase the cost 
to comply with increased margin requirements, particularly initial 
margin, for derivatives transactions. The agencies note that several of 
the commenters' concerns were related to aspects of the BCBS 
consultative paper.
    With regard to the comments expressing concern about the impact of 
the enhanced supplementary leverage ratio standards on securities 
financing transactions, the agencies believe that certain provisions of 
the 2014 NPR would address several of these concerns. In addition, the 
agencies believe it is important to consider that counterparties may 
view favorably a banking organization's maintenance of a meaningfully 
higher supplementary leverage ratio. To the extent this occurs, there 
might be some reduction in a banking organization's cost of funds that 
potentially offsets any costs related to holding more regulatory 
capital. In this regard, the agencies also note that any change in 
regulatory capital costs would affect a banking organization's overall 
cost of funds only to the extent it affects the weighted average cost 
of its deposits, debt, and equity.
    The agencies believe that using daily average balance sheet assets, 
rather than requiring the average of three end-of-month balances in the 
calculation of the supplementary leverage ratio under the 2013 revised 
capital rule would be an appropriate way to address the commenters' 
concerns on the impact of spikes in deposits and, in the 2014 NPR, are 
proposing changes to the calculation of total leverage exposure that 
would incorporate this concept.
    Likewise, for purposes of determining total leverage exposure, the 
2014 NPR would permit cash variation margin that satisfies certain 
requirements to reduce the positive mark-to-fair value of derivative 
contracts. The agencies believe this proposed revision in the 2014 NPR 
would address the commenters' concerns regarding the potential increase 
in the cost to comply with increased margin requirements.

E. Measure of Capital Used as the Numerator of the Supplementary 
Leverage Ratio

    The agencies sought comment on the appropriate measure of capital 
for the numerator of the supplementary leverage ratio. Many commenters 
supported tier 1 capital as the appropriate measure of capital for the 
numerator of the supplementary leverage ratio because it is designed 
specifically to absorb losses on a going concern basis and has been 
meaningfully strengthened under the 2013 revised capital rule.
    One commenter encouraged the agencies to allow covered banking 
organizations to include the amount of a covered organization's 
allowance for loan and lease losses (ALLL) because it is available to 
absorb losses. A few commenters, however, asserted that the numerator 
of the supplementary leverage ratio should be common equity tier 1 
(CET1) capital. One commenter supported this assertion with the 
observation that CET1 capital is the standard most likely to keep an 
institution solvent and able to lend during periods of market distress, 
and suggested it would be the only measure of capital strength trusted 
by the markets during a financial crisis. Another commenter asserted 
that a tangible equity measure is preferable because it is the most 
simple, transparent, and useful measure of loss-absorbing capital.
    One commenter recognized the importance of having a single 
definition of tier 1 capital for both risk-based and leverage 
requirements, but urged the agencies to revisit the treatment of 
unrealized gains and losses included in accumulated other comprehensive 
income (AOCI) for large banking organizations under the 2013 revised 
capital rule.
    The agencies have considered the comments and have decided to 
retain tier 1 capital as the numerator of the supplementary leverage 
ratio. The agencies agree that CET1 capital is the most conservative 
measure of capital defined in the 2013 revised capital rule and has the 
highest capacity to absorb losses, similar to most common descriptions 
of ``tangible common equity.'' However, as a practical matter for U.S. 
banking organizations, tier 1 capital consists of CET1 capital plus 
non-cumulative perpetual preferred stock, a form of preferred stock 
that the agencies believe has strong loss-absorbing capacity. 
Accordingly, the agencies believe that tier 1 capital, as defined in 
the 2013 revised capital rule, is an appropriately conservative measure 
of capital for the purposes of the supplementary leverage ratio. 
Furthermore, tier 1 capital incorporates substantial regulatory 
adjustments and deductions that are not typically made from market 
measures of tangible equity. Moreover, using tier 1 capital as the 
numerator of the supplementary leverage ratio has the advantage of 
maintaining consistency with the numerator of the leverage ratio that 
has long applied broadly to U.S. banking organizations and that now 
applies to banking organizations in other jurisdictions adopting the 
Basel III leverage ratio.
    With respect to allowing covered banking organizations to include 
ALLL as part of the capital measure for the numerator, the agencies 
note that ALLL is partially includable in tier 2 capital under the 
risk-based capital framework and under the 2013 revised capital rule. 
However, ALLL is not includable in tier 1 capital and the agencies 
believe that such an inclusion would weaken the quality of tier 1 
capital as it relates to the supplementary leverage ratio when compared 
to the risk-based capital framework.
    The agencies considered comments on the recognition of unrealized 
gains and losses in AOCI in connection with the development of the 2013 
revised capital rule, which requires advanced approaches banking 
organizations to recognize unrealized gains and losses in AOCI for 
purposes of determining CET1 capital.\28\ The agencies believe that 
requiring a banking organization to reflect unrealized gains and losses 
in regulatory capital provides a more accurate depiction of its loss-
absorption capacity at a specific point in time, which is particularly 
important for large, internationally active banking organizations. For 
this reason and the reasons discussed above, the agencies are retaining 
tier 1 capital as the numerator of the enhanced supplementary leverage 
ratio standards under this final rule.\29\
---------------------------------------------------------------------------

