[Federal Register Volume 79, Number 187 (Friday, September 26, 2014)]
[Rules and Regulations]
[Pages 57725-57751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-22083]


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DEPARTMENT OF TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2014-0008]
RIN 1557-AD81

FEDERAL RESERVE SYSTEM

12 CFR Part 217

[Regulation Q Docket No. R-1487]
RIN 7100-AD16

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 324

RIN 3064-AE12


Regulatory Capital Rules: Regulatory Capital, Revisions to the 
Supplementary Leverage Ratio

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

ACTION: Final rule.

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SUMMARY: In May 2014, 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) issued a notice of proposed rulemaking (NPR or proposed rule) 
to revise the definition of the denominator of the supplementary 
leverage ratio (total leverage exposure) that the agencies adopted in 
July 2013 as part of comprehensive revisions to the agencies' 
regulatory capital rules (2013 revised capital rule). The agencies are 
adopting the proposed rule as final (final rule) with certain revisions 
and clarifications based on comments received on the proposed rule.
    The final rule revises total leverage exposure as defined in the 
2013 revised capital rule to include the effective notional principal 
amount of credit derivatives and other similar instruments through 
which a banking

[[Page 57726]]

organization provides credit protection (sold credit protection); 
modifies the calculation of total leverage exposure for derivative and 
repo-style transactions; and revises the credit conversion factors 
applied to certain off-balance sheet exposures. The final rule also 
changes the frequency with which certain components of the 
supplementary leverage ratio are calculated and establishes the public 
disclosure requirements of certain items associated with the 
supplementary leverage ratio.
    The final rule applies to all banks, savings associations, bank 
holding companies, and savings and loan holding companies (banking 
organizations) that are subject to the agencies' advanced approaches 
risk-based capital rules, as defined in the 2013 revised capital rule 
(advanced approaches banking organizations), including advanced 
approaches banking organizations that are subject to the enhanced 
supplementary leverage ratio standards that the agencies finalized in 
May 2014 (eSLR standards). Consistent with the 2013 revised capital 
rule, advanced approaches banking organizations will be required to 
disclose their supplementary leverage ratios beginning January 1, 2015, 
and will be required to comply with a minimum supplementary leverage 
ratio capital requirement of 3 percent and, as applicable, the eSLR 
standards beginning January 1, 2018.

DATES: The final rule is effective January 1, 2015.

FOR FURTHER INFORMATION CONTACT:
    OCC: Margot Schwadron, Senior Risk Expert, (202) 649-6982; or 
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, for persons who are 
deaf or hard of hearing, TTY (202) 649-5597, Office of the Comptroller 
of the Currency, 400 7th Street SW., Washington, DC 20219.
    Board: Constance M. Horsley, Assistant Director, (202) 452-5239; 
Thomas Boemio, Manager, (202) 452-2982; Sviatlana Phelan, Supervisory 
Financial Analyst, (202) 912-4306; or Holly Kirkpatrick, Supervisory 
Financial Analyst, (202) 452-2796, Capital and Regulatory Policy, 
Division of Banking Supervision and Regulation; or April C. Snyder, 
Senior Counsel, (202) 452-3099; Christine E. Graham, Counsel (202) 452-
3005; or Mark 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: 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 Michael Phillips, 
Counsel, [email protected]; or Rachel Ackmann, Senior Attorney, 
[email protected]; or Grace Pyun, Senior Attorney, [email protected]; 
Supervision Branch, Legal Division, Federal Deposit Insurance 
Corporation, 550 17th Street NW., Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    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) 
adopted the supplementary leverage ratio in July 2013 as part of 
comprehensive revisions to the agencies' regulatory capital rule (2013 
revised capital rule).\1\ Under the 2013 revised capital rule, a 
minimum supplementary leverage ratio requirement of 3 percent applies 
to all banking organizations that are subject to the agencies' advanced 
approaches risk-based capital rule (advanced approaches banking 
organizations).\2\ The supplementary leverage ratio in the 2013 revised 
capital rule is generally consistent with the international leverage 
ratio introduced by the Basel Committee on Banking Supervision (BCBS) 
in 2010 (Basel III leverage ratio). Under the enhanced supplementary 
leverage ratio standards (eSLR standards) finalized by the agencies in 
May 2014, U.S. top-tier bank holding companies (BHCs) with more than 
$700 billion in consolidated total assets or more than $10 trillion in 
assets under custody must maintain a leverage buffer greater than 2 
percentage points above the minimum supplementary leverage ratio 
requirement of 3 percent, for a total of more than 5 percent, to avoid 
restrictions on capital distributions and discretionary bonus 
payments.\3\ Insured depository institution (IDI) subsidiaries of such 
BHCs must maintain at least a 6 percent supplementary leverage ratio to 
be considered ``well-capitalized'' under the agencies' prompt 
corrective action framework.
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    \1\ The Board and the OCC published a joint final rule in the 
Federal Register on October 11, 2013 (78 FR 62018) and the FDIC 
published in the Federal Register a substantially identical final 
rule on April 14, 2014 (79 FR 20754).
    \2\ 12 CFR 3.10(a)(5) (OCC); 12 CFR 217.10(a)(5) (Board); and 12 
CFR 324.10(a)(5) (FDIC).
    \3\ The eSLR standards were finalized by the agencies on May 1, 
2014 (79 FR 24528).
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    On May 1, 2014, the agencies published in the Federal Register, for 
public comment, a notice of proposed rulemaking (NPR or proposed rule) 
to revise the definition of the denominator of the supplementary 
leverage ratio (total leverage exposure).\4\ The proposed rule would 
have revised the supplementary leverage ratio, consistent with the 
January 2014 BCBS revisions to the Basel III leverage ratio (BCBS 2014 
revisions), to incorporate in total leverage exposure the effective 
notional principal amount of credit derivatives or similar instruments 
through which a banking organization provides credit protection (sold 
credit protection), modify the measure of exposure for derivative and 
repo-style transactions, and revise the credit conversion factors 
(CCFs) for certain off-balance sheet exposures.\5\ It would have 
required total leverage exposure to be calculated as the mean of total 
leverage exposure, calculated daily, and would have required public 
disclosure of certain items associated with the supplementary leverage 
ratio. In general, the proposed changes were designed to strengthen the 
supplementary leverage ratio by more appropriately capturing the 
exposure of a banking organization's on- and off-balance sheet items.
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    \4\ 79 FR 24596 (May 1, 2014).
    \5\ See BCBS, ``Basel III leverage ratio framework and 
disclosure requirements'' (January 2014), available at http://www.bis.org/publ/bcbs270.htm. See also BCBS, ``Revised Basel III 
leverage ratio framework and disclosure requirements--consultative 
document'' (June 2013), available at http://www.bis.org/publ/bcbs251.htm.
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    As discussed further below, the agencies are adopting the proposed 
rule as final (final rule) with certain revisions and clarifications 
based on comments received on the proposed rule. In addition, the 
agencies are revising the calculation of total leverage exposure to 
provide that the on-balance sheet portion of total leverage exposure 
will be calculated as the average of each day of the reporting quarter, 
but the off-balance sheet portion of total leverage exposure will be 
calculated as the average of the three month-end amounts of the most 
recent three months. Consistent with the 2013 revised capital rule, 
advanced approaches banking organizations will be required to disclose 
their supplementary leverage ratios beginning January 1, 2015, and will 
be required to comply with the minimum supplementary leverage ratio

[[Page 57727]]

capital requirement and, as applicable, the eSLR standards, beginning 
January 1, 2018.

II. Summary of Comments on the NPR and Description of the Final Rule

    The agencies sought comment on all aspects of the NPR and received 
14 public comments from banking organizations, trade associations 
representing the banking or financial services industry, an options and 
futures exchange, a supervisory authority, a public interest advocacy 
group, three private individuals, and other interested parties. In 
general, comments from financial services firms, banking organizations, 
banking trade associations and other industry groups were supportive of 
the proposed rule because it would enhance international consistency, 
but were critical of certain aspects of the NPR. Comments from an 
organization representing smaller banking organizations, a group of 
state bank supervisors, a public interest advocacy group, and two 
individuals were more generally supportive of the NPR, but they also 
expressed certain concerns. One individual commenter strongly opposed 
the proposed rule. A detailed discussion of the proposed rule, 
commenters' concerns, and the agencies' responses to those concerns are 
provided in the remainder of this preamble.

A. Calibration of the Supplementary Leverage Ratio and the eSLR 
Standards

    As noted above in Part I, a U.S. top-tier BHC with more than $700 
billion in consolidated total assets or more than $10 trillion in 
assets under custody must maintain a leverage buffer greater than 2 
percentage points above the minimum supplementary leverage ratio 
requirement of 3 percent, for a total of more than 5 percent, to avoid 
restrictions on capital distributions and discretionary bonus payments. 
IDI subsidiaries of such BHCs must maintain at least a 6 percent 
supplementary leverage ratio to be considered ``well capitalized'' 
under the agencies' prompt corrective action framework. The NPR did not 
propose changes to the minimum supplementary leverage ratio or eSLR 
standards, but did propose changes to the denominator of the 
supplementary leverage ratio, which could require banking organizations 
subject to the supplementary leverage ratio standards (including the 
eSLR standards) to hold higher amounts of tier 1 capital to meet the 
standards. The agencies asked in the proposal whether the proposed 
changes to the definition of total leverage exposure warranted any 
changes to the calibration of the minimum ratios, or the well-
capitalized or buffer levels of the supplementary leverage ratio.
    Some commenters encouraged the agencies to reconsider the eSLR 
standards in general, raising issues similar to the comments that the 
agencies received on the proposal to implement the eSLR standards.\6\ 
For example, commenters expressed the view that the eSLR standards were 
not consistent with the BCBS's leverage ratio framework and could 
therefore result in competitive disparities across jurisdictions. One 
commenter expressed disappointment with the decision to bifurcate the 
eSLR standards for BHCs and IDIs. A number of commenters expressed 
concern that the NPR, in combination with the eSLR standards, could 
cause the supplementary leverage ratio to become the binding regulatory 
capital constraint, rather than a backstop to the risk-based capital 
measure. These commenters concluded that a consequence of a binding 
supplementary leverage ratio could be that banking organizations may 
divest lower risk assets and assume more risk, to the detriment of 
financial stability.
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    \6\ 78 FR 51101 (Aug. 20, 2013).
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    The agencies considered these comments in connection with adopting 
the eSLR standards, and the agencies' views on those comments are set 
forth in the preamble to the final rule implementing the eSLR 
standards. As noted in that preamble, and discussed further below, the 
agencies believe that the maintenance of a complementary relationship 
between the leverage and risk-based capital ratios is important to 
ensure that each type of capital requirement continues to serve as an 
appropriate counterbalance to offset 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 banking organizations could potentially benefit from active 
management of risk-weighted assets before they breach the leverage 
requirements may be greater. To account for the increases in stringency 
in the risk-based capital framework, the agencies calibrated the eSLR 
standards so that they remain in an effective complementary 
relationship with the risk-based capital requirements. The proposed 
revisions to total leverage exposure were designed to more 
appropriately capture the exposure of a banking organization's on- and 
off-balance sheet exposures, which furthers this complementarity.
    In adopting the eSLR standards and developing the proposed rule, 
the agencies considered the combined impact of the eSLR standards and 
the proposed changes to total leverage exposure.\7\ The agencies noted 
that, quantitatively, compared to the 2013 revised capital rule, the 
most important changes in total leverage exposure in the proposed rule 
are: (i) The proposed use of standardized CCFs for certain off-balance 
sheet activities, which should lead to a reduction in total leverage 
exposure, and (ii) the proposed treatment of sold credit derivatives, 
which should lead to an increase in total leverage exposure. However, 
the actual total leverage exposure under the proposed rule would be 
especially sensitive to the volume of sold credit derivative activities 
and would be dependent on whether those activities are hedged in a 
manner recognized under the proposed rule. As discussed in the proposed 
rule, supervisory estimates suggested that the proposed changes to the 
definition of total leverage exposure would result in an approximately 
8.5 percent aggregate increase in total leverage exposure across the 
BHCs subject to the eSLR standards, relative to the definition of total 
leverage exposure in the 2013 revised capital rule. Based on current 
estimates, total leverage exposure across the eight BHCs subject to the 
eSLR standards would increase by an average of 2.6 percent under the 
proposed rule as compared to the definition of total leverage exposure 
under the 2013 revised capital rule. In both analyses, on an individual 
firm basis, for some BHCs subject to the eSLR standards, total leverage 
exposure increased, while for others it decreased, relative to the 
definition of total leverage exposure in the 2013 revised capital rule. 
The decline from an 8.5 percent to a 2.6 percent aggregate increase 
reflects a lower estimate of the impact of including the notional 
amount of credit derivatives, resulting from trade compression and 
possibly more

[[Page 57728]]

offsetting of credit derivatives in response to the proposed rule.
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    \7\ The estimates were generated by using December 2013 
Comprehensive Capital Analysis and Review process data (which 
reflects banking organizations' own projections of their 
supplementary leverage ratios under the supervisory baseline 
scenario, including banking organizations' own assumptions about 
earnings retention and other strategic actions), December Y-9C data, 
and June 2013 Quantitative Impact Study data.
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    Using data as of the second quarter of 2014, the agencies estimate 
that BHCs subject to the eSLR standards will need to raise, in the 
aggregate, approximately $14.5 billion of tier 1 capital to exceed a 5 
percent supplementary leverage ratio under the definition of total 
leverage exposure in the final rule, over and above the amount BHCs 
subject to the eSLR standards would have needed to raise under the 
definition of total leverage exposure in the 2013 revised capital rule. 
This is less than the incremental effect estimated in the proposed rule 
of $46 billion, based on data as of the fourth quarter of 2013. The 
change is the result of capital raising by BHCs subject to the eSLR 
standards, who increased their tier 1 capital by 9.3 percent, in 
combination with a 2.9 percent increase in total leverage exposure, 
between the fourth quarter of 2013 and the second quarter of 2014.
    Based on these considerations, the agencies believe that the 
revisions to the definition of total leverage exposure should not 
affect the calibration of the 5 and 6 percent supplementary leverage 
ratio thresholds under the eSLR standards.