    \28\ Banking organizations that are not subject to the advanced 
approaches rule may elect to opt out of the requirement to recognize 
unrealized gains and losses in AOCI for purposes of determining CET1 
capital.
    \29\ See section III.C. of the preamble in the 2013 final 
capital rule issued by the Board and OCC for a discussion of 
accumulated other comprehensive income. 78 FR 62018, 62026-62027 
(October 11, 2013). See section V.B.2.c. of the preamble in the 2013 
interim final capital rule issued by the FDIC for a discussion of 
accumulated other comprehensive income. 78 FR 55340, 55377-55380 
(September 10, 2013).
---------------------------------------------------------------------------

F. Total Leverage Exposure Definition

    The 2013 NPR would not have amended the definition of total 
leverage exposure (the denominator of the supplementary leverage ratio) 
under the 2013 revised capital rule. However, a significant number of 
commenters criticized the components and methodology for calculating 
total leverage exposure.

[[Page 24536]]

    Many commenters asserted that total leverage exposure should be 
more risk-sensitive. For instance, commenters encouraged the agencies 
to exclude highly liquid assets, such as cash on hand and claims on 
central banks, and sovereign securities, particularly U.S. Treasuries, 
from total leverage exposure. Commenters maintained that, if the 
agencies opt to not exclude risk-free or very low-risk, highly liquid 
assets from total leverage exposure, then these assets should be 
discounted according to their relative levels of liquidity similar to 
the categories of eligible assets under the standardized approach in 
the 2013 revised capital rule. In addition, commenters stated that bank 
deposits with central banks such as the Federal Reserve Banks should be 
excluded in order to accommodate increases in banks' assets, both 
temporary and sustained, that occur as a result of macroeconomic 
factors and monetary policy decisions, particularly during periods of 
financial market stress. Commenters urged the agencies to exclude 
assets such as U.S. government obligations securing public sector 
entity (PSE) deposits from total leverage exposure. Commenters argued 
that a banking organization holding PSE deposits is required to pledge 
U.S. Treasuries to collateralize the deposits, and that if U.S. 
Treasuries are not excluded from total leverage exposure, the cost of 
additional capital would result in higher costs being passed on to the 
PSEs. Another commenter, however, asked that the agencies not introduce 
any risk-based capital measure into the supplementary leverage 
ratio.\30\
---------------------------------------------------------------------------

    \30\ One commenter also noted that retaining the proposal to 
include U.S. Treasury debt securities in total leverage exposure 
could present certain national security concerns.
---------------------------------------------------------------------------

    Several commenters encouraged the agencies not to include in total 
leverage exposure the notional amount of all off-balance sheet assets, 
particularly for undrawn commitments. Commenters stated that using the 
notional value is inaccurate, particularly for trade finance and 
committed credit lines. Commenters encouraged the agencies to use the 
more granular standardized approach credit conversion factors (CCF) in 
the 2013 revised capital rule.
    With respect to the commenters' request for more risk-sensitivity 
in the supplementary leverage ratio calculation, the agencies believe 
that excluding categories of assets from the denominator of the 
supplementary leverage ratio is generally inconsistent with the 
intended role of this ratio as an overall limitation on leverage that 
does not differentiate across asset types. Accordingly, the agencies 
have decided not to exempt any categories of balance sheet assets from 
the denominator of the supplementary leverage ratio in the final rule. 
Thus, for example, cash, U.S. Treasuries, and deposits at the Federal 
Reserve are included in the denominator of the supplementary leverage 
ratio, as has been the case in the agencies' generally applicable 
leverage ratio. The agencies recognize the low risk of these assets 
under the agencies' risk-based capital rules, which complement the 
minimum supplementary leverage ratio requirement and the enhanced 
supplementary leverage ratio standards, as discussed above. Excluding 
specific categories of assets from the supplementary leverage ratio 
denominator would in effect allow banking organizations to finance 
these assets exclusively with debt, potentially resulting in a 
significant increase in a banking organizations' ability to deploy 
financial leverage.
    With regard to the comments criticizing the use of the notional 
amounts of off-balance sheet commitments for purposes of the 
supplementary leverage ratio, the agencies are seeking comment on 
proposed changes to the denominator in the 2014 NPR that would include 
the use of standardized approach CCFs for most off-balance sheet 
commitments.