B. Total Leverage Exposure Definition

    The proposed rule would have adjusted the measure of total leverage 
exposure to more appropriately capture the exposure of a banking 
organization's on- and off-balance sheet items. For example, the 
proposed rule would have included in total leverage exposure the 
effective notional principal amount of credit derivatives and other 
similar instruments through which a banking organization provides 
credit protection (sold credit protection), which has the effect of 
increasing total leverage exposure associated with these credit 
derivatives, and would have introduced graduated CCFs for off-balance 
sheet exposures, which would have reduced total leverage exposure with 
respect to these items. The proposed rule also would have modified the 
total leverage exposure calculation for derivative contracts and repo-
style transactions in a manner that is intended to ensure that the 
supplementary leverage ratio appropriately reflects the economic 
exposure of these activities.
1. Exclusion of Certain On-balance Sheet Assets
    Many commenters expressed the view that the definition of total 
leverage exposure should exclude certain categories of assets. 
Specifically, commenters encouraged the agencies to exclude from total 
leverage exposure highly liquid assets, such as cash, claims on central 
banks, and sovereign securities, particularly U.S. Treasuries. Some 
commenters expressed concern that including highly liquid and low-risk 
assets in total leverage exposure could have negative consequences, 
including the creation of disincentives for banking organizations to 
engage in prudent risk management practices. According to commenters, 
total leverage exposure as proposed could incentivize banking 
organizations to abandon lower-margin business lines in favor of 
higher-risk, higher-return activities, in order to increase return on 
equity.
    Some commenters also expressed the view that the inclusion of the 
full value of highly liquid and low-risk assets in total leverage 
exposure would conflict with the agencies' proposed liquidity coverage 
ratio (LCR) rulemaking, which requires holdings of high-quality liquid 
assets (HQLA).\8\ These commenters maintained that the proposed changes 
to the supplementary leverage ratio would increase capital requirements 
for banking organizations that have been increasing their inventories 
of HQLA in an effort to comply with the LCR requirements because the 
proposed supplementary leverage ratio would effectively penalize HQLA 
with higher capital charges per unit of risk.
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    \8\ 78 FR 71818 (Nov. 29, 2013).
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    Certain commenters also expressed the view that the inclusion of 
low-risk assets in the definition of total leverage exposure penalizes 
core aspects of the custody bank business model, including the 
intermediation of high-volume, low-risk, low-return financial 
activities and broad reliance on essentially riskless assets, notably 
central bank deposits. Specifically, these commenters recommended that 
the final rule exclude deposits with central banks (including Federal 
Reserve Banks) from total leverage exposure in order to accommodate 
increases in banking organizations' assets, both temporary and 
sustained, that occur as a result of macroeconomic factors and monetary 
policy decisions, particularly during periods of financial market 
stress. Additionally, these commenters recommended that the agencies 
adjust total leverage exposure for central bank deposits associated 
with excess amounts of operationally-linked client deposit balances. 
Under this approach, a banking organization would be permitted to 
deduct its excess operational deposits placed with a central bank from 
its measure of total leverage exposure, subject to a standardized 
supervisory factor and excluding any balances resulting from reserve or 
other similar requirements. Several commenters noted that custody 
banks, which can experience volatility in deposits tied to day-to-day 
activities, could potentially take actions, such as limiting payment, 
clearing, and settlement activities, or placing unilateral restrictions 
on deposit inflows, if the definition of total leverage exposure is 
unchanged from the proposed rule. Some commenters also noted that the 
daily averaging provision in the NPR, which would have required that 
banking organizations calculate quarter-end total leverage exposure 
based on the daily average of exposure amounts throughout the quarter, 
would not significantly address these concerns.
    Alternatively, some commenters suggested that the agencies discount 
or cap the amount of such assets included in total leverage exposure. 
In particular, they suggested that the agencies could set certain 
threshold levels for particular low-risk assets relative to total 
assets where any holdings of such low-risk assets beyond this threshold 
would be excluded from total leverage exposure. In addition, some 
commenters recommended that the agencies preserve flexibility during 
periods of financial market stress, particularly to address a large, 
temporary increase in a banking organization's cash account that could 
lead to a sharp decrease in the banking organization's supplementary 
leverage ratio.
    The agencies addressed similar comments in the final rule 
implementing the eSLR standards. In general, the supplementary leverage 
ratio is designed to require a banking organization to hold a minimum 
amount of capital against total assets and off-balance sheet exposures, 
regardless of the riskiness of the individual assets. Excluding central 
bank deposits would not be consistent with this principle. In response 
to commenters' concern that total leverage exposure as proposed could 
incentivize banking organizations to hold higher-risk, higher-return 
assets, the agencies maintain that the complementary relationship 
between the leverage and risk-based capital ratios is designed to 
mitigate any regulatory capital incentives for banking organizations to 
inappropriately increase their risk profile in response to a strict 
supplementary leverage ratio.\9\ If

[[Page 57729]]

the supplementary leverage ratio were to become the binding regulatory 
capital ratio for a particular banking organization, and that banking 
organization were to acquire more higher-risk assets, risk-weighted 
assets 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 supplementary leverage ratio would become binding. 
Regardless of which framework is binding, banking organizations could 
potentially increase their holdings of assets whose risks are not 
adequately addressed by the binding framework. In this regard, the 
agencies note the importance of the complementary nature of the two 
frameworks in counterbalancing such incentives. Moreover, the agencies 
observe 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, in addition to regulatory capital considerations.
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    \9\ 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 banking organizations could potentially benefit 
from active management of risk-weighted assets before they breach 
the leverage requirements may be greater. The agencies sought to 
calibrate the leverage and risk-based standards more closely to each 
other so that they remain in an effective complementary 
relationship.
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    In response to commenters' concern that the inclusion of the full 
value of highly liquid and low-risk assets in total leverage exposure 
would conflict with the agencies' proposed LCR rulemaking, the agencies 
believe that while the supplementary leverage ratio requires capital to 
be held against the HQLA required by the LCR, there are actions a 
banking organization could take to address an LCR HQLA shortfall, such 
as reducing short-term funding sources or off-balance sheet 
requirements, that would not necessarily increase a firm's capital 
requirement under the supplementary leverage ratio. The agencies 
believe that, in many ways, the LCR and the supplementary leverage 
ratio are complementary. In isolation, the supplementary leverage ratio 
may encourage firms to take greater liquidity risk by purchasing less 
liquid assets that have a greater yield. In contrast, the LCR, in 
isolation, may allow the firm to rely on substantial short-term funding 
as long as the firm also holds HQLA. The two measures together provide 
assurance that firms that rely substantially on short-term funding hold 
appropriate capital and liquid assets.
    The agencies understand the commenters' observation that the 
custody banks, which act as intermediaries in high-volume, low-risk, 
low-return financial activities, may experience increases in assets 
that occur as a result of macroeconomic factors and monetary policy 
decisions, particularly during periods of financial market stress. The 
agencies also recognize that certain monetary policy actions, such as 
quantitative easing, create additional reserve balances that banking 
organizations must add to their balance sheets, thereby impacting 
firms' leverage ratios. Because the supplementary leverage ratio is 
insensitive to risk, it is possible that banking organizations' costs 
of holding low-risk, low-return assets--such as reserve balances--could 
increase if such ratio were to become the binding regulatory capital 
constraint. However, as mentioned above, the agencies observe that 
banking organizations consider many factors beyond regulatory capital 
requirements, such as 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, when 
choosing an appropriate asset mix.
    With regard to the commenters' request to exclude certain low-risk 
assets, such as cash, central bank deposits, or sovereign securities 
from total leverage exposure, the agencies believe that excluding broad 
categories of assets from the denominator of the supplementary leverage 
ratio is generally inconsistent with the goal of limiting leverage 
without differentiating across asset types. Such exclusions could, for 
example, allow a banking organization to take on additional debt 
without increasing its supplementary leverage ratio requirements (if 
the proceeds from such debt are invested in certain types of assets). 
The agencies therefore believe that all of a banking organization's 
assets, including those that are viewed as low-risk assets, should be 
reflected in the supplementary leverage ratio. This makes the 
supplementary leverage ratio more difficult to arbitrage and results in 
a simpler calculation. Furthermore, the agencies do not believe that 
there is sufficient justification to treat certain low-risk assets, 
such as central bank deposits, differently in the denominator of the 
supplementary leverage ratio than other low-risk assets, such as cash 
or U.S. Treasuries. In addition, retaining the treatment as proposed 
better aligns the supplementary leverage ratio with the Basel III 
leverage ratio, which promotes international consistency in the 
calculation of total leverage exposure.
    Accordingly, the agencies have decided to not exempt or limit any 
categories of balance sheet assets from the denominator of the 
supplementary leverage ratio in the final rule. Thus, all categories of 
assets, including cash, U.S. Treasuries, and deposits at the Federal 
Reserve, are included in the denominator of the supplementary leverage 
ratio.
    The agencies note that, under the 2013 revised capital rule, the 
agencies reserved the authority to consider whether average total 
consolidated assets or total leverage exposure for a banking 
organization's supplementary leverage ratio is appropriate given the 
banking organization's exposures or its circumstances, and the agencies 
may require adjustments to those amounts. The final rule clarifies that 
this authority would be applicable by replacing the term ``leverage 
ratio exposure amount'' with the defined term ``total leverage 
exposure.''
2. Cash Variation Margin Associated With Derivative Transactions
    The proposed rule would have revised the circumstances under which 
a banking organization could offset cash collateral received from a 
counterparty against any positive mark-to-fair value of a derivative 
contract for purposes of measuring total leverage exposure. Under the 
2013 revised capital rule, total leverage exposure includes a banking 
organization's on-balance sheet assets, including the carrying value, 
if any, of derivative contracts on the banking organization's balance 
sheet. For the purpose of determining the carrying value of derivative 
contracts, U.S. generally accepted accounting principles (GAAP) provide 
a banking organization the option to reduce any positive mark-to-fair 
value of a derivative contract by the amount of any cash collateral 
received from the counterparty, provided the relevant GAAP criteria for 
offsetting are met (the GAAP offset option).\10\ Similarly, under the 
GAAP offset option, a banking organization has the option to offset the 
negative mark-to-fair value of a derivative contract with a 
counterparty

[[Page 57730]]

by the amount of any cash collateral posted to the counterparty.
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    \10\ See Accounting Standards Codification paragraphs 815-10-45-
1 through 7.
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    Under the 2013 revised capital rule, regardless of whether a 
banking organization uses the GAAP offset option to calculate the on-
balance sheet amount of derivative contracts, a banking organization 
must include any on-balance sheet assets arising from the receipt of 
cash collateral from the counterparty in its total leverage exposure.
    Under the proposed rule, if a banking organization applies the GAAP 
offset option to determine the carrying value of its derivative 
contracts, the banking organization would be required to reverse the 
effect of the GAAP offset option for purposes of determining total 
leverage exposure, unless the cash collateral recognized to reduce the 
mark-to-fair value is cash variation margin that satisfies all of the 
following conditions:
    (1) For derivative contracts that are not cleared through a 
qualifying central counterparty (QCCP), the cash collateral received by 
the recipient counterparty is not segregated;
    (2) Variation margin is calculated and transferred on a daily basis 
based on the mark-to-fair value of the derivative contract;
    (3) The variation margin transferred under the derivative contract 
or the governing rules for a cleared transaction is the full amount 
that is necessary to fully extinguish the current credit exposure 
amount to the counterparty of the derivative contract, subject to the 
threshold and minimum transfer amounts applicable to the counterparty 
under the terms of the derivative contract or the governing rules for a 
cleared transaction;
    (4) The variation margin is in the form of cash in the same 
currency as the currency of settlement set forth in the derivative 
contract, provided that, for purposes of this paragraph, currency of 
settlement means any currency for settlement specified in the 
qualifying master netting agreement,\11\ the credit support annex to 
the qualifying master netting agreement, or in the governing rules for 
a cleared transaction; and
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    \11\ Qualifying master netting agreement is defined in section 2 
of the 2013 revised capital rule.
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    (5) The derivative contract and the variation margin are governed 
by a qualifying master netting agreement between the legal entities 
that are the counterparties to the derivative contract or by the 
governing rules for a cleared transaction. The qualifying master 
netting agreement or the governing rules for a cleared transaction must 
explicitly stipulate that the counterparties agree to settle any 
payment obligations on a net basis, taking into account any variation 
margin received or provided under the contract if a credit event 
involving either counterparty occurs.
    With respect to the potential reduction of gross fair value amounts 
for cash variation margin, one commenter expressed the view that the 
calculation of total leverage exposure should follow the treatment of 
cash collateral under IFRS rather than GAAP. The agencies believe that 
the netting criteria specified in the proposal, which were developed 
without regard to whether a banking organization applies GAAP or IFRS, 
produce an appropriate measure of a banking organization's exposure to 
derivative transactions.
    With respect to the first proposed criterion, commenters expressed 
concern that a banking organization that posts cash variation margin to 
a counterparty that is not a QCCP may not know whether that 
counterparty has segregated the cash variation margin that it has 
received. These commenters recommended that the agencies clarify in the 
final rule that a banking organization posting cash variation margin 
may presume that a counterparty has not segregated the cash variation 
margin received unless required to do so pursuant to applicable legal 
requirements or under contractual terms. In the final rule, the 
agencies are clarifying that unless segregation is required by law, 
regulation, or any agreement with the counterparty, a banking 
organization that posts cash variation margin to a counterparty may 
assume that its counterparty has not segregated the cash variation 
margin it has received for purposes of meeting this criterion. The 
agencies also note that ``not segregated'' in this context means that 
the cash variation margin received is commingled with the banking 
organization's other funds. In other words, the counterparty that 
receives the cash variation margin should have no unique restrictions 
on its ability to use the cash received (e.g., the banking organization 
may use the cash variation margin received similar to other cash held 
by the banking organization).
    With respect to the second criterion, the agencies received a 
question about the calculation and transfer of cash variation margin on 
a daily basis. The commenter asked whether the second criterion would 
be met for certain categories of derivative transactions, such as 
exchange-traded options and energy derivatives, where variation margin 
may not be exchanged daily, but is exchanged on a regular basis. In 
addition, buyers of exchange-traded options do not receive variation 
margin from the options CCP, who holds the margin collected from option 
sellers during the course of the contract. For purposes of meeting the 
second criterion, derivative positions must be valued daily and cash 
variation margin must be transferred daily to the counterparty or to 
the counterparty's account when the threshold and daily minimum 
transfer amounts are satisfied according to the terms of the derivative 
contract.
    With respect to the third proposed criterion, commenters expressed 
the view that there may be occasional short-term differences between 
the amount of the variation margin provided and the mark-to-fair value 
of derivative contracts. For example, it is common practice for a 
morning margin call to be based on the mark-to-fair value of a 
derivative contract based on the previous end-of-business day's 
valuation. The commenters recommended that the agencies permit such 
small, temporary differences between the amount of variation margin 
provided and the current mark-to-fair value, so long as it is clear 
that the contract governing such transactions requires variation margin 
for the full amount of the current credit exposure. The agencies agree 
with the commenters that such temporary differences should not 
invalidate recognition of the variation margin already received, and as 
such, a morning margin call based on the mark from the end of the 
previous day should be considered to satisfy this criterion. Therefore, 
the agencies are clarifying that cash variation margin exchanged on the 
morning of the subsequent trading day would meet the third criterion 
for cash variation margin.
    As noted in the preamble to the proposed rule, the regular and 
timely exchange of cash variation margin helps to protect both 
counterparties from the effects of a counterparty default. The proposed 
conditions under which cash collateral may be used to offset the amount 
of a derivative contract were developed to ensure that such cash 
collateral is, in substance, a form of pre-settlement payment on a 
derivative contract. This approach is consistent with the design of the 
supplementary leverage ratio, which generally does not permit banking 
organizations to use collateral to reduce exposures for purposes of 
calculating total leverage exposure. The proposed conditions also 
ensure that the counterparties calculate their exposures arising from 
derivative contracts on a daily basis and transfer the net amounts 
owed, as appropriate, in a timely manner. Therefore, with the 
clarifications noted above, the agencies

[[Page 57731]]

are finalizing the criteria as proposed for permitting the use of cash 
variation margin to offset the mark-to-fair value of derivative 
contracts.
3. Credit Derivatives
    Under the 2013 revised capital rule, a banking organization would 
include in total leverage exposure the potential future exposure (PFE) 
associated with a credit derivative using the current exposure 
methodology (CEM) as specified in section 34 of the 2013 revised 
capital rule. The proposed rule would have required a banking 
organization to include in total leverage exposure the effective 
notional principal amount (that is, the apparent or stated notional 
principal amount multiplied by any multiplier in the derivative 
contract) of sold credit protection, but would have permitted the 
banking organization to reduce the effective notional principal amount 
of sold credit protection with credit protection purchased under 
certain conditions. Specifically, a banking organization would be 
permitted to reduce the effective notional principal amount of sold 
credit protection on a single exposure by the effective notional 
principal amount of a credit derivative or similar instrument through 
which the banking organization has purchased credit protection 
(purchased credit protection), provided that the purchased credit 
protection has a remaining maturity that is equal to or greater than 
the remaining maturity of the sold credit protection, and that the 
reference exposure of the purchased credit protection refers to the 
same legal entity and ranks pari passu with, or is junior to,\12\ the 
reference exposure of the sold credit protection.
---------------------------------------------------------------------------

    \12\ A credit event on the senior reference exposure must result 
in a credit event on the junior reference exposure.
---------------------------------------------------------------------------