G. Proposed Basel III Leverage Ratio Revisions

    A number of commenters were concerned about the relationship 
between the enhanced supplementary leverage ratio standards and the 
revisions to the Basel III leverage ratio framework proposed by the 
BCBS consultative paper, which proposed a leverage ratio exposure 
measure that would result in greater reported exposure than the total 
leverage exposure as defined in the 2013 revised capital rule.
    A number of commenters were concerned that covered organizations 
would be placed at a competitive disadvantage relative to foreign 
competitors if the enhanced supplementary leverage ratio standards in 
the U.S. are set at a higher level than the Basel III leverage ratio. 
Some commenters also expressed concern that the proposed BCBS revisions 
to the denominator would be inappropriately restrictive and might be 
incorporated into the U.S. supplementary leverage ratio. However, 
another commenter argued that a stronger leverage ratio standard would 
enhance the competitive position of U.S. banking organizations by 
improving the relative stability and financial strength of the U.S. 
banking system.
    One commenter included a study of the impact of the revisions 
proposed in the BCBS's consultative paper, and, where relevant, the 
U.S. enhanced supplementary leverage ratio standards, on the U.S. 
banking industry, products offered by U.S. banks, and U.S. markets. The 
study concludes that, on average, U.S. advanced approaches banking 
organizations (including U.S. G-SIBs) exceed the 3 percent 
supplementary leverage ratio threshold based both on the ratio as 
formulated in the Basel III leverage ratio framework and after giving 
effect to the BCBS proposed revisions, but when measured against the 
proposed enhanced supplementary leverage ratio standards, U.S. advanced 
approaches banking organizations would have substantial tier 1 capital 
shortfalls. Specifically, the study suggests that if the revisions 
proposed in the consultative paper and the proposed enhanced 
supplementary leverage ratio standards were both implemented, the U.S. 
advanced approaches banking organizations would need $202 billion in 
additional tier 1 capital or a reduction in exposures of $3.7 trillion 
to meet those standards, and to meet the proposed enhanced 
supplementary leverage ratio standards without giving effect to the 
BCBS consultative paper changes, these banking organizations would need 
to raise $69 billion in additional capital or reduce exposures by $1.2 
trillion. The study suggests that if the agencies adopted the Basel 
proposed total leverage exposure as contemplated in the consultative 
paper in combination with the proposed enhanced supplementary leverage 
ratio standards, the leverage ratio would become the binding constraint 
for banking organizations holding 67 percent of U.S. G-SIB assets.
    One commenter, on the other hand, encouraged the agencies to revise 
the denominator of the supplementary leverage ratio in accordance with 
the BCBS's consultative paper. This commenter further encouraged the 
agencies to restrict derivatives netting permitted under the BCBS 
consultative paper and to substantially increase the standardized 
measurement of the potential future exposure for derivative 
transactions. Similarly, another commenter asked the agencies to 
consider the use of International Financial Reporting Standards (IFRS) 
for purposes of measuring off-balance sheet derivatives exposures.
    Neither the 2013 NPR nor the final rule includes the changes to 
total leverage exposure described in the

[[Page 24537]]

BCBS consultative paper. Therefore, the agencies' supplementary 
leverage ratio is consistent with the international leverage ratio 
established by the BCBS in 2010. The agencies' analysis of the impact 
of this final rule is summarized in the next section of this preamble.
    As discussed above, in January 2014 the BCBS adopted certain 
aspects of the proposals outlined in the BCBS consultative paper as 
well as other changes to the denominator. The changes to the 
denominator included, among other items, revising CCFs for certain off-
balance sheet exposures, incorporating the notional amount of sold 
credit protection (that is, credit derivatives sold by a banking 
organization acting as a credit protection provider) in total leverage 
exposure, and modifying the measure of exposure for derivatives and 
repo-style transactions, including changes to the criteria for 
recognizing netting for repo-style transactions and cash collateral for 
derivatives. The agencies believe that the changes introduced by the 
BCBS strengthen the Basel III leverage ratio in important ways. In the 
2014 NPR, published elsewhere in today's Federal Register, the agencies 
are proposing revisions to the supplementary leverage ratio that are 
generally consistent with the BCBS 2014 revisions. The agencies believe 
that the proposed revisions to the definition of total leverage 
exposure published in the 2014 NPR are responsive to a number of 
concerns that commenters expressed about the relationship between the 
BCBS process and the supplementary leverage ratio. In this regard, the 
agencies will carefully review all comments received on these aspects 
of the definition of total leverage exposure in the 2014 NPR.