    In addition, the NPR would have permitted a banking organization to 
reduce the effective notional principal amount of sold credit 
protection that references a single reference exposure using purchased 
credit protection that references multiple exposures if the purchased 
credit protection is economically equivalent to buying credit 
protection separately on each of the individual reference exposures of 
the sold credit protection. For example, this would be the case if a 
banking organization were to purchase credit protection on an entire 
securitization structure or on an entire index that includes the 
reference exposure of the sold credit protection. However, if a banking 
organization purchases credit protection that references multiple 
exposures, but the purchased credit protection is not economically 
equivalent to buying credit protection separately on each of the 
individual reference exposures (for example, through an nth-
to-default credit derivative or a tranche of a securitization), the 
proposed rule would not have allowed the banking organization to reduce 
the effective notional principal amount of the sold credit protection 
that references a single exposure.
    Under the NPR, to reduce the effective notional principal amount of 
sold credit protection that references multiple exposures, such as an 
index (e.g., the CDX) or a tranche of an index or securitization, the 
reference exposures of the purchased credit protection would need to 
refer to the same legal entities and rank pari passu with the reference 
exposures of the sold credit protection. The purchased credit 
protection also would need to have a remaining maturity that is equal 
to or greater than the remaining maturity of the sold credit 
protection. In addition, the level of seniority of the purchased credit 
protection would need to rank pari passu with the level of seniority of 
the sold credit protection. Therefore, offsetting would be recognized 
only when all of the reference exposures and the level of subordination 
of protection sold and protection purchased are identical. For example, 
a banking organization may reduce the effective notional principal 
amount of the sold credit protection on an index, or a tranche of an 
index, with purchased credit protection on such index, or a tranche of 
equal seniority of such index, respectively.
    In general, commenters expressed the view that the criteria in the 
proposed rule under which a banking organization could reduce the 
effective notional principal amount of sold credit protection with 
purchased credit protection were too narrow and would result in an 
overstatement of the actual economic exposure in some cases. For 
example, commenters recommended that purchased credit protection that 
has a residual tenor which is sufficiently long-term be considered 
eligible to reduce the effective notional amount of sold credit 
protection if all of the other criteria are met. These commenters 
expressed the view that such an approach would be appropriate because 
it would generally disqualify short-term purchased credit protection 
from reducing the effective notional amount of sold credit protection. 
In addition, these commenters recommended that purchased credit 
protection on a junior tranche of a securitization be allowed to offset 
protection sold on a senior tranche of the same securitization. One 
comment letter recommended a more restrictive approach, suggesting that 
offsetting sold credit protection against purchased credit protection 
should only be allowed if the protection seller has a very high credit 
rating and is not affiliated with the reference entity.
    The agencies believe that the criteria in the proposed rule strike 
a balance between recognizing the amount of sold credit protection and 
ensuring that the offsetting purchased credit protection appropriately 
matches the risks of the underlying reference exposure of the sold 
credit protection. Further, the proposed criteria for offsetting sold 
credit protection are generally consistent with the way banking 
organizations seek to limit their exposure to the underlying reference 
exposures of sold credit protection by purchasing credit protection on 
the same or similar exposures of the same or longer maturity. The 
proposed criteria result in a significant reduction of the effective 
notional amount of sold credit protection, while capturing the 
effective notional amount of sold credit protection that a banking 
organization has not fully hedged. The proposed criteria are also 
consistent with the Basel III leverage ratio standards. With regard to 
commenters' suggestions of additional adjustments and modifications to 
these criteria, changing the proposed criteria for offsetting sold 
credit protection would complicate the calculation of total leverage 
exposure and the impact of any such modifications would likely be 
immaterial. With regard to the comment that the criteria for reducing 
the effective notional amount of sold credit protection should be 
stricter, the agencies believe that restricting the criteria further 
would unduly penalize banking organizations that have significantly 
reduced their exposure to the underlying reference exposures by 
purchasing credit protection. Therefore, the final rule does not modify 
the proposed criteria to reduce the effective notional amount of sold 
credit protection.
    Commenters also recommended allowing any purchased credit 
protection which covers the entirety of the subset of exposures covered 
by the sold credit protection to reduce the effective notional amount 
of sold credit protection. Specifically, commenters sought clarity 
regarding a situation in which a banking organization has purchased and 
sold credit protection on overlapping portions of the same reference 
index or securitization, but where the purchased credit protection

[[Page 57732]]

does not cover the entirety of the portion of the index or 
securitization on which the banking organization has sold credit 
protection.
    The agencies note that the final rule does permit a banking 
organization that has purchased and sold credit protection on 
overlapping portions of the same reference index, but where the 
purchased credit protection does not cover the entirety of the portion 
of the index or securitization on which the banking organization has 
sold credit protection, to offset the sold credit protection by the 
overlapping portion of purchased credit protection. For example, if a 
banking organization has sold credit protection on the 3-7 percent 
tranche(s) of an index and purchased credit protection on the 5-10 
percent tranche(s) of the same index, the banking organization may 
offset the 5-7 percent portion of the sold credit protection, assuming 
all of the other relevant criteria are met. In such situations, 
offsetting may be recognized because, in accordance with the final 
rule, all of the reference exposures and the level of subordination of 
sold credit protection and purchased credit protection are identical 
for the overlapping portion of purchased and sold credit protection.
    Commenters recommended that the agencies clarify that clearing 
member banking organizations are not required to include the effective 
notional amount of sold credit protection cleared on behalf of a client 
though a CCP, and that such a derivative transaction, or other similar 
instrument, related to the sold credit protection should instead be 
included in total leverage exposure of the clearing member banking 
organization in the same manner as other cleared derivatives. The 
agencies are clarifying that the effective notional principal amounts 
of sold credit protection that are cleared for clearing member clients 
through CCPs are not included in a clearing member banking 
organization's total leverage exposure. In addition, the clearing 
member banking organization would include such a derivative 
transaction, or other similar instrument, related to the sold credit 
protection in its total leverage exposure in the same manner as other 
cleared derivative transactions (that is, if the clearing member 
banking organization guarantees the performance of a clearing member 
client with respect to a cleared transaction, the clearing member 
banking organization would treat the exposure to the clearing member 
client as a derivative contract).
    In addition, under the proposed rule, for sold credit protection, a 
banking organization would have accounted for the notional amount of 
sold credit protection in total leverage exposure through the effective 
notional principal amount, as well as through CEM (that is, the current 
credit exposure and the PFE), as described above. In the proposed rule, 
a banking organization would have been permitted to adjust the PFE for 
sold credit protection to avoid double-counting the notional amounts of 
these exposures. For example, if the sold credit protection was 
governed by a qualifying master netting agreement, a banking 
organization would have been permitted to adjust the PFE for sold 
credit protection covered by the qualifying master netting agreement. 
However, a banking organization would have been allowed to adjust only 
the amount Agross of the PFE calculation for sold credit 
derivatives and would not have been allowed to adjust the net-to-gross 
ratio (NGR) of the PFE calculation. Finally, a banking organization 
that elected to adjust the PFE for sold credit derivatives would have 
been required to do so consistently over time. The agencies did not 
receive any comments on the PFE adjustment, and are therefore 
finalizing this aspect of the rule substantively as proposed.
4. Repo-Style Transactions
    Under the 2013 revised capital rule, total leverage exposure 
includes the on-balance sheet carrying value of repo-style 
transactions, but not the related off-balance sheet exposure for such 
transactions. The proposed rule set forth a revised treatment of repo-
style transactions, including the conditions under which a banking 
organization would be permitted to measure the exposure of repo-style 
transactions using the carrying value for the transactions (using the 
GAAP offset for repo-style transactions, as described below), rather 
than the gross value of all receivables due from a counterparty. The 
proposed rule also specified the treatment for a security-for-security 
repo-style transaction, a repurchase or reverse repurchase transaction, 
or a securities borrowing or lending transaction that is treated as a 
sale for accounting purposes, and the counterparty credit risk 
component of repo-style transactions. The proposed rule also clarified 
the calculation of total leverage exposure for repo-style transactions 
where a banking organization acts as an agent.
a. Criteria for Recognizing the GAAP Offset for Repo-style Transactions
    For purposes of determining the on-balance sheet carrying value of 
a repo-style transaction, GAAP permits a banking organization to offset 
the gross values of receivables due from a counterparty under reverse 
repurchase agreements by the amount of the payments due to the same 
counterparty (that is, amounts recognized as payables to the same 
counterparty under repurchase agreements), provided the relevant 
accounting criteria are met (GAAP offset for repo-style transactions). 
The proposed rule specified the criteria for when a banking 
organization would have been required to reverse the GAAP offset for 
repo-style transactions for the purpose of calculating total leverage 
exposure.
    If a banking organization entered into repurchase and reverse 
repurchase transactions with the same counterparty and applied the GAAP 
offset for repo-style transactions, but the transactions did not meet 
the criteria described below, the banking organization would have been 
required to replace the net on-balance sheet assets of the reverse 
repurchase transactions determined according to GAAP, if any, with the 
gross value of receivables for those reverse repurchase transactions. 
Those criteria are:
    (1) The offsetting transactions have the same explicit final 
settlement date under their governing agreements;
    (2) The banking organization's right to offset the amount owed to 
the counterparty with the amount owed by the counterparty is legally 
enforceable in the normal course of business and in the event of 
receivership, insolvency, liquidation, or similar proceeding; and
    (3) Under the governing agreements, the counterparties intend to 
settle net, settle simultaneously, or settle according to a process 
that is the functional equivalent of net settlement. That is, the cash 
flows of the transactions are equivalent, in effect, to a single net 
amount on the settlement date. To achieve this result, both 
transactions must be settled through the same settlement system and the 
settlement arrangements must be supported by cash or intraday credit 
facilities intended to ensure that settlement of both transactions will 
occur by the end of the business day, and the settlement of the 
underlying securities does not interfere with the net cash settlement.
    With respect to the first proposed criterion, commenters expressed 
the view that the agencies clarify or revise the final rule to provide 
that undated repo-style transactions (sometimes referred to as ``open'' 
transactions), which can be unwound unconditionally at any time by 
either counterparty, may be treated as having an effective one-day 
maturity. Because the proposed rule referred to ``explicit'' settlement 
dates, it

[[Page 57733]]

would not have permitted receivables or payables from ``open'' 
transactions to be offset against payables or receivables from 
overnight transactions (or against other ``open'' transactions).
    The criterion limiting offsetting to those repo-style transactions 
that have the ``same explicit final settlement date'' is consistent 
both with current accounting standards and with the BCBS 2014 revisions 
to the Basel III leverage ratio. This criterion helps to ensure that 
the counterparties agree in advance what the settlement date for a 
repo-style transaction would be, and thus helps a banking organization 
manage its counterparty exposure, including the net amount owed. To 
promote consistency in the treatment of repo-style transactions, and to 
ensure banking organizations do not understate their actual exposure to 
repo-style transactions for the purpose of calculating total leverage 
exposure, the agencies continue to believe that explicit identical 
settlement dates established at the origination of repo-style 
transactions should be a criterion for offsetting repo-style 
transactions in the final rule. Therefore, the agencies are finalizing 
this aspect of the rule as proposed.
    With respect to the third criterion, commenters recommended 
deleting the proposed requirement that ``settlement of the underlying 
securities does not interfere with the net cash settlement.'' The 
commenters expressed the view that the purpose of this requirement is 
unclear. In the final rule the agencies are clarifying that this 
criterion requires that the settlement of the underlying securities be 
subject to a settlement mechanism that results in the functional 
equivalence of net settlement. In other words, the cash flows of the 
transactions must be equivalent, in effect, to a single net amount on 
the settlement date. To achieve such equivalence, all transactions must 
be settled through the same settlement system, and any settlement 
system used to settle the transactions must not require all securities 
to have successfully settled before settling any net cash obligations. 
The settlement system's procedures must provide that the failure of any 
single securities transaction in the settlement system should only 
delay the matching cash leg (payment) or create an obligation to the 
settlement system, supported by an associated credit facility. The 
requirement that settlement of the underlying securities does not 
interfere with the net cash settlement is not intended to exclude any 
settlement mechanism, such as a delivery-versus-payment or other 
mechanism, if it meets these functional requirements. If a settlement 
system's procedures allow for all of the above, then the third 
criterion would be met. If the failure of the securities leg of a 
transaction in such a system persists at the end of the settlement 
period, however, then this transaction and its matching cash leg must 
be split out from the netting set and treated gross for the purposes of 
total leverage exposure.
    In the proposal, the agencies requested comment on the operational 
implications of the proposed netting criteria for repo-style 
transactions compared to GAAP, and the magnitude of the change in total 
leverage exposure for these transactions compared to GAAP. The agencies 
also asked about the potential costs of developing the necessary 
systems to offset amounts recognized as receivables due from a 
counterparty under reverse repurchase agreements. The agencies did not 
receive responses to these questions. One comment letter stated that if 
any additional costs exist, those would not be a valid reason for not 
requiring the netting criteria as a pre-requisite for the preferential 
capital treatment for netting.
b. Treatment of Security-for-Security Repo-style Transactions
    The proposed rule specified how a banking organization would have 
treated security-for-security repo-style transactions for purposes of 
calculating total leverage exposure. Under GAAP, in a security-for-
security repo-style transaction, the receiver of a security lent (a 
securities borrower) does not include the security borrowed on its 
balance sheet provided that the lender has not defaulted under the 
terms of the transaction. A security that a securities borrower 
transferred to the lender (a securities lender) as collateral would 
remain on the securities borrower's balance sheet. Consistent with 
GAAP, under the proposed rule, a securities borrower would have 
included a security that is transferred to a securities lender in its 
total leverage exposure, but the NPR would not have required the 
securities borrower to adjust its total leverage exposure related to 
such a transaction, unless and until the security borrower sold the 
security or the securities lender defaulted. The agencies did not 
receive any comments on the proposed treatment from the securities 
borrower's perspective. Therefore, the agencies are adopting the 
treatment in a security-for-security repo-style transaction for the 
securities borrower as proposed.
    Under GAAP, from a securities lender's perspective, a security 
received as collateral from a securities borrower is included on the 
security lender's balance sheet as an asset. In addition, a securities 
lender also must continue to include the security that it lent on its 
balance sheet if the transaction is treated as a secured borrowing. 
Under the proposal, in a security-for-security repo-style transaction, 
a securities lender would have been allowed to exclude the security 
received as collateral from total leverage exposure, unless and until 
the securities lender sells or re-hypothecates the security. If the 
securities lender sold or re-hypothecated the security, the securities 
lender would have been required to include the amount of cash received 
or, in the case of re-hypothecation, the value of the security pledged 
as collateral in its total leverage exposure.
    Commenters expressed concern that the proposed treatment of 
security-for security transactions would not achieve consistency across 
differing accounting frameworks in periods subsequent to a sale or re-
hypothecation by a securities lender, and recommended revising the 
proposed rule to permit banking organizations acting as securities 
lenders to reduce total leverage exposure by the value of the 
securities received in a security-for-security repo-style transaction, 
regardless of whether such banking organization sold or re-hypothecated 
the securities received.
    The agencies have decided not to change the proposal in response to 
these comments. The proposed approach, which is consistent with 
international standards, was designed to ensure that a securities 
lender would not have included both a security lent and a security 
received in its total leverage exposure, unless the securities lender 
sold or re-hypothecated the security received. In addition, the 
agencies believe the proposed treatment appropriately captures the 
exposure associated with a security that has been re-hypothecated 
because a banking organization is obligated to return or repurchase the 
security at a later date. Further, the agencies note that pursuant to 
the BCBS 2014 revisions, total leverage exposure would include amounts 
associated with the sale or re-hypothecation of collateral by a 
securities lender, thereby eliminating the effect of any differences in 
accounting frameworks. The agencies are therefore finalizing this 
aspect of the rule as proposed.
c. Repurchase and Securities Lending Transactions That Qualify for 
Sales Treatment Under U.S. GAAP
    The proposed rule specified the treatment for a repurchase or 
reverse repurchase transaction or a securities