H. Impact Analysis

    Commenters suggested that, in addition to waiting for the BCBS to 
finalize the denominator of the Basel leverage ratio, the agencies 
should conduct a quantitative impact study to assess the cumulative 
impact of bank capital and other financial reform regulations on the 
ability of U.S. banking organizations to provide financial services to 
consumers and businesses.
    In the 2013 NPR, the agencies cited data from the Board's 
Comprehensive Capital Analysis and Review (CCAR) process in which all 
of the agencies participate. This information reflects banking 
organizations' own projections of their supplementary leverage ratios 
under the supervisory baseline scenario, including institutions' own 
assumptions about earnings retention and other strategic actions.
    As noted in the 2013 NPR, in the 2013 CCAR, all 8 covered BHCs met 
the 3 percent supplementary leverage ratio as of third quarter 2012, 
and almost all projected that their supplementary leverage ratios would 
exceed 5 percent at year-end 2017. If the enhanced supplementary 
leverage ratio standards had been in effect as of third quarter 2012, 
covered BHCs under the 2013 NPR that did not exceed a minimum 
supplementary leverage ratio requirement of 3 percent plus a 2 percent 
leverage buffer would have needed to increase their tier 1 capital by 
about $63 billion to meet that ratio.
    Because CCAR is focused on the consolidated capital of BHCs, BHCs 
did not project future Basel III leverage ratios for their IDIs. To 
estimate the impact of the 2013 NPR on the lead subsidiary IDIs of 
covered BHCs, the agencies assumed that an IDI has the same ratio of 
total leverage exposure to total assets as its BHC. Using this 
assumption and CCAR 2013 projections, all 8 lead subsidiary IDIs of 
covered BHCs were estimated to meet the 3 percent supplementary 
leverage ratio as of third quarter 2012. If the enhanced supplementary 
leverage ratio standards had been in effect as of third quarter 2012, 
the lead subsidiary IDIs of covered BHCs that did not meet a 6 percent 
supplementary leverage ratio would have needed to increase their tier 1 
capital by about $89 billion to meet that ratio.
    In finalizing the rule, the agencies updated their supervisory 
estimates of the amount of tier 1 capital that would be required for 
covered BHCs and their lead subsidiary IDIs to meet the enhanced 
supplementary leverage ratio standards. Using updated CCAR estimates, 
all 8 covered BHCs meet the 3 percent supplementary leverage ratio as 
of fourth quarter 2013. If the enhanced supplementary leverage ratio 
standards had been in effect as of fourth quarter 2013, CCAR data 
suggests that covered BHCs that would not have met a 5 percent 
supplementary leverage ratio would have needed to increase their tier 1 
capital by about $22 billion to meet that ratio.
    Assuming that an IDI has the same ratio of total leverage exposure 
to total assets as its BHC to estimate the impact at the IDI level, the 
updated CCAR data indicates that all 8 lead subsidiary IDIs of covered 
BHCs meet the 3 percent supplementary leverage ratio as of fourth 
quarter 2013. If the enhanced supplementary leverage ratio standards 
had been in effect as of fourth quarter 2013, the updated CCAR data 
suggests that the lead subsidiary IDIs of covered BHCs that did not 
meet a 6 percent ratio would have needed to increase their tier 1 
capital by about $38 billion to meet that ratio. The agencies believe 
that the affected covered BHCs and their subsidiary IDIs would be able 
to effectively manage their capital structures to meet the enhanced 
supplementary leverage ratio standards in the final rule by January 1, 
2018. The agencies believe that this transition period should help to 
reduce any short-term consequences and allow covered organizations to 
adjust smoothly to the new supplementary leverage ratio standards.

I. Advanced Approaches Framework

    The agencies sought comment on whether in light of the proposed 
enhanced supplementary leverage ratio standards and ongoing 
standardized risk-based capital floors, the agencies should consider, 
in some future regulatory action, simplifying or eliminating portions 
of the advanced approaches rule if they are unnecessary or duplicative. 
One commenter stated that mandatory application of the advanced 
approaches rule is based on an outdated size-based threshold, and that 
the agencies should review the thresholds for mandatory application of 
the advanced approaches risk-based capital rules and consider whether, 
in light of recently implemented reforms to the regulatory capital 
framework, the criteria remain appropriate or whether they should be 
refined given the purpose of those rules. Another commenter recommended 
delaying consideration of the proposed enhanced supplementary leverage 
ratio standards pending the review and completion of regulatory 
initiatives based on the BCBS's discussion paper entitled, The 
regulatory framework: balancing risk sensitivity, simplicity and 
comparability.\31\
---------------------------------------------------------------------------

    \31\ Available at http://www.bis.org/publ/bcbs258.pdf.
---------------------------------------------------------------------------

    The agencies are not proposing any changes to the advanced 
approaches rule in connection with the final rule. As with any aspect 
of the regulatory capital framework, the agencies will continue to 
evaluate the appropriateness of the requirements of the advanced 
approaches rule in light of this final rule and the ongoing evolution 
of the U.S. financial regulatory framework.

III. Description of the Final Rule

    For the reasons discussed above, and consistent with the transition 
provisions set forth in subpart G of the 2013 revised capital rule, the 
agencies have decided to adopt the 2 percent leverage buffer for 
covered BHCs and the 6

[[Page 24538]]

percent well-capitalized threshold for subsidiary IDIs of covered BHCs 
effective on January 1, 2018. The final rule implements the provisions 
in the 2013 NPR as proposed. Accordingly, the final rule applies to any 
U.S. top-tier BHC with more than $700 billion in total consolidated 
assets or more than $10 trillion in assets under custody and any 
advanced approaches IDI subsidiary of such BHCs.
    As further discussed above, the agencies are proposing elsewhere in 
the Federal Register changes to the calculation of the supplementary 
leverage ratio that would amend the 2013 revised capital rule and 
change the basis for calculating the supplementary leverage ratio.
    Under the final rule, a covered BHC that maintains a leverage 
buffer greater than 2 percent of its total leverage exposure is not 
subject to the rule's limitations on its distributions and 
discretionary bonus payments.\32\ If the covered BHC maintains a 
leverage buffer of 2 percent or less, it is subject to increasingly 
stricter limitations on such payouts. An IDI that is a subsidiary of a 
covered BHC is required to satisfy a 6 percent supplementary leverage 
ratio to be considered well capitalized for PCA purposes. The leverage 
ratio PCA thresholds under the 2013 revised capital rule and this final 
rule are shown in Table 1.
---------------------------------------------------------------------------

    \32\ See section 11(a)(4) of the 2013 revised capital rule.

                                       Table 1--Leverage Ratio PCA Levels
----------------------------------------------------------------------------------------------------------------
                                                                    Supplementary
                                                                  leverage ratio for     Supplementary leverage
           PCA category                Generally applicable      advanced approaches   ratio for subsidiary IDIs
                                     leverage ratio (percent)   banking organizations  of covered BHCs (percent)
                                                                      (percent)
----------------------------------------------------------------------------------------------------------------
Well Capitalized..................  >=5.......................  Not applicable.......  >=6.
Adequately Capitalized............  >=4.......................  >=3..................  >=3.
Undercapitalized..................  <4........................  <3...................  <3.
Significantly Undercapitalized....  <3........................  Not applicable.......  Not applicable.
Critically Undercapitalized.......  Tangible equity (defined    Not applicable.......  Not applicable.
                                     as tier 1 capital plus
                                     non-tier 1 perpetual
                                     preferred stock) to Total
                                     Assets <=2.
----------------------------------------------------------------------------------------------------------------
Note: The supplementary leverage ratio includes many off-balance sheet exposures in its denominator; the
  generally applicable leverage ratio does not.

    All advanced approaches banking organizations must calculate and 
begin reporting their supplementary leverage ratios beginning in the 
first quarter of 2015. However, the enhanced supplementary leverage 
ratio standards for covered organizations set forth in the final rule 
do not become effective until January 1, 2018.

IV. Regulatory Analysis

A. Paperwork Reduction Act (PRA)

    There is no new collection of information pursuant to the PRA (44 
U.S.C. 3501 et seq.) contained in this final rule. The agencies did not 
receive any comment on their PRA analysis.

B. Regulatory Flexibility Act Analysis

OCC
    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) requires 
an agency, in connection with a final rule, to prepare a Final 
Regulatory Flexibility Act analysis describing the impact of the rule 
on small entities (defined by the Small Business Administration for 
purposes of the RFA to include banking entities with total assets of 
$500 million or less) or to certify that the rule will not have a 
significant economic impact on a substantial number of small entities.
    Using the SBA's size standards, as of December 31, 2013, the OCC 
supervised 1,195 small entities.\33\
---------------------------------------------------------------------------

    \33\ The OCC calculated the number of small entities using the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $500 million and $35.5 million, 
respectively. 78 FR 37409 (June 20, 2013). Consistent with the 
General Principles of Affiliation 13 CFR 121.103(a), the OCC counted 
the assets of affiliated financial institutions when determining 
whether to classify a national bank or Federal savings association 
as a small entity. The OCC used December 31, 2013, to determine size 
because a ``financial institution's assets are determined by 
averaging the assets reported on its four quarterly financial 
statements for the preceding year.'' See footnote 8 of the U.S. 
Small Business Administration's Table of Size Standards.
---------------------------------------------------------------------------

    As described in the SUPPLEMENTARY INFORMATION section of the 
preamble, the final rule strengthens the supplementary leverage ratio 
standards for covered BHCs and their IDI subsidiaries. Because the 
final rule applies only to covered BHCs and their IDI subsidiaries, it 
does not impact any OCC-supervised small entities. Therefore, the OCC 
certifies that the final rule will not have a significant economic 
impact on a substantial number of OCC-supervised small entities.
Board
    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) requires 
an agency to provide a final regulatory flexibility analysis with a 
final rule or to certify that the rule will not have a significant 
economic impact on a substantial number of small entities (defined for 
purposes of the RFA beginning on July 22, 2013, to include banks with 
assets less than or equal to $500 million) \34\ and publish its 
analysis or a summary, or its certification and a short, explanatory 
statement, in the Federal Register along with the final rule.
---------------------------------------------------------------------------