[[Page 57734]]

borrowing or lending transaction that qualifies for sales treatment 
under U.S. GAAP (repurchase or securities lending transaction that 
qualifies for sales treatment under U.S. GAAP). The proposed rule would 
have required a banking organization to add the value of securities 
sold under such a repurchase or securities lending transaction that 
qualifies for sales treatment under U.S. GAAP to total leverage 
exposure for as long as the transaction is outstanding. The agencies 
did not receive any comments on this particular aspect of the proposed 
rule and are finalizing this aspect of the rule as proposed. The 
agencies are providing clarification of the treatment of a forward 
agreement associated with a repurchase or securities lending 
transaction that qualifies for sales treatment under U.S. GAAP. If a 
repurchase or securities lending transaction qualifies for sales 
treatment under U.S. GAAP, a banking organization would generally 
record an associated forward purchase agreement or forward sale 
agreement, which may be treated as a derivative exposure under GAAP. 
The replacement cost and PFE associated with this derivative exposure, 
in combination with the value of the security sold may overstate the 
actual exposure in total leverage exposure of such a repurchase or 
securities lending transaction that qualifies for sales treatment under 
U.S. GAAP. Therefore, the PFE related to a forward agreement associated 
with a repurchase or securities lending transaction that qualifies for 
sales treatment under U.S. GAAP may be excluded from total leverage 
exposure. Moreover, a forward agreement associated with a repurchase or 
securities lending transaction that qualifies for sales treatment under 
U.S. GAAP should not be included in total leverage exposure as an off-
balance sheet exposure subject to a CCF.
d. Counterparty Credit Risk Measure
    The proposed rule also included a counterparty credit risk measure 
in total leverage exposure to capture a banking organization's exposure 
to its counterparty in repo-style transactions. To determine the 
counterparty exposure for a repo-style transaction, including a 
transaction in which a banking organization acts as an agent for a 
customer and indemnifies the customer against loss, the banking 
organization would subtract the fair value of the instruments, gold, 
and cash received from a counterparty from the fair value of any 
instruments, gold, and cash lent to the counterparty. For repo-style 
transactions that are not subject to a qualifying master netting 
agreement or that are not cleared, the counterparty exposure measure 
would be calculated on a transaction-by-transaction basis. However, if 
a qualifying master netting agreement were in place, or the 
transactions were cleared, the banking organization would be able to 
net the total fair value of instruments, gold, and cash lent to a 
counterparty against the total fair value of instruments, gold, and 
cash received from the same counterparty across all those transactions. 
The agencies did not receive any comments on this part of the proposed 
rule and are adopting it as proposed.
    The proposed rule provided that where a banking organization acts 
as an agent for a repo-style transaction and provides a guarantee 
(indemnity) to a customer with regard to the performance of the 
customer's counterparty that is greater than the difference between the 
fair value of the security or cash lent and the fair value of the 
security or cash borrowed, the banking organization would have been 
required to include the amount of the guarantee that is greater than 
this difference in its total leverage exposure. The agencies did not 
receive any comments on this part of the proposed rule and are adopting 
it as proposed.
e. Repo-style Transactions Cleared Through CCPs
    One commenter asked the agencies to clarify the proposed rule with 
regard to repo-style transactions cleared through CCPs, when a banking 
organization acting as an agent offers indemnifications to the client. 
According to the commenter, a banking organization that clears repo-
style transactions through a CCP is generally required to post cash 
collateral to the CCP. The commenter stated that this would likely 
result in a larger counterparty exposure amount added to total leverage 
exposure than a similar repo-style transaction executed as a bilateral 
trade, and would discourage the clearing of repo-style transactions. 
However, the commenter did not provide any specific proposals to 
address the disincentives created by the clearing process, and 
acknowledged that most repo-style transactions are not currently 
cleared.
    The agencies acknowledge that the mechanics of the clearing process 
currently operate in a manner that results in a larger counterparty 
exposure than a similar transaction that is not cleared. The treatment 
is consistent with the approach for repo-style transactions, and the 
agencies do not believe that there is sufficient justification to 
provide a different treatment for repo-style transactions cleared 
through CCPs for purposes of calculating total leverage exposure. 
Therefore, the agencies are not making any revisions in the final rule 
to address the clearing of repo-style transactions and are finalizing 
this aspect of the rule as proposed.
5. Off-Balance Sheet Exposures
    Under the 2013 revised capital rule, banking organizations must 
apply a 100 percent CCF to all off-balance sheet items to calculate 
total leverage exposure, except for unconditionally cancellable 
commitments, which are subject to a 10 percent CCF. The NPR would have 
retained the 10 percent CCF for unconditionally cancellable 
commitments, but would have replaced the uniform 100 percent CCF for 
other off-balance sheet items with the CCFs applicable under the 
standardized approach for risk-weighted assets in section 33 of the 
2013 revised capital rule.
    Commenters generally supported the adoption of the standardized 
approach CCFs. However, some commenters expressed concern over the 
scope of exposures that are treated as off-balance sheet and, 
therefore, subject to CCFs. Some commenters also requested that the 
agencies revise the CCFs applicable to certain trade finance exposures 
to effectively decrease the amount of such exposures included in total 
leverage exposure, specifically to make the treatment of these 
exposures consistent with the European Union's treatment under the CRD-
IV Directive. Commenters also recommended that the agencies clarify the 
treatment of certain exposures for purposes of inclusion in total 
leverage exposure. For example, commenters suggested that the CCF 
treatment could result in an overstatement of off-balance sheet 
exposures, specifically with respect to forward-starting reverse repos 
and securities borrowing transactions that have been entered into at an 
agreed rate but have not yet been settled. Commenters expressed the 
view that forward-starting reverse repos should be treated as 
derivative exposures rather than being assigned a CCF, and that the 
repo-style transaction counterparty credit risk measure should apply 
only where a qualifying master netting agreement is in place. 
Commenters further suggested treating deliverable bond futures and OTC 
equity forward purchases as derivative exposures rather than off-
balance sheet exposures subject to CCFs, because they are trading 
positions. These commenters opined that total leverage exposure should 
exclude ``forward forward deposits'' that

[[Page 57735]]

represent the renewal of an existing deposit on its maturity, because 
including these would double count them. Alternatively, commenters 
requested that the agencies clarify that ``forward asset purchases,'' 
which receive a 100 percent CCF, do not include deliverable bond 
futures or forward-starting repo transactions.
    Under the proposal, off-balance sheet exposures were included in 
total leverage exposure in a manner consistent with the standardized 
approach risk-based capital rules. The treatment of specific 
instruments depended on the characteristics of those instruments. For 
example, an exposure that receives a conversion factor under section 33 
of the 2013 revised capital rule would receive the same conversion 
factor for purposes of calculating total leverage exposure, subject to 
the minimum 10 percent conversion factor applied to unconditionally 
cancellable commitments.
    Regarding the comment to revise the CCFs applicable to certain 
trade finance exposures, the agencies have decided not to modify the 
applicable CCFs for the purposes of calculating total leverage 
exposure. The proposed approach incorporates off-balance sheet 
exposures in total leverage exposure in a straightforward manner 
consistent with existing regulatory approaches and that already have 
proven effective. Thus, the agencies believe that the standardized 
CCFs, which also are consistent with international standards, are 
appropriate for measuring total leverage exposure for off-balance sheet 
exposures. Accordingly, the agencies have decided to adopt this aspect 
of the final rule as proposed.
6. Central Clearing of Derivative Transactions
    The 2013 revised capital rule provides that a banking organization 
must include in total leverage exposure the PFE for each derivative 
contract (or each single-product netting set of such transactions) to 
which the banking organization is a counterparty calculated in 
accordance with section 34 of the 2013 revised capital rule, but 
without regard to any collateral used to reduce risk-based capital 
requirements pursuant to section 34(b) of the 2013 revised capital 
rule. Although cleared transactions are generally addressed in section 
35 of the 2013 revised capital rule, section 35 refers to section 34 
for the purpose of determining the PFE of cleared derivative 
transactions. Thus, for the purpose of measuring total leverage 
exposure, the PFE for each derivative transaction to which a banking 
organization is a counterparty, including cleared derivative 
transactions, should be determined pursuant to section 34. The proposed 
rule would have revised the description of total leverage exposure to 
make this point more clear.
    When a clearing member banking organization does not guarantee the 
performance of the CCP, the clearing member banking organization has no 
payment obligation to the clearing member client in the event of a CCP 
default. In these circumstances, requiring the clearing member banking 
organization to include an exposure to the CCP in its total leverage 
exposure would generally result in an overstatement of total leverage 
exposure. Therefore, under the proposed rule, and consistent with the 
Basel III leverage ratio, a clearing member banking organization would 
not have been required to include in its total leverage exposure an 
exposure to the CCP for client-cleared transactions if the clearing 
member banking organization does not guarantee the performance of the 
CCP to the clearing member client. However, if a clearing member 
banking organization does guarantee the performance of the CCP to the 
clearing member client, then the proposed rule would have required a 
clearing member banking organization to include an exposure to the CCP 
for the client-cleared transactions in its total leverage exposure.
    One commenter requested that the agencies clarify in the final rule 
the treatment of a cleared derivative transaction where the clearing 
member and the clearing member client are affiliates. Without 
clarification, the commenter expressed concern that such a situation 
could result in a double counting of the transaction in the 
consolidated banking organization's total leverage exposure.
    The agencies are clarifying in the final rule that a banking 
organization may exclude from its total leverage exposure the clearing 
member's exposure to its clearing member client for a derivative 
transaction if the clearing member client and the clearing member are 
affiliates and consolidated on the banking organization's balance 
sheet.
    Commenters also recommended excluding from a clearing member 
banking organization's total leverage exposure cash provided by a 
clearing member client as initial margin and held in a segregated 
account. The commenters stated that a clearing member banking 
organization may reflect on its balance sheet both the initial margin 
passed on to the CCP as well as additional cash initial margin (excess 
initial margin) requested by the clearing member banking organization 
but not passed on to the CCP. Commenters further stated that under the 
customer asset protection rules issued by the CFTC, the clearing member 
banking organization may not use any segregated cash posted by a 
clearing member client to support the clearing member banking 
organization's own operations. In effect, commenters asserted that such 
segregated cash constitutes an asset of the clearing member client. 
Commenters also argued that the proposed LCR rules recognize that such 
segregated cash cannot be treated as an asset available to meet a 
clearing member banking organization's liquidity needs, even though 
cash is typically an optimal asset for providing liquidity.
    As a general matter the agencies do not believe it is appropriate 
to exclude segregated or otherwise restricted assets from a banking 
organization's total leverage exposure and are finalizing this aspect 
of the rule as proposed.

C. Daily Averaging

    The 2013 revised capital rule defines the supplementary leverage 
ratio as the mean of the ratio of tier 1 capital to total leverage 
exposure calculated as of the last day of each month in the reporting 
quarter. Under the proposed rule, the numerator of the supplementary 
leverage ratio, tier 1 capital, would have been calculated as of the 
last day of each reporting quarter, while total leverage exposure, the 
denominator of the supplementary leverage ratio, would have been 
calculated as the mean of total leverage exposure calculated daily. 
After calculating quarter-end tier 1 capital, banking organizations 
would have subtracted from the measure of total leverage exposure the 
applicable deductions from the quarter-end tier 1 capital for purposes 
of calculating the quarter-end supplementary leverage ratio.
    In the NPR, the agencies asked specific questions about the 
operational burden of the proposed use of average of daily calculations 
and the burden associated with several alternatives, such as only 
requiring daily averaging for on-balance sheet assets. Commenters 
expressed the view that that the application of daily averaging to off-
balance sheet exposures would introduce significant practical 
complexities with no offsetting compliance benefit. Several commenters 
supported an alternative approach in which a banking organization would 
calculate its total leverage exposure for a quarterly reporting period 
based on the daily average of on-balance sheet assets and the quarter-
end balance or an

[[Page 57736]]

average of month-end off-balance sheet exposures. Commenters expressed 
the view that such an alternative approach strikes an appropriate 
balance between the accuracy of reported minimum ratios and operational 
complexity. Commenters maintained that off-balance sheet exposure 
volatility is far less significant than on-balance sheet exposure 
volatility. In addition, commenters expressed the view that the 
industry has no operational processes that would permit the daily 
calculation of certain components of off-balance sheet exposures and 
that significant systems changes would be required to calculate off-
balance sheet exposures on a daily basis. Commenters also recommended 
that if the final rule were to require the daily averaging of off-
balance sheet exposures, this requirement should be implemented on a 
phased-in basis to allow more time for banking organizations to comply 
with the requirement.
    While calculating total leverage exposure as the mean of total 
leverage exposure for each day of the reporting quarter provides the 
more accurate depiction of total leverage exposure, the agencies 
recognize the operational burden associated with such calculation for 
off-balance sheet exposures. For this reason, the agencies are 
modifying the calculation of total leverage exposure so that total 
leverage exposure is calculated as the mean of the on-balance sheet 
assets calculated as of each day of the reporting quarter, plus the 
mean of the off-balance sheet exposures calculated as of the last day 
of each of the most recent three months, minus the applicable 
deductions under the 2013 revised capital rules. In addition, the 
agencies have removed the proposed reference to the calculation of tier 
1 capital as of the end of the quarter to avoid the implication that 
the supplementary leverage ratio is calculated only at the end of the 
quarter.
    For purposes of public disclosures and reporting the supplementary 
leverage ratio on the applicable regulatory reports, a banking 
organization would calculate the off-balance exposure component of 
total leverage exposure as the mean of its off-balance sheet exposures 
as of the last day of each month in the applicable reporting quarter. 
For example, when a banking organization prepares a regulatory report 
for the quarter ending December 31, it would calculate the mean of its 
off-balance sheet exposures as of October 31, November 30, and December 
31. The agencies will continue to monitor this issue and may revisit it 
at a future date if it is determined that monthly calculation of off-
balance sheet exposure raises supervisory concerns. In addition, the 
agencies are evaluating the calculation methodology for the leverage 
ratio applicable to all banking organizations and may seek comment on a 
proposal applicable to advanced approaches banking organizations to 
align the methodology for calculating on-balance sheet assets for 
purposes of that leverage ratio and the supplementary leverage ratio in 
the future.

D. Supervisory Flexibility

    Some commenters recommended that the agencies preserve supervisory 
flexibility during periods of financial market stress, particularly to 
address a large, temporary increase in a banking organizations' cash 
that could lead to a sharp decrease in the banking organization's 
supplementary leverage ratio. Commenters suggested that the agencies 
emphasize that falling below the minimum supplementary leverage ratio 
would not necessarily result in supervisory action, but, at a minimum, 
would result in heightened supervisory monitoring. Commenters expressed 
the view that the agencies should adopt a formal process to address 
compliance with the supplementary leverage ratio minimums on a case-by-
case basis during periods of financial stress.
    As previously noted, under the 2013 revised capital rule, the 
agencies reserved the authority to consider whether the average total 
consolidated assets or total leverage exposure for a banking 
organization's supplementary leverage ratio is appropriate given the 
banking organization's exposures or circumstances, and the agencies may 
require adjustments to such exposures. The final rule clarifies that 
this authority applies to the supplementary leverage ratio calculation 
by replacing the term ``leverage exposure amount'' with the defined 
term ``total leverage exposure.''

E. Replacement of the Current Exposure Method (CEM)

    The NPR proposed to use the current exposure method (CEM) to 
measure the total leverage exposure associated with derivative 
contracts. However, some commenters recommended that the agencies 
consider the replacement of the CEM with the standardized approach for 
measuring counterparty credit risk exposures (SA-CCR), recently agreed 
to by the BCBS though not yet incorporated into its leverage ratio 
framework.\13\ The commenters requested that the agencies address, in 
the preamble to the final rule, their intention to consider the 
replacement of the CEM with the SA-CCR, consistent with any final 
agreement of the BCBS with regard to the SA-CCR and the Basel III 
leverage ratio, which is currently under consideration. In general, the 
commenters supported adoption of SA-CCR. The agencies are participating 
in the BCBS's development of the international leverage ratio 
standards, and will consider the extent to which any changes should be 
made to the calculation of total leverage exposure for derivative 
contracts in the United States once the BCBS has reached an agreement 
on whether and how to incorporate the SA-CCR into its leverage ratio.
---------------------------------------------------------------------------

    \13\ See BCBS, ``The standardised approach for measuring 
counterparty credit risk exposures'' (March 2014), available at 
http://www.bis.org/publ/bcbs279.htm.
---------------------------------------------------------------------------

III. Disclosures

    The agencies have long supported meaningful public disclosure by 
banking organizations of their regulatory capital with the goals of 
disclosing information in a comparable and consistent manner, and 
improving market discipline. Consistent with the BCBS 2014 revisions, 
the agencies are applying additional disclosure requirements related to 
the calculation of the supplementary leverage ratio to top-tier 
advanced approaches banking organizations. The agencies believe that 
the additional disclosures will enhance the transparency and promote 
consistency among the disclosures related to the supplementary leverage 
ratio for all internationally active banking organizations.
    Specifically, under the final rule, banking organizations will 
complete two parts of a supplementary leverage ratio disclosure table. 
Part 1 is designed to summarize the differences between the total 
consolidated accounting assets reported on a banking organization's 
published financial statements and regulatory reports and the 
calculation of total leverage exposure. Part 2 is designed to collect 
information on the components of total leverage exposure in more 
detail, similar to the version of FFIEC 101, Schedule A. The agencies 
plan to reconsider the regulatory reporting requirements related to the 
supplementary leverage ratio on FFIEC 101, Schedule A, in the future, 
to reflect these disclosures and the revisions to the calculation of 
total leverage exposure.