    \34\ See 13 CFR 121.201. Effective July 22, 2013, the Small 
Business Administration revised the size standards for banking 
organizations to $500 million in assets from $175 million in assets. 
78 FR 37409 (June 20, 2013).
---------------------------------------------------------------------------

    The Board is providing a final regulatory flexibility analysis with 
respect to this final rule. As discussed above, this final rule is 
designed to enhance the safety and soundness of U.S. top-tier bank 
holding companies with at least $700 billion in consolidated assets or 
at least $10 trillion in assets under custody (covered BHCs), and the 
insured depository institution subsidiaries of covered BHCs. The Board 
received no public comments on the proposed rule from members of the 
general public or from the Chief Counsel for Advocacy of the Small 
Business Administration. Thus, no issues were raised in public comments 
relating to the Board's initial regulatory flexibility act analysis and 
no changes are being made in response to such comments.
    Under regulations issued by the Small Business Administration, a 
small entity includes a depository institution or

[[Page 24539]]

bank holding company with total assets of $500 million or less (a small 
banking organization). As of December 31, 2013, there were 627 small 
state member banks. As of December 31, 2013, there were approximately 
3,676 small bank holding companies. No small top-tier bank holding 
company would meet the threshold provided in the final rule, so there 
would be no additional projected compliance requirements imposed on 
small bank holding companies. One covered bank holding company has one 
small state member bank subsidiary, which would be covered by the final 
rule. The Board expects that any small banking organization covered by 
the final rule would rely on its parent banking organization for 
compliance and would not bear additional costs.
    The Board believes that the final rule will not have a significant 
economic impact on small banking organizations supervised by the Board 
and therefore believes that there are no significant alternatives to 
the final rule that would reduce the economic impact on small banking 
organizations supervised by the Board.
FDIC
    The RFA requires an agency to provide an FRFA with a final rule or 
to certify that the rule will not have a significant economic impact on 
a substantial number of small entities (defined for purposes of the RFA 
to include banking entities with total assets of $500 million or 
less).\35\
---------------------------------------------------------------------------

    \35\ Effective July 22, 2013, the SBA revised the size standards 
for banking organizations to $500 million in assets from $175 
million in assets. 78 FR 37409 (June 20, 2013).
---------------------------------------------------------------------------

    As described in sections I and III of this preamble, the final rule 
strengthens the supplementary leverage ratio standards for covered BHCs 
and their advanced approaches IDI subsidiaries. As of December 31, 
2013, 1 (out of 3,394) small state nonmember bank and no (out of 303) 
small state savings associations were advanced approaches IDI 
subsidiaries of a covered BHC. Therefore, the FDIC does not believe 
that the final rule will result in a significant economic impact on a 
substantial number of small entities under its supervisory 
jurisdiction.
    The FDIC certifies that the final rule does not have a significant 
economic impact on a substantial number of small FDIC-supervised 
institutions.

C. OCC Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 
104-4 (Unfunded Mandates Reform Act) provides that an agency that is 
subject to the Unfunded Mandates Act must prepare a budgetary impact 
statement before promulgating a rule that includes a Federal mandate 
that may result in expenditure by State, local, and tribal governments, 
in the aggregate, or by the private sector, of $100 million (adjusted 
for inflation) or more in any one year. The current inflation-adjusted 
expenditure threshold is $141 million. If a budgetary impact statement 
is required, section 205 of the UMRA also requires an agency to 
identify and consider a reasonable number of regulatory alternatives 
before promulgating a rule. The OCC has determined this proposed rule 
is likely to result in the expenditure by the private sector of $141 
million or more. The OCC has prepared a budgetary impact analysis and 
identified and considered alternative approaches. When the final rule 
is published in the Federal Register, the full text of the OCC's 
analyses will available at: http://www.regulations.gov, Docket ID OCC-
2013-0008.

D. Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The agencies have sought to present 
the final rule in a simple and straightforward manner. The agencies did 
not receive any comment on their use of plain language.

List of Subjects

12 CFR Part 6

    National banks.

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 217

    Administrative practice and procedure, Banks, Banking, Capital, 
Federal Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 324

    Administrative practice and procedure, Banks, banking, Capital 
Adequacy, Reporting and recordkeeping requirements, Savings 
associations, State non-member banks.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I
Authority and Issuance
    For the reasons set forth in the preamble and under the authority 
of 12 U.S.C. 93a, 1831o, and 5412(b)(2)(B), the Office of the 
Comptroller of the Currency amends part 6 of chapter I of title 12, 
Code of Federal Regulations as follows:

PART 6--PROMPT CORRECTIVE ACTION

0
1. The authority citation for part 6 continues to read as follows:

    Authority:  12 U.S.C. 93a, 1831o, 5412(b)(2)(B).