[[Page 57737]]



             Table 13 to Section 173 of the 2013 Revised Capital Rule--Supplementary Leverage Ratio
----------------------------------------------------------------------------------------------------------------
                                                                          Dollar amounts in thousands
                                                             ---------------------------------------------------
                                                                  Tril         Bil          Mil          Thou
----------------------------------------------------------------------------------------------------------------
                   Part 1: Summary comparison of accounting assets and total leverage exposure
----------------------------------------------------------------------------------------------------------------
1 Total consolidated assets as reported in published          ...........
 financial statements
2 Adjustment for investments in banking, financial,           ...........
 insurance or commercial entities that are consolidated for
 accounting purposes but outside the scope of regulatory
 consolidation
3 Adjustment for fiduciary assets recognized on balance       ...........
 sheet but excluded from total leverage exposure
4 Adjustment for derivative exposures                         ...........
5 Adjustment for repo-style transactions                      ...........
6 Adjustment for off-balance sheet exposures (that is,        ...........
 conversion to credit equivalent amounts of off-balance
 sheet exposures)
7 Other adjustments                                           ...........
8 Total leverage exposure                                     ...........
----------------------------------------------------------------------------------------------------------------
                                      Part 2: Supplementary leverage ratio
----------------------------------------------------------------------------------------------------------------
                 On-balance sheet exposures
 
1 On-balance sheet assets (excluding on-balance sheet assets  ...........
 for repo-style transactions and derivative exposures, but
 including cash collateral received in derivative
 transactions)
2 LESS: Amounts deducted from tier 1 capital                  ...........
3 Total on-balance sheet exposures (excluding on-balance      ...........
 sheet assets for repo-style transactions and derivative
 exposures, but including cash collateral received in
 derivative transactions) (sum of lines 1 and 2)
 
                    Derivative exposures
 
4 Replacement cost for derivative exposures (that is, net of  ...........
 cash variation margin)
5 Add-on amounts for potential future exposure (PFE) for      ...........
 derivative exposures
6 Gross-up for cash collateral posted if deducted from the    ...........
 on-balance sheet assets, except for cash variation margin
7 LESS: Deductions of receivable assets for cash variation    ...........
 margin posted in derivative transactions, if included in on-
 balance sheet assets
8 LESS: Exempted CCP leg of client-cleared transactions       ...........
9 Effective notional principal amount of sold credit          ...........
 protection
10 LESS: Effective notional principal amount offsets and PFE  ...........
 adjustments for sold credit protection
11 Total derivative exposures (sum of lines 4 to 10)          ...........
 
                   Repo-style transactions
 
12 On-balance sheet assets for repo-style transactions,       ...........
 except include the gross value of receivables for reverse
 repurchase transactions. Exclude from this item the value
 of securities received in a security-for-security repo-
 style transaction where the securities lender has not sold
 or re-hypothecated the securities received. Include in this
 item the value of securities that qualified for sales
 treatment that must be reversed.
13 LESS: Reduction of the gross value of receivables in       ...........
 reverse repurchase transactions by cash payables in
 repurchase transactions under netting agreements
14 Counterparty credit risk for all repo-style transactions   ...........
15 Exposure for repo-style transactions where a banking       ...........
 organization acts as an agent
16 Total exposures for repo-style transactions (sum of lines  ...........
 12 to 15)
 
              Other off-balance sheet exposures
 
17 Off-balance sheet exposures at gross notional amounts      ...........
18 LESS: Adjustments for conversion to credit equivalent      ...........
 amounts
19 Off-balance sheet exposures (sum of lines 17 and 18)       ...........
 
             Capital and total leverage exposure
 
20 Tier 1 capital                                             ...........
21 Total leverage exposure (sum of lines 3, 11, 16 and 19)    ...........
 
                Supplementary leverage ratio
                                                             ---------------------------------------------------
 
22 Supplementary leverage ratio                                                  (in percent)
----------------------------------------------------------------------------------------------------------------

    Consistent with the BCBS 2014 revisions, if a banking organization 
has material differences between its total consolidated assets as 
reported in published financial statements and regulatory reports and 
its reported on-balance sheet assets for purposes of calculating the 
supplementary leverage ratio, the banking organization must disclose 
and explain the source of the material differences. In addition, if a 
banking organization's supplementary

[[Page 57738]]

leverage ratio changes significantly from one reporting period to 
another, the banking organization must explain the key drivers of the 
material changes. Banking organizations must disclose this information 
quarterly, using the template set forth in Table 13, and make the 
disclosures publicly available.
    In the NPR, the agencies proposed to apply additional disclosure 
requirements for the calculation of the supplementary leverage ratio to 
top-tier advanced approaches banking organizations. One comment letter 
recommended that the final rule clarify that Part 1, line 2 of the 
disclosure table include associated entities reflected on a banking 
organization's balance sheet on the basis of proportionate 
consolidation. The commenter noted that it sent the same suggestion to 
the BCBS to revise the Basel III leverage ratio disclosure 
requirements. The agencies proposed disclosure requirements for 
purposes of reporting of the supplementary leverage ratio consistent 
with the disclosure requirements in the Basel III leverage ratio. The 
agencies decided not to revise the disclosure table in response to this 
comment because proportionate consolidation generally does not apply to 
the U.S. banking organizations subject to the supplementary leverage 
ratio. If the BCBS reconsiders the Basel III leverage ratio disclosure 
requirements in light of this comment, then the agencies will consider 
a revision of the disclosure requirements in the U.S.
    Another comment letter stated that the required disclosures do not 
appear to provide a meaningful breakout of off-balance sheet exposures 
beyond derivative and repo-style transactions. The comment letter 
recommended that the agencies consider a more detailed breakout of off-
balance sheet exposures for Part 2, lines 17 and 18. The agencies 
believe that the table is sufficiently granular, particularly when 
viewed in combination with the other regulatory disclosure 
requirements, including the Call Report and FR Y-9C. Therefore, under 
the final rule, the agencies are not making any changes to the required 
disclosures.

IV. Regulatory Analyses

A. Paperwork Reduction Act (PRA)

    Certain provisions of the final rule contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with 
the requirements of the PRA, the agencies may not conduct or sponsor, 
and a respondent is not required to respond to, an information 
collection unless it displays a currently valid Office of Management 
and Budget (OMB) control number. The OCC and FDIC will be seeking new 
OMB Control Numbers. The OMB control number for the Board is 7100-0313 
and will be extended, with revision. The information collection 
requirements contained in this final rule were submitted to OMB for 
review and approval by the OCC and FDIC under section 3507(d) of the 
PRA and section 1320.11 of OMB's implementing regulations (5 CFR part 
1320). The Board reviewed the final rule under the authority delegated 
to the Board by OMB. The final rule contains requirements subject to 
the PRA. The disclosure requirements are found in section 
.173. The disclosure requirements in section .172 are 
accounted for in section .173. This information collection 
requirement would be consistent with the BCBS 2014 revisions to the 
Basel III leverage ratio, as mentioned in the Abstract below. The 
respondents are for-profit financial institutions, not including small 
businesses (see the agencies' Regulatory Flexibility Analysis).
    The agencies received two comments on the disclosure requirements. 
One comment letter recommended that the final rule clarify that Part 1, 
line 2 of the disclosure table include associated entities reflected on 
a banking organization's balance sheet on the basis of proportionate 
consolidation. The commenter noted that it sent the same suggestion to 
the BCBS to revise the Basel III leverage ratio disclosure 
requirements. The agencies decided not to revise the disclosure table 
in response to this comment because proportionate consolidation 
generally does not apply to the U.S. banking organizations subject to 
the supplementary leverage ratio.
    Another comment letter expressed the view that the required 
disclosures do not appear to provide a meaningful breakout of off-
balance sheet exposures beyond derivative and repo-style transactions. 
The comment letter recommended that the agencies consider a more 
detailed breakout of off-balance sheet exposures for Part 2, lines 17 
and 18. The agencies believe that the table is sufficiently granular, 
particularly when viewed in combination with the other regulatory 
disclosure requirements, including the Call Report and FR Y-9C. 
Therefore, under the final rule, the agencies are finalizing the 
disclosures requirements as proposed.
    The agencies also received three supportive comments regarding the 
disclosure requirements. These commenters supported the agencies' 
efforts to increase transparency and consistency in identifying and 
collecting off-balance sheet activity, aiding both market equity and 
regulatory oversight.
    The agencies have a continuing interest in the public's opinions of 
our collections of information. At any time, comments are invited on:
    (a) Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this final rule that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to the 
addresses listed in the ADDRESSES section. A copy of the comments may 
also be submitted to the OMB desk officer for the agencies: By mail to 
U.S. Office of Management and Budget, 725 17th Street NW., 
#10235, Washington, DC 20503; by facsimile to 202-395-6974; or 
by email to: [email protected], Attention, Federal 
Banking Agency Desk Officer.
Proposed Information Collection
    Title of Information Collection: Disclosure Requirements Associated 
with Supplementary Leverage Ratio.
    Frequency of Response: Quarterly.
    Affected Public: Businesses or other for-profit.
    Respondents:
    OCC: National banks and federal savings associations that are 
subject to the OCC's advanced approaches risk-based capital rules.
    FDIC: Insured state nonmember banks and state savings associations 
that are subject to the FDIC's advanced approaches risk-based capital 
rules.
    Board: State member banks, bank holding companies, and savings and 
loan holding companies that are subject

[[Page 57739]]

to the Board's advanced approaches risk-based capital rules.
    Abstract: All banking organizations that are subject to the 
agencies' advanced approaches risk-based capital rules (advanced 
approaches banking organizations), as defined in the 2013 revised 
capital rule, are required to disclose their supplementary leverage 
ratios beginning January 1, 2015. Advanced approaches banking 
organizations must report their supplementary leverage ratios on the 
applicable regulatory reports. Under the final rule, advanced 
approaches banking organizations would disclose two parts of a 
supplementary leverage ratio table beginning January 1, 2015. The 
disclosure requirements are consistent with the calculation of the 
supplementary leverage ratio in the final rule and with the BCBS 2014 
revisions to the Basel III leverage ratio. The agencies believe that 
the disclosures would enhance the transparency and consistency of 
reporting requirements for the supplementary leverage ratio by all 
internationally active organizations.
Disclosure Requirements
    Section .173 states that advanced approaches banking 
organizations that have successfully completed parallel run must make 
the disclosures described in Tables 1 through 12. Under the final rule, 
advanced approaches banking organizations would be required to make the 
disclosures described in Table 13 beginning January 1, 2015, regardless 
of the parallel run status. The agencies do not anticipate an 
additional initial setup burden for complying with the disclosure 
requirements because advanced approaches banking organizations are 
already subject to reporting the supplementary leverage ratio on the 
applicable regulatory reports.
    Estimated Burden per Response:

Disclosure Burden
Section .173--5 hours.

OCC
    Number of respondents: 26.
    Total estimated annual burden: 520 hours.
FDIC
    Number of respondents: 8.
    Total estimated annual burden: 160 hours.
Board
    Number of respondents: 20.
    Current estimated annual burden: 413,986 hours.
    Proposed revisions only estimated annual burden: 400 hours.
    Total estimated annual burden: 414,386 hours.

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 an 
final regulatory flexibility 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 
$550 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 1,231 small entities.\14\
---------------------------------------------------------------------------

    \14\ 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 $550 million and $38.5 million, 
respectively. 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 would apply only to advanced approaches 
banking organizations. Advanced approaches banking organization is 
defined to include a national bank or Federal savings associations that 
has, or is a subsidiary of a bank holding company or savings and loan 
holding company that has, total consolidated assets of $250 billion or 
more, total consolidated on-balance sheet foreign exposure of $10 
billion or more, or that has elected to use the advanced approaches 
framework. After considering the SBA's size standards and General 
Principals of Affiliation to identify small entities, the OCC 
determined that no small national banks or Federal savings associations 
are advanced approaches banking organizations. Because the final rule 
applies only to advanced approaches banking organizations, 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 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. Under regulations issued by the SBA, a small entity includes 
a depository institution, bank holding company, or savings and loan 
holding company with total assets of $550 million or less (a small 
banking organization).\15\ As of June 30, 2014, there were 
approximately 657 small state member banks, 3,716 small bank holding 
companies, and 254 small savings and loan holding companies.
---------------------------------------------------------------------------

    \15\ See 13 CFR 121.201. Effective July 14, 2014, the SBA 
revised the size standards for banking organizations to $550 million 
in assets from $500 million in assets. 79 FR 33647 (June 12, 2014).
---------------------------------------------------------------------------

    The Board is providing a final regulatory flexibility analysis with 
respect to this final rule. As discussed above, this final rule would 
amend the calculation of total leverage exposure in sections 2 and 10 
of the 2013 revised capital rule, and amend sections 172 and 173 of the 
rule by adding additional disclosure requirements. These amendments 
would implement changes in line with the BCBS 2014 revisions. The Board 
received no comments from the public in response to the initial 
regulatory flexibility analysis or from the Chief Counsel for Advocacy 
of the Small Business Administration. Thus, no issues were raised in 
public comments related to the Board's initial regulatory flexibility 
act analysis and no changes are being made in response to such 
comments.
    The final rule would apply only to advanced approaches banking 
organizations, which, generally, are banking organizations with total 
consolidated assets of $250 billion or more, that have total 
consolidated on-balance sheet foreign exposure of $10 billion or more, 
are a subsidiary of a depository institution that uses the advanced 
risk-based capital approaches framework, or that elect to use the 
advanced risk-based capital approaches framework. Currently, no small 
top-tier bank holding company, top-tier savings and loan holding 
company, or state member bank is an advanced approaches banking 
organization, so there would be no additional projected compliance 
requirements imposed on small bank holding companies, savings and loan 
holding companies, or state member banks. The Board expects that any 
small bank holding companies, savings and loan holding companies, or 
state member banks that would be covered by this final rule would rely 
on its parent banking organization for compliance and would not bear 
additional costs.
    The Board is aware of no other Federal rules that duplicate, 
overlap, or conflict with the final rule. The Board believes that the 
final rule will not have a significant economic impact on small banking 
organizations supervised by the

[[Page 57740]]

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 Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (RFA) requires 
an agency to provide, in connection with a notice of final rulemaking, 
to prepare a Final Regulatory Flexibility Act analysis describing the 
impact of the rule on small entities (defined by the Small Business 
Administration for the purposes of the RFA to include banking entities 
with total assets of $550 million or less) or to certify that the rule 
will not have a significant economic impact on a substantial number of 
small entities.\16\
---------------------------------------------------------------------------

    \16\ Effective July 14, 2014, the SBA revised the size standards 
for banking organizations to $550 million in assets from $500 
million in assets. 79 FR 33647 (Jun 12, 2014).
---------------------------------------------------------------------------

    As described above in this preamble, the final rule amends the 
definition of total leverage exposure in section 2 of the 2013 revised 
capital rule, the methodology for determining total leverage exposure 
under section 10 of the 2013 revised capital rule, and adds an 
additional disclosure requirement in sections 172 and 173 of the 2013 
revised capital rule. All of these changes apply only to advanced 
approaches banking organizations. Generally, the advanced approaches 
framework applies to banking organizations that have consolidated total 
assets equal to $250 billion or more; have consolidated total on-
balance sheet foreign exposure equal to $10 billion or more; are a 
subsidiary of a depository institution that uses the advanced 
approaches framework; or elects to use the advanced approaches 
framework.
    As of June 30, 2014, based on a $550 million threshold, 2 (out of 
3,267) small state nonmember banks and no (out of 306) small state 
savings associations were under the advanced approaches framework. 
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 would not have a significant 
economic impact on a substantial number of small FDIC-supervised 
institutions.

C. OCC Unfunded Mandates Reform Act of 1995 Determination

    The OCC has analyzed the final rule under the factors set forth in 
the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under 
this analysis, the OCC considered whether the final rule includes a 
Federal mandate that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation).
    The final rule revises the calculation of the denominator of the 
supplementary leverage ratio (total leverage exposure) in a manner that 
is generally consistent with revisions to the international leverage 
ratio framework published by the BCBS in January 2014. The final rule 
revises total leverage exposure, as defined in the 2013 revised capital 
rule, to include the effective notional principal amount of credit 
derivatives and other similar instruments through which a banking 
organization provides credit protection (sold credit protection); 
modifies the calculation of total leverage exposure for derivative and 
repo-style transactions; and revises the CCFs applied to certain off-
balance sheet exposures. The final rule also changes the frequency with 
which certain components of the supplementary leverage ratio are 
calculated and requires the public disclosure of certain items 
associated with the supplementary leverage ratio.
    To estimate the impact of the final rule on capital, OCC staff 
assumed that all of the affected national banks and Federal savings 
associations will seek to meet their minimum standard of three percent, 
or effective minimum of six percent, as appropriate. OCC staff 
estimated the amount of tier 1 capital that national banks and Federal 
savings associations will need to comply with the final rule relative 
to the amount already required to meet existing requirements. To 
estimate the impact of the final rule on total leverage exposure, OCC 
staff used a combination of data from regulatory reports and data 
collected from BHCs as part of a BCBS sponsored quantitative impact 
study.
    After comparing existing capital requirements with the revised 
requirements, and considering the cost of systems changes necessary to 
comply with its final rule, the OCC has determined that its final rule 
will not result in expenditures by State, local, and Tribal 
governments, or by the private sector, of $100 million or more. 
Accordingly, the OCC has not prepared a written statement to accompany 
its final rule.

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 3

    Administrative practice and procedure, Capital, National banks, 
Reporting and recordkeeping requirements, Risk.

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.

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, 1462, 1462a, 1463, 3907, 3909, 1831o, and 
5312(b)(2)(B), the Office of the Comptroller of the Currency amends 
part 3 of chapter I of title 12 of the Code of Federal Regulations 
amended as follows:

PART 3--CAPITAL ADEQUACY STANDARDS

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n notes, 1835, 3907, 3909, and 
5412(b)(2)(B).


Sec.  3.1  [Amended]

0
2. In Sec.  3.1 in the first sentence of paragraph (d)(4), remove 
``leverage exposure amount'' and add in its place ``total leverage 
exposure''.

0
3. In Sec.  3.2, revise the definition of ``total leverage exposure'' 
to read as follows:


Sec.  3.2  Definitions.

* * * * *
    Total leverage exposure is defined in Sec.  3.10(c)(4)(ii) of this 
part.
* * * * *

0
4. In Sec.  3.10, revise paragraph (c)(4) to read as follows:


Sec.  3.10  Minimum capital requirements.

* * * * *
    (c) * * *

[[Page 57741]]

    (4) Supplementary leverage ratio. (i) An advanced approaches 
national bank's or Federal savings association's supplementary leverage 
ratio is the ratio of its tier 1 capital to total leverage exposure, 
the latter which is calculated as the sum of:
    (A) The mean of the on-balance sheet assets calculated as of each 
day of the reporting quarter; and
    (B) The mean of the off-balance sheet exposures calculated as of 
the last day of each of the most recent three months, minus the 
applicable deductions under Sec.  3.22(a), (c), and (d).
    (ii) For purposes of this part, total leverage exposure means the 
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of 
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a 
clearing member national bank or Federal savings association:
    (A) The balance sheet carrying value of all of the national bank's 
or Federal savings association's on-balance sheet assets, plus the 
value of securities sold under a repurchase transaction or a securities 
lending transaction that qualifies for sales treatment under U.S. GAAP, 
less amounts deducted from tier 1 capital under Sec.  3.22(a), (c), and 
(d), and less the value of securities received in security-for-security 
repo-style transactions, where the national bank or Federal savings 
association acts as a securities lender and includes the securities 
received in its on-balance sheet assets but has not sold or re-
hypothecated the securities received;
    (B) The PFE for each derivative contract or each single-product 
netting set of derivative contracts (including a cleared transaction 
except as provided in paragraph (c)(4)(ii)(I) of this section and, at 
the discretion of the national bank or Federal savings association, 
excluding a forward agreement treated as a derivative contract that is 
part of a repurchase or reverse repurchase or a securities borrowing or 
lending transaction that qualifies for sales treatment under U.S. 
GAAP), to which the national bank or Federal savings association is a 
counterparty as determined under Sec.  3.34, but without regard to 
Sec.  3.34(b), provided that:
    (1) A national bank or Federal savings association may choose to 
exclude the PFE of all credit derivatives or other similar instruments 
through which it provides credit protection when calculating the PFE 
under Sec.  3.34, but without regard to Sec.  3.34(b), provided that it 
does not adjust the net-to-gross ratio (NGR); and
    (2) A national bank or Federal savings association that chooses to 
exclude the PFE of credit derivatives or other similar instruments 
through which it provides credit protection pursuant to paragraph 
(c)(4)(ii)(B)(1) of this section must do so consistently over time for 
the calculation of the PFE for all such instruments;
    (C) The amount of cash collateral that is received from a 
counterparty to a derivative contract and that has offset the mark-to-
fair value of the derivative asset, or cash collateral that is posted 
to a counterparty to a derivative contract and that has reduced the 
national bank's or Federal savings association's on-balance sheet 
assets, unless such cash collateral is all or part of variation margin 
that satisfies the following requirements:
    (1) For derivative contracts that are not cleared through a QCCP, 
the cash collateral received by the recipient counterparty is not 
segregated (by law, regulation or an agreement with the counterparty);
    (2) Variation margin is calculated and transferred on a daily basis 
based on the mark-to-fair value of the derivative contract;
    (3) The variation margin transferred under the derivative contract 
or the governing rules for a cleared transaction is the full amount 
that is necessary to fully extinguish the net current credit exposure 
to the counterparty of the derivative contracts, subject to the 
threshold and minimum transfer amounts applicable to the counterparty 
under the terms of the derivative contract or the governing rules for a 
cleared transaction;
    (4) The variation margin is in the form of cash in the same 
currency as the currency of settlement set forth in the derivative 
contract, provided that for the purposes of this paragraph, currency of 
settlement means any currency for settlement specified in the governing 
qualifying master netting agreement and the credit support annex to the 
qualifying master netting agreement, or in the governing rules for a 
cleared transaction;
    (5) The derivative contract and the variation margin are governed 
by a qualifying master netting agreement between the legal entities 
that are the counterparties to the derivative contract or by the 
governing rules for a cleared transaction, and the qualifying master 
netting agreement or the governing rules for a cleared transaction must 
explicitly stipulate that the counterparties agree to settle any 
payment obligations on a net basis, taking into account any variation 
margin received or provided under the contract if a credit event 
involving either counterparty occurs;
    (6) The variation margin is used to reduce the current credit 
exposure of the derivative contract, calculated as described in Sec.  
3.34(a), and not the PFE; and
    (7) For the purpose of the calculation of the NGR described in 
Sec.  3.34(a)(2)(ii)(B), variation margin described in paragraph 
(c)(4)(ii)(C)(6) of this section may not reduce the net current credit 
exposure or the gross current credit exposure;
    (D) The effective notional principal amount (that is, the apparent 
or stated notional principal amount multiplied by any multiplier in the 
derivative contract) of a credit derivative, or other similar 
instrument, through which the national bank or Federal savings 
association provides credit protection, provided that:
    (1) The national bank or Federal savings association may reduce the 
effective notional principal amount of the credit derivative by the 
amount of any reduction in the mark-to-fair value of the credit 
derivative if the reduction is recognized in common equity tier 1 
capital;
    (2) The national bank or Federal savings association may reduce the 
effective notional principal amount of the credit derivative by the 
effective notional principal amount of a purchased credit derivative or 
other similar instrument, provided that the remaining maturity of the 
purchased credit derivative is equal to or greater than the remaining 
maturity of the credit derivative through which the national bank or 
Federal savings association provides credit protection and that:
    (i) With respect to a credit derivative that references a single 
exposure, the reference exposure of the purchased credit derivative is 
to the same legal entity and ranks pari passu with, or is junior to, 
the reference exposure of the credit derivative through which the 
national bank or Federal savings association provides credit 
protection; or
    (ii) With respect to a credit derivative that references multiple 
exposures, the reference exposures of the purchased credit derivative 
are to the same legal entities and rank pari passu with the reference 
exposures of the credit derivative through which the national bank or 
Federal savings association provides credit protection, and the level 
of seniority of the purchased credit derivative ranks pari passu to the 
level of seniority of the credit derivative through which the national 
bank or Federal savings association provides credit protection;
    (iii) Where a national bank or Federal savings association has 
reduced the effective notional amount of a credit

[[Page 57742]]

derivative through which the national bank or Federal savings 
association provides credit protection in accordance with paragraph 
(c)(4)(ii)(D)(1) of this section, the national bank or Federal savings 
association must also reduce the effective notional principal amount of 
a purchased credit derivative used to offset the credit derivative 
through which the national bank or Federal savings association provides 
credit protection, by the amount of any increase in the mark-to-fair 
value of the purchased credit derivative that is recognized in common 
equity tier 1 capital; and
    (iv) Where the national bank or Federal savings association 
purchases credit protection through a total return swap and records the 
net payments received on a credit derivative through which the national 
bank or Federal savings association provides credit protection in net 
income, but does not record offsetting deterioration in the mark-to-
fair value of the credit derivative through which the national bank or 
Federal savings association provides credit protection in net income 
(either through reductions in fair value or by additions to reserves), 
the national bank or Federal savings association may not use the 
purchased credit protection to offset the effective notional principal 
amount of the related credit derivative through which the national bank 
or Federal savings association provides credit protection;
    (E) Where a national bank or Federal savings association acting as 
a principal has more than one repo-style transaction with the same 
counterparty and has offset the gross value of receivables due from a 
counterparty under reverse repurchase transactions by the gross value 
of payables under repurchase transactions due to the same counterparty, 
the gross value of receivables associated with the repo-style 
transactions less any on-balance sheet receivables amount associated 
with these repo-style transactions included under paragraph 
(c)(4)(ii)(A) of this section, unless the following criteria are met:
    (1) The offsetting transactions have the same explicit final 
settlement date under their governing agreements;
    (2) The right to offset the amount owed to the counterparty with 
the amount owed by the counterparty is legally enforceable in the 
normal course of business and in the event of receivership, insolvency, 
liquidation, or similar proceeding; and
    (3) Under the governing agreements, the counterparties intend to 
settle net, settle simultaneously, or settle according to a process 
that is the functional equivalent of net settlement, (that is, the cash 
flows of the transactions are equivalent, in effect, to a single net 
amount on the settlement date), where both transactions are settled 
through the same settlement system, the settlement arrangements are 
supported by cash or intraday credit facilities intended to ensure that 
settlement of both transactions will occur by the end of the business 
day, and the settlement of the underlying securities does not interfere 
with the net cash settlement;
    (F) The counterparty credit risk of a repo-style transaction, 
including where the national bank or Federal savings association acts 
as an agent for a repo-style transaction and indemnifies the customer 
with respect to the performance of the customer's counterparty in an 
amount limited to the difference between the fair value of the security 
or cash its customer has lent and the fair value of the collateral the 
borrower has provided, calculated as follows:
    (1) If the transaction is not subject to a qualifying master 
netting agreement, the counterparty credit risk (E*) for transactions 
with a counterparty must be calculated on a transaction by transaction 
basis, such that each transaction i is treated as its own netting set, 
in accordance with the following formula, where Ei is the 
fair value of the instruments, gold, or cash that the national bank or 
Federal savings association has lent, sold subject to repurchase, or 
provided as collateral to the counterparty, and Ci is the 
fair value of the instruments, gold, or cash that the national bank or 
Federal savings association has borrowed, purchased subject to resale, 
or received as collateral from the counterparty:

Ei* = max {0, [Ei-Ci]{time} ; and
    (2) If the transaction is subject to a qualifying master netting 
agreement, the counterparty credit risk (E*) must be calculated as the 
greater of zero and the total fair value of the instruments, gold, or 
cash that the national bank or Federal savings association has lent, 
sold subject to repurchase or provided as collateral to a counterparty 
for all transactions included in the qualifying master netting 
agreement ([Sigma]Ei), less the total fair value of the 
instruments, gold, or cash that the national bank or Federal savings 
association borrowed, purchased subject to resale or received as 
collateral from the counterparty for those transactions 
([Sigma]Ci), in accordance with the following formula:
E* = max {0, [[Sigma]Ei-[Sigma]Ci]{time} 
    (G) If a national bank or Federal savings association acting as an 
agent for a repo-style transaction provides a guarantee to a customer 
of the security or cash its customer has lent or borrowed with respect 
to the performance of the customer's counterparty and the guarantee is 
not limited to the difference between the fair value of the security or 
cash its customer has lent and the fair value of the collateral the 
borrower has provided, the amount of the guarantee that is greater than 
the difference between the fair value of the security or cash its 
customer has lent and the value of the collateral the borrower has 
provided;
    (H) The credit equivalent amount of all off-balance sheet exposures 
of the national bank or Federal savings association, excluding repo-
style transactions, repurchase or reverse repurchase or securities 
borrowing or lending transactions that qualify for sales treatment 
under U.S. GAAP, and derivative transactions, determined using the 
applicable credit conversation factor under Sec.  3.33(b), provided, 
however, that the minimum credit conversion factor that may be assigned 
to an off-balance sheet exposure under this paragraph is 10 percent; 
and
    (I) For a national bank or Federal savings association that is a 
clearing member:
    (1) A clearing member national bank or Federal savings association 
that guarantees the performance of a clearing member client with 
respect to a cleared transaction must treat its exposure to the 
clearing member client as a derivative contract for purposes of 
determining its total leverage exposure;
    (2) A clearing member national bank or Federal savings association 
that guarantees the performance of a CCP with respect to a transaction 
cleared on behalf of a clearing member client must treat its exposure 
to the CCP as a derivative contract for purposes of determining its 
total leverage exposure;
    (3) A clearing member national bank or Federal savings association 
that does not guarantee the performance of a CCP with respect to a 
transaction cleared on behalf of a clearing member client may exclude 
its exposure to the CCP for purposes of determining its total leverage 
exposure;
    (4) A national bank or Federal savings association that is a 
clearing member may exclude from its total leverage exposure the 
effective notional principal amount of credit protection sold through a 
credit derivative contract, or other similar instrument, that it clears 
on behalf of a clearing member client through a CCP as calculated in 
accordance with part (c)(4)(ii)(D); and

[[Page 57743]]

    (5) Notwithstanding paragraphs (c)(4)(ii)(I)(1) through (3) of this 
section, a national bank or Federal savings association may exclude 
from its total leverage exposure a clearing member's exposure to a 
clearing member client for a derivative contract, if the clearing 
member client and the clearing member are affiliates and consolidated 
for financial reporting purposes on the national bank's or Federal 
savings association's balance sheet.
* * * * *
    5. Section 3.172 is amended by adding paragraph (d) to read as 
follows:


Sec.  3.172  Disclosure requirements.

* * * * *
    (d) Except as otherwise provided in paragraph (b) of this section, 
an advanced approaches national bank or Federal savings association 
must publicly disclose each quarter its supplementary leverage ratio 
and its components as calculated under subpart B of this part in 
compliance with paragraph (c) of this section; however, the disclosures 
required under this paragraph are required without regard to whether 
the national bank or Federal savings association has completed the 
parallel run process and has received notification from the OCC 
pursuant to Sec.  3.121(d).

0
6. In Sec.  3.173, revise paragraph (a) introductory text and add 
paragraph (c) and Table 13 to Sec.  3.173 to read as follows:


Sec.  3.173  Disclosures by certain advanced approaches national banks 
and Federal savings associations.

    (a) Except as provided in Sec.  3.172(b), a national bank or 
Federal savings association described in Sec.  3.172(b) must make the 
disclosures described in Tables 1 through 13 to Sec.  3.173. The 
national bank or Federal savings association must make the disclosures 
required under Tables 1 through 12 publicly available for each of the 
last three years (that is, twelve quarters) or such shorter period 
beginning on January 1, 2014. The national bank or Federal savings 
association must make the disclosures required under Table 13 publicly 
available beginning on January 1, 2015.
* * * * *
    (c) Except as provided in Sec.  3.172(b), a national bank or 
Federal savings association described in Sec.  3.172(d) must make the 
disclosures described in Table 13 to Sec.  3.173; provided, however, 
the disclosures required under this paragraph are required without 
regard to whether the national bank or Federal savings association has 
completed the parallel run process and has received notification from 
the OCC pursuant to Sec.  3.121(d). The national bank or Federal 
savings association must make these disclosures publicly available 
beginning on January 1, 2015.