0
2. Amend Sec.  6.4 by revising paragraph (c)(1)(iv) to read as follows:


Sec.  6.4  Capital measures and capital category definition.

* * * * *
    (c) * * *
    (1) * * *
    (iv) Leverage Measure:
    (A) The national bank or Federal savings association has a leverage 
ratio of 5.0 percent or greater; and
    (B) With respect to a national bank or Federal savings association 
that is a subsidiary of a U.S. top-tier bank holding company that has 
more than $700 billion in total assets as reported on the company's 
most recent Consolidated Financial Statement for Bank Holding Companies 
(FR Y-9C) or more than $10 trillion in assets under custody as reported 
on the company's most recent Banking Organization Systemic Risk Report 
(Y-15), on January 1, 2018 and thereafter, the national bank or Federal 
savings association has a supplementary leverage ratio of 6.0 percent 
or greater; and
* * * * *

Board of Governors of the Federal Reserve System

12 CFR Chapter II
Authority and Issuance
    For the reasons set forth in the preamble, chapter II of title 12 
of the Code of Federal Regulations is amended as follows:

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
3. The authority citation for part 208 is revised to read as follows:


[[Page 24540]]


    Authority:  12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, and 5371; 
15 U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, and 78w, 
1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 
4104a, 4104b, 4106 and 4128.


0
4. In Sec.  208.41, redesignate paragraphs (c) through (j) as 
paragraphs (d) through (k), and add a new paragraph (c) to read as 
follows:


Sec.  208.41  Definitions for purposes of this subpart.

* * * * *
    (c) Covered BHC means a covered BHC as defined in Sec.  217.2 of 
Regulation Q (12 CFR 217.2).
* * * * *

0
5. Amend Sec.  208.43 as follows:
0
a. Add paragraph (a)(2)(iv)(C).
0
b. Revise paragraph (c)(1)(iv).


Sec.  208.43  Capital measures and capital category definitions.

    (a) * * *
    (2) * * *
    (iv) * * *
    (C) With respect to any bank that is a subsidiary (as defined in 
Sec.  217.2 of Regulation Q (12 CFR 217.2)) of a covered BHC, on 
January 1, 2018, and thereafter, the supplementary leverage ratio.
* * * * *
    (c) * * *
    (1) * * *
    (iv) Leverage Measure:
    (A) The bank has a leverage ratio of 5.0 percent or greater; and
    (B) Beginning on January 1, 2018, with respect to any bank that is 
a subsidiary of a covered BHC under the definition of ``subsidiary'' in 
section 217.2 of Regulation Q (12 CFR 217.2), the bank has a 
supplementary leverage ratio of 6.0 percent or greater; and
* * * * *

PART 217--CAPITAL ADEQUACY OF BOARD-REGULATED INSTITUTIONS

0
6. The authority citation for part 217 is revised to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371.

0
7. Amend Sec.  217.1 by revising paragraph (f)(4) to read as follows:


Sec.  217.1  Purpose, applicability, reservations of authority, and 
timing.

* * * * *
    (f) * * *
    (4) Beginning January 1, 2018, a covered BHC (as defined in Sec.  
217.2) is subject to limitations on distributions and discretionary 
bonus payments in accordance with the lower of the maximum payout 
amount as determined under Sec.  217.11(a)(2)(iii) and the maximum 
leverage payout amount as determined under Sec.  217.11(a)(2)(vi).

0
8. In Sec.  217.2 add a definition of ``covered BHC'' in alphabetical 
order to read as follows:


Sec.  217.2  Definitions.

* * * * *
    Covered BHC means a U.S. top-tier bank holding company that has 
more than $700 billion in total assets as reported on the company's 
most recent Consolidated Financial Statements for Holding Companies (FR 
Y-9C) or more than $10 trillion in assets under custody as reported on 
the company's most recent Banking Organization Systemic Risk Report (FR 
Y-15).
* * * * *

0
9. In Sec.  217.11
0
A. Add new paragraphs (a)(2)(v) and (a)(2)(vi), and (c);
0
B. Revise paragraph (a)(4); and
0
C. Add Table 2 to read as follows.


Sec.  217.11  Capital conservation buffer and countercyclical capital 
buffer amount.