                             Table 13 to Sec.   3.173--Supplementary Leverage Ratio
----------------------------------------------------------------------------------------------------------------
                                                                          Dollar amounts in thousands
                                                             ---------------------------------------------------
                                                                  Tril         Bil          Mil          Thou
----------------------------------------------------------------------------------------------------------------
                   Part 1: Summary comparison of accounting assets and total leverage exposure
----------------------------------------------------------------------------------------------------------------
1 Total consolidated assets as reported in published
 financial statements.......................................
2 Adjustment for investments in banking, financial,
 insurance or commercial entities that are consolidated for
 accounting purposes but outside the scope of regulatory
 consolidation..............................................
3 Adjustment for fiduciary assets recognized on balance
 sheet but excluded from total leverage exposure............
4 Adjustment for derivative exposures.......................
5 Adjustment for repo-style transactions....................
6 Adjustment for off-balance sheet exposures (that is,
 conversion to credit equivalent amounts of off-balance
 sheet exposures)...........................................
7 Other adjustments.........................................
8 Total leverage exposure...................................
----------------------------------------------------------------------------------------------------------------
                                      Part 2: Supplementary leverage ratio
----------------------------------------------------------------------------------------------------------------
                 On-balance sheet exposures
 
1 On-balance sheet assets (excluding on-balance sheet assets
 for repo-style transactions and derivative exposures, but
 including cash collateral received in derivative
 transactions)..............................................
2 LESS: Amounts deducted from tier 1 capital................
3 Total on-balance sheet exposures (excluding on-balance
 sheet assets for repo-style transactions and derivative
 exposures, but including cash collateral received in
 derivative transactions) (sum of lines 1 and 2)............
 
                    Derivative exposures
 
4 Replacement cost for derivative exposures (that is, net of
 cash variation margin).....................................
5 Add-on amounts for potential future exposure (PFE) for
 derivative exposures.......................................
6 Gross-up for cash collateral posted if deducted from the
 on-balance sheet assets, except for cash variation margin..
7 LESS: Deductions of receivable assets for cash variation
 margin posted in derivative transactions, if included in on-
 balance sheet assets.......................................
8 LESS: Exempted CCP leg of client-cleared transactions.....
9 Effective notional principal amount of sold credit
 protection.................................................
10 LESS: Effective notional principal amount offsets and PFE
 adjustments for sold credit protection.....................
11 Total derivative exposures (sum of lines 4 to 10)........
 

[[Page 57744]]

 
                   Repo-style transactions
12 On-balance sheet assets for repo-style transactions,
 except include the gross value of receivables for reverse
 repurchase transactions. Exclude from this item the value
 of securities received in a security-for-security repo-
 style transaction where the securities lender has not sold
 or re-hypothecated the securities received. Include in this
 item the value of securities that qualified for sales
 treatment that must be reversed............................
13 LESS: Reduction of the gross value of receivables in
 reverse repurchase transactions by cash payables in
 repurchase transactions under netting agreements...........
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking
 organization acts as an agent..............................
16 Total exposures for repo-style transactions (sum of lines
 12 to 15)..................................................
 
              Other off-balance sheet exposures
 
17 Off-balance sheet exposures at gross notional amounts....
18 LESS: Adjustments for conversion to credit equivalent
 amounts....................................................
19 Off-balance sheet exposures (sum of lines 17 and 18).....
 
             Capital and total leverage exposure
 
20 Tier 1 capital...........................................
21 Total leverage exposure (sum of lines 3, 11, 16 and 19)..
 
                Supplementary leverage ratio
                                                             ---------------------------------------------------
22 Supplementary leverage ratio.............................                     (in percent)
----------------------------------------------------------------------------------------------------------------

Board of Governors of the Federal Reserve System

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, part 217 of chapter II 
of title 12 of the Code of Federal Regulations is amended as follows:

PART 217--CAPITAL ADEQUACY OF BOARD-RELATED INSTITUTIONS

0
7. The authority citation for part 217 continues 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.


Sec.  217.1  [Amended]

0
8. In Sec.  217.1, in paragraph (d)(4), in the first sentence remove 
``leverage exposure amount'' and add in its place ``total leverage 
exposure''.

0
9. In Sec.  217.2, revise the definition of ``total leverage exposure'' 
to read as follows:


Sec.  217.2  Definitions.

* * * * *
    Total leverage exposure is defined in Sec.  217.10(c)(4)(ii).
* * * * *

0
10. In Sec.  217.10, revise paragraph (c)(4) to read as follows:


Sec.  217.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) Supplementary leverage ratio. (i) An advanced approaches Board-
regulated institution's supplementary leverage ratio is the ratio of 
its tier 1 capital to total leverage exposure, the latter which is 
calculated as the sum of:
    (A) The mean of the on-balance sheet assets calculated as of each 
day of the reporting quarter; and
    (B) The mean of the off-balance sheet exposures calculated as of 
the last day of each of the most recent three months, minus the 
applicable deductions under Sec.  217.22(a), (c), and (d).
    (ii) For purposes of this part, total leverage exposure means the 
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of 
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a 
clearing member Board-regulated institution:
    (A) The balance sheet carrying value of all of the Board-regulated 
institution's on-balance sheet assets, plus the value of securities 
sold under a repurchase transaction or a securities lending transaction 
that qualifies for sales treatment under U.S. GAAP, less amounts 
deducted from tier 1 capital under Sec.  217.22(a), (c), and (d), and 
less the value of securities received in security-for-security repo-
style transactions, where the Board-regulated institution acts as a 
securities lender and includes the securities received in its on-
balance sheet assets but has not sold or re-hypothecated the securities 
received;
    (B) The PFE for each derivative contract or each single-product 
netting set of derivative contracts (including a cleared transaction 
except as provided in paragraph (c)(4)(ii)(I) of this section and, at 
the discretion of the Board-supervised institution, excluding a forward 
agreement treated as a derivative contract that is part of a repurchase 
or reverse repurchase or a securities borrowing or lending transaction 
that qualifies for sales treatment under U.S. GAAP), to which the 
Board-regulated institution is a counterparty as determined under Sec.  
217.34, but without regard to Sec.  217.34(b), provided that:
    (1) A Board-regulated institution may choose to exclude the PFE of 
all credit derivatives or other similar instruments through which it 
provides credit protection when calculating the PFE under Sec.  217.34, 
but without regard to Sec.  217.34(b), provided that it does not adjust 
the net-to-gross ratio (NGR); and
    (2) A Board-regulated institution that chooses to exclude the PFE 
of credit derivatives or other similar instruments through which it 
provides credit protection pursuant to paragraph (c)(4)(ii)(B)(1) of 
this section must do so consistently over time for the calculation of 
the PFE for all such instruments;

[[Page 57745]]

    (C) The amount of cash collateral that is received from a 
counterparty to a derivative contract and that has offset the mark-to-
fair value of the derivative asset, or cash collateral that is posted 
to a counterparty to a derivative contract and that has reduced the 
Board-regulated institution's on-balance sheet assets, unless such cash 
collateral is all or part of variation margin that satisfies the 
following requirements:
    (1) For derivative contracts that are not cleared through a QCCP, 
the cash collateral received by the recipient counterparty is not 
segregated (by law, regulation or an agreement with the counterparty);
    (2) Variation margin is calculated and transferred on a daily basis 
based on the mark-to-fair value of the derivative contract;
    (3) The variation margin transferred under the derivative contract 
or the governing rules for a cleared transaction is the full amount 
that is necessary to fully extinguish the net current credit exposure 
to the counterparty of the derivative contracts, subject to the 
threshold and minimum transfer amounts applicable to the counterparty 
under the terms of the derivative contract or the governing rules for a 
cleared transaction;
    (4) The variation margin is in the form of cash in the same 
currency as the currency of settlement set forth in the derivative 
contract, provided that for the purposes of this paragraph, currency of 
settlement means any currency for settlement specified in the governing 
qualifying master netting agreement and the credit support annex to the 
qualifying master netting agreement, or in the governing rules for a 
cleared transaction;
    (5) The derivative contract and the variation margin are governed 
by a qualifying master netting agreement between the legal entities 
that are the counterparties to the derivative contract or by the 
governing rules for a cleared transaction, and the qualifying master 
netting agreement or the governing rules for a cleared transaction must 
explicitly stipulate that the counterparties agree to settle any 
payment obligations on a net basis, taking into account any variation 
margin received or provided under the contract if a credit event 
involving either counterparty occurs;
    (6) The variation margin is used to reduce the current credit 
exposure of the derivative contract, calculated as described in Sec.  
217.34(a), and not the PFE; and
    (7) For the purpose of the calculation of the NGR described in 
Sec.  217.34(a)(2)(ii)(B), variation margin described in paragraph 
(c)(4)(ii)(C)(6) of this section may not reduce the net current credit 
exposure or the gross current credit exposure;
    (D) The effective notional principal amount (that is, the apparent 
or stated notional principal amount multiplied by any multiplier in the 
derivative contract) of a credit derivative, or other similar 
instrument, through which the Board-regulated institution provides 
credit protection, provided that:
    (1) The Board-regulated institution may reduce the effective 
notional principal amount of the credit derivative by the amount of any 
reduction in the mark-to-fair value of the credit derivative if the 
reduction is recognized in common equity tier 1 capital;
    (2) The Board-regulated institution may reduce the effective 
notional principal amount of the credit derivative by the effective 
notional principal amount of a purchased credit derivative or other 
similar instrument, provided that the remaining maturity of the 
purchased credit derivative is equal to or greater than the remaining 
maturity of the credit derivative through which the Board-regulated 
institution provides credit protection and that:
    (i) With respect to a credit derivative that references a single 
exposure, the reference exposure of the purchased credit derivative is 
to the same legal entity and ranks pari passu with, or is junior to, 
the reference exposure of the credit derivative through which the 
Board-regulated institution provides credit protection; or
    (ii) With respect to a credit derivative that references multiple 
exposures, the reference exposures of the purchased credit derivative 
are to the same legal entities and rank pari passu with the reference 
exposures of the credit derivative through which the Board-regulated 
institution provides credit protection, and the level of seniority of 
the purchased credit derivative ranks pari passu to the level of 
seniority of the credit derivative through which the Board-regulated 
institution provides credit protection;
    (iii) Where a Board-regulated institution has reduced the effective 
notional amount of a credit derivative through which the Board-
regulated institution provides credit protection in accordance with 
paragraph (c)(4)(ii)(D)(1) of this section, the Board-regulated 
institution must also reduce the effective notional principal amount of 
a purchased credit derivative used to offset the credit derivative 
through which the Board-regulated institution provides credit 
protection, by the amount of any increase in the mark-to-fair value of 
the purchased credit derivative that is recognized in common equity 
tier 1 capital; and
    (iv) Where the Board-regulated institution purchases credit 
protection through a total return swap and records the net payments 
received on a credit derivative through which the Board-regulated 
institution provides credit protection in net income, but does not 
record offsetting deterioration in the mark-to-fair value of the credit 
derivative through which the Board-regulated institution provides 
credit protection in net income (either through reductions in fair 
value or by additions to reserves), the Board-regulated institution may 
not use the purchased credit protection to offset the effective 
notional principal amount of the related credit derivative through 
which the Board-regulated institution provides credit protection;
    (E) Where a Board-regulated institution acting as a principal has 
more than one repo-style transaction with the same counterparty and has 
offset the gross value of receivables due from a counterparty under 
reverse repurchase transactions by the gross value of payables under 
repurchase transactions due to the same counterparty, the gross value 
of receivables associated with the repo-style transactions less any on-
balance sheet receivables amount associated with these repo-style 
transactions included under paragraph (c)(4)(ii)(A) of this section, 
unless the following criteria are met:
    (1) The offsetting transactions have the same explicit final 
settlement date under their governing agreements;
    (2) The right to offset the amount owed to the counterparty with 
the amount owed by the counterparty is legally enforceable in the 
normal course of business and in the event of receivership, insolvency, 
liquidation, or similar proceeding; and
    (3) Under the governing agreements, the counterparties intend to 
settle net, settle simultaneously, or settle according to a process 
that is the functional equivalent of net settlement, (that is, the cash 
flows of the transactions are equivalent, in effect, to a single net 
amount on the settlement date), where both transactions are settled 
through the same settlement system, the settlement arrangements are 
supported by cash or intraday credit facilities intended to ensure that 
settlement of both transactions will occur by the end of the business 
day, and the settlement of the underlying securities does not interfere 
with the net cash settlement;
    (F) The counterparty credit risk of a repo-style transaction, 
including where

[[Page 57746]]

the Board-regulated institution acts as an agent for a repo-style 
transaction and indemnifies the customer with respect to the 
performance of the customer's counterparty in an amount limited to the 
difference between the fair value of the security or cash its customer 
has lent and the fair value of the collateral the borrower has 
provided, calculated as follows:
    (1) If the transaction is not subject to a qualifying master 
netting agreement, the counterparty credit risk (E*) for transactions 
with a counterparty must be calculated on a transaction by transaction 
basis, such that each transaction i is treated as its own netting set, 
in accordance with the following formula, where Ei is the 
fair value of the instruments, gold, or cash that the Board-regulated 
institution has lent, sold subject to repurchase, or provided as 
collateral to the counterparty, and Ci is the fair value of 
the instruments, gold, or cash that the Board-regulated institution has 
borrowed, purchased subject to resale, or received as collateral from 
the counterparty:

Ei* = max {0, [Ei--Ci]{time} ; and

    (2) If the transaction is subject to a qualifying master netting 
agreement, the counterparty credit risk (E*) must be calculated as the 
greater of zero and the total fair value of the instruments, gold, or 
cash that the Board-regulated institution has lent, sold subject to 
repurchase or provided as collateral to a counterparty for all 
transactions included in the qualifying master netting agreement 
([Sigma]Ei), less the total fair value of the instruments, 
gold, or cash that the Board-regulated institution borrowed, purchased 
subject to resale or received as collateral from the counterparty for 
those transactions ([Sigma]Ci), in accordance with the 
following formula:

E* = max {0, [[Sigma]Ei- [Sigma]Ci]{time} 

    (G) If a Board-regulated institution acting as an agent for a repo-
style transaction provides a guarantee to a customer of the security or 
cash its customer has lent or borrowed with respect to the performance 
of the customer's counterparty and the guarantee is not limited to the 
difference between the fair value of the security or cash its customer 
has lent and the fair value of the collateral the borrower has 
provided, the amount of the guarantee that is greater than the 
difference between the fair value of the security or cash its customer 
has lent and the value of the collateral the borrower has provided;
    (H) The credit equivalent amount of all off-balance sheet exposures 
of the Board-regulated institution, excluding repo-style transactions, 
repurchase or reverse repurchase or securities borrowing or lending 
transactions that qualify for sales treatment under U.S. GAAP, and 
derivative transactions, determined using the applicable credit 
conversation factor under Sec.  217.33(b), provided, however, that the 
minimum credit conversion factor that may be assigned to an off-balance 
sheet exposure under this paragraph is 10 percent; and
    (I) For a Board-regulated institution that is a clearing member:
    (1) A clearing member Board-regulated institution that guarantees 
the performance of a clearing member client with respect to a cleared 
transaction must treat its exposure to the clearing member client as a 
derivative contract for purposes of determining its total leverage 
exposure;
    (2) A clearing member Board-regulated institution that guarantees 
the performance of a CCP with respect to a transaction cleared on 
behalf of a clearing member client must treat its exposure to the CCP 
as a derivative contract for purposes of determining its total leverage 
exposure;
    (3) A clearing member Board-regulated institution that does not 
guarantee the performance of a CCP with respect to a transaction 
cleared on behalf of a clearing member client may exclude its exposure 
to the CCP for purposes of determining its total leverage exposure;
    (4) A Board-regulated institution that is a clearing member may 
exclude from its total leverage exposure the effective notional 
principal amount of credit protection sold through a credit derivative 
contract, or other similar instrument, that it clears on behalf of a 
clearing member client through a CCP as calculated in accordance with 
part (c)(4)(ii)(D); and
    (5) Notwithstanding paragraphs (c)(4)(ii)(I)(1) through (3) of this 
section, a Board-regulated institution may exclude from its total 
leverage exposure a clearing member's exposure to a clearing member 
client for a derivative contract, if the clearing member client and the 
clearing member are affiliates and consolidated for financial reporting 
purposes on the Board-regulated institution's balance sheet.
* * * * *

0
11. Section 217.172 is amended by adding paragraph (d) to read as 
follows:


Sec.  217.172  Disclosure requirements.