    (a) * * *
    (2) * * *
    (v) Maximum leverage payout ratio. The maximum leverage payout 
ratio is the percentage of eligible retained income that a covered BHC 
can pay out in the form of distributions and discretionary bonus 
payments during the current calendar quarter. The maximum leverage 
payout ratio is based on the covered BHC's leverage buffer, calculated 
as of the last day of the previous calendar quarter, as set forth in 
Table 2 of this section.
    (vi) Maximum leverage payout amount. A covered BHC's maximum 
leverage payout amount for the current calendar quarter is equal to the 
covered BHC's eligible retained income, multiplied by the applicable 
maximum leverage payout ratio, as set forth in Table 2 of this section.
* * * * *
    (4) Limits on distributions and discretionary bonus payments. (i) A 
Board-regulated institution shall not make distributions or 
discretionary bonus payments or create an obligation to make such 
distributions or payments during the current calendar quarter that, in 
the aggregate, exceed the maximum payout amount or, as applicable, the 
maximum leverage payout amount.
    (ii) A Board-regulated institution that has a capital conservation 
buffer that is greater than 2.5 percent plus 100 percent of its 
applicable countercyclical capital buffer, in accordance with paragraph 
(b) of this section, and, if applicable, that has a leverage buffer 
that is greater than 2.0 percent, in accordance with paragraph (c) of 
this section, is not subject to a maximum payout amount or maximum 
leverage payout amount under this section.
    (iii) Negative eligible retained income. Except as provided in 
paragraph (a)(4)(iv) of this section, a Board-regulated institution may 
not make distributions or discretionary bonus payments during the 
current calendar quarter if the Board-regulated institution's:
    (A) Eligible retained income is negative; and
    (B) Capital conservation buffer was less than 2.5 percent, or, if 
applicable, leverage buffer was less than 2.0 percent, as of the end of 
the previous calendar quarter.
* * * * *
    (c) Leverage buffer--(1) General. A covered BHC is subject to the 
lower of the maximum payout amount as determined under paragraph 
(a)(2)(iii) of this section and the maximum leverage payout amount as 
determined under paragraph (a)(2)(vi) of this section.
    (2) Composition of the leverage buffer. The leverage buffer is 
composed solely of tier 1 capital.
    (3) Calculation of the leverage buffer. (i) A covered BHC's 
leverage buffer is equal to the covered BHC's supplementary leverage 
ratio minus 3 percent, calculated as of the last day of the previous 
calendar quarter based on the covered BHC's most recent Consolidated 
Financial Statement for Bank Holding Companies (FR Y-9C).
    (ii) Notwithstanding paragraph (c)(3)(i) of this section, if the 
covered BHC's supplementary leverage ratio is less than or equal to 3 
percent, the covered BHC's leverage buffer is zero.

[[Page 24541]]



 Table 2 to Sec.   217.11--Calculation of Maximum Leverage Payout Amount
------------------------------------------------------------------------
                                       Maximum leverage payout ratio (as
           Leverage buffer             a percentage of eligible retained
                                                    income)
------------------------------------------------------------------------
Greater than 2.0 percent............  No payout ratio limitation
                                       applies.
Less than or equal to 2.0 percent,    60 percent.
 and greater than 1.5 percent.
Less than or equal to 1.5 percent,    40 percent.
 and greater than 1.0 percent.
Less than or equal to 1.0 percent,    20 percent.
 and greater than 0.5 percent.
Less than or equal to 0.5 percent...  0 percent.
------------------------------------------------------------------------

Federal Deposit Insurance Corporation

12 CFR Chapter III
Authority and Issuance
    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation is amending part 324 of chapter III of Title 12, 
Code of Federal Regulations as follows:

PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS

0
10. The authority section for part 324 continues to read as follows:

    Authority:  12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, 
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note).

0
11. Revise Sec.  324.403(b)(1)(v) to read as follows:


Sec.  324.403  Capital measures and capital category definitions.

* * * * *
    (b) * * *
    (1) * * *
    (v) Beginning on January 1, 2018 and thereafter, an FDIC-supervised 
institution that is a subsidiary of a covered BHC will be deemed to be 
well capitalized if the FDIC-supervised institution satisfies 
paragraphs (b)(1)(i) through (iv) of this section and has a 
supplementary leverage ratio of 6.0 percent or greater. For purposes of 
this paragraph, a covered BHC means a U.S. top-tier bank holding 
company with more than $700 billion in total assets as reported on the 
company's most recent Consolidated Financial Statement for Bank Holding 
Companies (FR Y-9C) or more than $10 trillion in assets under custody 
as reported on the company's most recent Banking Organization Systemic 
Risk Report (FR Y-15); and
* * * * *

    Dated: April 8, 2014.
Thomas J. Curry,
Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System, April 10, 2014.
Robert deV. Frierson,
Secretary of the Board.

    Dated at Washington, DC, this 8th day of April, 2014.

    By order of the Board of Directors.
Robert E. Feldman,
Executive Secretary, Federal Deposit Insurance Corporation.
[FR Doc. 2014-09367 Filed 4-30-14; 8:45 am]
BILLING CODE P