* * * * *
    (d) Except as otherwise provided in paragraph (b) of this section, 
an advanced approaches Board-regulated institution must publicly 
disclose each quarter its supplementary leverage ratio and its 
components as calculated under subpart B of this part in compliance 
with paragraph (c) of this section; however, the disclosures required 
under this paragraph are required without regard to whether the Board-
regulated institution has completed the parallel run process and has 
received notification from the Board pursuant to Sec.  217.121(d).

0
12. Amend Sec.  217.173 by revising paragraph (a) introductory text and 
adding paragraph (c) and Table 13 to Sec.  217.173 to read as follows:


Sec.  217.173  Disclosures by certain advanced approaches Board-
regulated institutions.

    (a) Except as provided in Sec.  217.172(b), a Board-regulated 
institution described in Sec.  217.172(b) must make the disclosures 
described in Tables 1 through 13 to Sec.  217.173. The Board-regulated 
institution must make the disclosures required under Tables 1 through 
12 publicly available for each of the last three years (that is, twelve 
quarters) or such shorter period beginning on January 1, 2014. The 
Board-regulated institution must make the disclosures required under 
Table 13 publicly available beginning on January 1, 2015.
* * * * *
    (c) Except as provided in Sec.  217.172(b), a Board-regulated 
institution described in Sec.  217.172(d) must make the disclosures 
described in Table 13 to Sec.  217.173; provided, however, the 
disclosures required under this paragraph are required without regard 
to whether the Board-regulated institution has completed the parallel 
run process and has received notification from the Board pursuant to 
Sec.  217.121(d). The Board-regulated institution must make these 
disclosures publicly available beginning on January 1, 2015.

[[Page 57747]]



                            Table 13 to Sec.   217.173--Supplementary Leverage Ratio
----------------------------------------------------------------------------------------------------------------
                                                                          Dollar amounts in thousands
                                                             ---------------------------------------------------
                                                                  Tril         Bil          Mil          Thou
----------------------------------------------------------------------------------------------------------------
                   Part 1: Summary comparison of accounting assets and total leverage exposure
----------------------------------------------------------------------------------------------------------------
1 Total consolidated assets as reported in published
 financial statements.......................................
2 Adjustment for investments in banking, financial,
 insurance or commercial entities that are consolidated for
 accounting purposes but outside the scope of regulatory
 consolidation..............................................
3 Adjustment for fiduciary assets recognized on balance
 sheet but excluded from total leverage exposure............
4 Adjustment for derivative exposures.......................
5 Adjustment for repo-style transactions....................
6 Adjustment for off-balance sheet exposures (that is,
 conversion to credit equivalent amounts of off-balance
 sheet exposures)...........................................
7 Other adjustments.........................................
8 Total leverage exposure...................................
----------------------------------------------------------------------------------------------------------------
                                      Part 2: Supplementary leverage ratio
----------------------------------------------------------------------------------------------------------------
                 On-balance sheet exposures
 
1 On-balance sheet assets (excluding on-balance sheet assets
 for repo-style transactions and derivative exposures, but
 including cash collateral received in derivative
 transactions)..............................................
2 LESS: Amounts deducted from tier 1 capital................
3 Total on-balance sheet exposures (excluding on-balance
 sheet assets for repo-style transactions and derivative
 exposures, but including cash collateral received in
 derivative transactions) (sum of lines 1 and 2)............
 
                    Derivative exposures
 
4 Replacement cost for derivative exposures (that is, net of
 cash variation margin).....................................
5 Add-on amounts for potential future exposure (PFE) for
 derivative exposures.......................................
6 Gross-up for cash collateral posted if deducted from the
 on-balance sheet assets, except for cash variation margin..
7 LESS: Deductions of receivable assets for cash variation
 margin posted in derivative transactions, if included in on-
 balance sheet assets.......................................
8 LESS: Exempted CCP leg of client-cleared transactions.....
9 Effective notional principal amount of sold credit
 protection.................................................
10 LESS: Effective notional principal amount offsets and PFE
 adjustments for sold credit protection.....................
11 Total derivative exposures (sum of lines 4 to 10)........
 
                   Repo-style transactions
12 On-balance sheet assets for repo-style transactions,
 except include the gross value of receivables for reverse
 repurchase transactions. Exclude from this item the value
 of securities received in a security-for-security repo-
 style transaction where the securities lender has not sold
 or re-hypothecated the securities received. Include in this
 item the value of securities that qualified for sales
 treatment that must be reversed............................
13 LESS: Reduction of the gross value of receivables in
 reverse repurchase transactions by cash payables in
 repurchase transactions under netting agreements...........
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking
 organization acts as an agent..............................
16 Total exposures for repo-style transactions (sum of lines
 12 to 15)..................................................
 
              Other off-balance sheet exposures
 
17 Off-balance sheet exposures at gross notional amounts....
18 LESS: Adjustments for conversion to credit equivalent
 amounts....................................................
19 Off-balance sheet exposures (sum of lines 17 and 18).....
 
             Capital and total leverage exposure
 
20 Tier 1 capital...........................................
21 Total leverage exposure (sum of lines 3, 11, 16 and 19)..
 
                Supplementary leverage ratio
                                                             ---------------------------------------------------
22 Supplementary leverage ratio.............................                     (in percent)
----------------------------------------------------------------------------------------------------------------

PART 324--CAPITAL ADEQUACY

0
13. The authority citation 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

[[Page 57748]]

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).


Sec.  324.1  [Amended]

0
14. In Sec.  324.1, in the first sentence of paragraph (d)(4), remove 
``leverage exposure amount'' and add in its place ``total leverage 
exposure''.
0
15. In Sec.  324.2, revise the definition of ``total leverage 
exposure'' to read as follows:


Sec.  324.2  Definitions.

* * * * *
    Total leverage exposure is defined in Sec.  324.10(c)(4)(ii).
* * * * *

0
16. In Sec.  324.10, revise paragraph (c)(4) to read as follows:


Sec.  324.10  Minimum capital requirements.

* * * * *
    (c) * * *
    (4) Supplementary leverage ratio. (i) An advanced approaches FDIC-
supervised institution's supplementary leverage ratio is the ratio of 
its tier 1 capital to total leverage exposure, the latter which is 
calculated as the sum of:
    (A) The mean of the on-balance sheet assets calculated as of each 
day of the reporting quarter; and
    (B) The mean of the off-balance sheet exposures calculated as of 
the last day of each of the most recent three months, minus the 
applicable deductions under Sec.  324.22(a), (c), and (d).
    (ii) For purposes of this part, total leverage exposure means the 
sum of the items described in paragraphs (c)(4)(ii)(A) through (H) of 
this section, as adjusted pursuant to paragraph (c)(4)(ii)(I) for a 
clearing member FDIC-supervised institution:
    (A) The balance sheet carrying value of all of the FDIC-supervised 
institution's on-balance sheet assets, plus the value of securities 
sold under a repurchase transaction or a securities lending transaction 
that qualifies for sales treatment under U.S. GAAP, less amounts 
deducted from tier 1 capital under Sec.  324.22(a), (c), and (d), and 
less the value of securities received in security-for-security repo-
style transactions, where the FDIC-supervised institution acts as a 
securities lender and includes the securities received in its on-
balance sheet assets but has not sold or re-hypothecated the securities 
received;
    (B) The PFE for each derivative contract or each single-product 
netting set of derivative contracts (including a cleared transaction 
except as provided in paragraph (c)(4)(ii)(I) of this section and, at 
the discretion of the FDIC-supervised institution, excluding a forward 
agreement treated as a derivative contract that is part of a repurchase 
or reverse repurchase or a securities borrowing or lending transaction 
that qualifies for sales treatment under U.S. GAAP), to which the FDIC-
supervised institution is a counterparty as determined under Sec.  
324.34, but without regard to Sec.  324.34(b), provided that:
    (1) An FDIC-supervised institution may choose to exclude the PFE of 
all credit derivatives or other similar instruments through which it 
provides credit protection when calculating the PFE under Sec.  324.34, 
but without regard to Sec.  324.34(b), provided that it does not adjust 
the net-to-gross ratio (NGR); and
    (2) An FDIC-supervised institution that chooses to exclude the PFE 
of credit derivatives or other similar instruments through which it 
provides credit protection pursuant to paragraph (c)(4)(ii)(B)(1) of 
this section must do so consistently over time for the calculation of 
the PFE for all such instruments;
    (C) The amount of cash collateral that is received from a 
counterparty to a derivative contract and that has offset the mark-to-
fair value of the derivative asset, or cash collateral that is posted 
to a counterparty to a derivative contract and that has reduced the 
FDIC-supervised institution's on-balance sheet assets, unless such cash 
collateral is all or part of variation margin that satisfies the 
following requirements:
    (1) For derivative contracts that are not cleared through a QCCP, 
the cash collateral received by the recipient counterparty is not 
segregated (by law, regulation or an agreement with the counterparty);
    (2) Variation margin is calculated and transferred on a daily basis 
based on the mark-to-fair value of the derivative contract;
    (3) The variation margin transferred under the derivative contract 
or the governing rules for a cleared transaction is the full amount 
that is necessary to fully extinguish the net current credit exposure 
to the counterparty of the derivative contracts, subject to the 
threshold and minimum transfer amounts applicable to the counterparty 
under the terms of the derivative contract or the governing rules for a 
cleared transaction;
    (4) The variation margin is in the form of cash in the same 
currency as the currency of settlement set forth in the derivative 
contract, provided that for the purposes of this paragraph, currency of 
settlement means any currency for settlement specified in the governing 
qualifying master netting agreement and the credit support annex to the 
qualifying master netting agreement, or in the governing rules for a 
cleared transaction;
    (5) The derivative contract and the variation margin are governed 
by a qualifying master netting agreement between the legal entities 
that are the counterparties to the derivative contract or by the 
governing rules for a cleared transaction, and the qualifying master 
netting agreement or the governing rules for a cleared transaction must 
explicitly stipulate that the counterparties agree to settle any 
payment obligations on a net basis, taking into account any variation 
margin received or provided under the contract if a credit event 
involving either counterparty occurs;
    (6) The variation margin is used to reduce the current credit 
exposure of the derivative contract, calculated as described in Sec.  
324.34(a), and not the PFE; and
    (7) For the purpose of the calculation of the NGR described in 
Sec.  324.34(a)(2)(ii)(B), variation margin described in paragraph 
(c)(4)(ii)(C)(6) of this section may not reduce the net current credit 
exposure or the gross current credit exposure;
    (D) The effective notional principal amount (that is, the apparent 
or stated notional principal amount multiplied by any multiplier in the 
derivative contract) of a credit derivative, or other similar 
instrument, through which the FDIC-supervised institution provides 
credit protection, provided that:
    (1) The FDIC-supervised institution may reduce the effective 
notional principal amount of the credit derivative by the amount of any 
reduction in the mark-to-fair value of the credit derivative if the 
reduction is recognized in common equity tier 1 capital;
    (2) The FDIC-supervised institution may reduce the effective 
notional principal amount of the credit derivative by the effective 
notional principal amount of a purchased credit derivative or other 
similar instrument, provided that the remaining maturity of the 
purchased credit derivative is equal to or greater than the remaining 
maturity of the credit derivative through which the FDIC-supervised 
institution provides credit protection and that:
    (i) With respect to a credit derivative that references a single 
exposure, the reference exposure of the purchased credit derivative is 
to the same legal entity and ranks pari passu with, or is junior to, 
the reference exposure of the credit derivative through which the FDIC-
supervised institution provides credit protection; or

[[Page 57749]]

    (ii) With respect to a credit derivative that references multiple 
exposures, the reference exposures of the purchased credit derivative 
are to the same legal entities and rank pari passu with the reference 
exposures of the credit derivative through which the FDIC-supervised 
institution provides credit protection, and the level of seniority of 
the purchased credit derivative ranks pari passu to the level of 
seniority of the credit derivative through which the FDIC-supervised 
institution provides credit protection;
    (iii) Where an FDIC-supervised institution has reduced the 
effective notional amount of a credit derivative through which the 
FDIC-supervised institution provides credit protection in accordance 
with paragraph (c)(4)(ii)(D)(1) of this section, the FDIC-supervised 
institution must also reduce the effective notional principal amount of 
a purchased credit derivative used to offset the credit derivative 
through which the FDIC-supervised institution provides credit 
protection, by the amount of any increase in the mark-to-fair value of 
the purchased credit derivative that is recognized in common equity 
tier 1 capital; and
    (iv) Where the FDIC-supervised institution purchases credit 
protection through a total return swap and records the net payments 
received on a credit derivative through which the FDIC-supervised 
institution provides credit protection in net income, but does not 
record offsetting deterioration in the mark-to-fair value of the credit 
derivative through which the FDIC-supervised institution provides 
credit protection in net income (either through reductions in fair 
value or by additions to reserves), the FDIC-supervised institution may 
not use the purchased credit protection to offset the effective 
notional principal amount of the related credit derivative through 
which the FDIC-supervised institution provides credit protection;
    (E) Where an FDIC-supervised institution acting as a principal has 
more than one repo-style transaction with the same counterparty and has 
offset the gross value of receivables due from a counterparty under 
reverse repurchase transactions by the gross value of payables under 
repurchase transactions due to the same counterparty, the gross value 
of receivables associated with the repo-style transactions less any on-
balance sheet receivables amount associated with these repo-style 
transactions included under paragraph (c)(4)(ii)(A) of this section, 
unless the following criteria are met:
    (1) The offsetting transactions have the same explicit final 
settlement date under their governing agreements;
    (2) The right to offset the amount owed to the counterparty with 
the amount owed by the counterparty is legally enforceable in the 
normal course of business and in the event of receivership, insolvency, 
liquidation, or similar proceeding; and
    (3) Under the governing agreements, the counterparties intend to 
settle net, settle simultaneously, or settle according to a process 
that is the functional equivalent of net settlement, (that is, the cash 
flows of the transactions are equivalent, in effect, to a single net 
amount on the settlement date), where both transactions are settled 
through the same settlement system, the settlement arrangements are 
supported by cash or intraday credit facilities intended to ensure that 
settlement of both transactions will occur by the end of the business 
day, and the settlement of the underlying securities does not interfere 
with the net cash settlement;
    (F) The counterparty credit risk of a repo-style transaction, 
including where the FDIC-supervised institution acts as an agent for a 
repo-style transaction and indemnifies the customer with respect to the 
performance of the customer's counterparty in an amount limited to the 
difference between the fair value of the security or cash its customer 
has lent and the fair value of the collateral the borrower has 
provided, calculated as follows:
    (1) If the transaction is not subject to a qualifying master 
netting agreement, the counterparty credit risk (E*) for transactions 
with a counterparty must be calculated on a transaction by transaction 
basis, such that each transaction i is treated as its own netting set, 
in accordance with the following formula, where Ei is the 
fair value of the instruments, gold, or cash that the FDIC-supervised 
institution has lent, sold subject to repurchase, or provided as 
collateral to the counterparty, and Ci is the fair value of 
the instruments, gold, or cash that the FDIC-supervised institution has 
borrowed, purchased subject to resale, or received as collateral from 
the counterparty:


Ei* = max {0, [Ei-Ci] {time}  ]; and

    (2) If the transaction is subject to a qualifying master netting 
agreement, the counterparty credit risk (E*) must be calculated as the 
greater of zero and the total fair value of the instruments, gold, or 
cash that the FDIC-supervised institution has lent, sold subject to 
repurchase or provided as collateral to a counterparty for all 
transactions included in the qualifying master netting agreement 
([Sigma]Ei), less the total fair value of the instruments, 
gold, or cash that the FDIC-supervised institution borrowed, purchased 
subject to resale or received as collateral from the counterparty for 
those transactions ([Sigma]Ci), in accordance with the 
following formula:

E* = max {0, [[Sigma]Ei--[Sigma]Ci] -{time} 

    (G) If an FDIC-supervised institution acting as an agent for a 
repo-style transaction provides a guarantee to a customer of the 
security or cash its customer has lent or borrowed with respect to the 
performance of the customer's counterparty and the guarantee is not 
limited to the difference between the fair value of the security or 
cash its customer has lent and the fair value of the collateral the 
borrower has provided, the amount of the guarantee that is greater than 
the difference between the fair value of the security or cash its 
customer has lent and the value of the collateral the borrower has 
provided;
    (H) The credit equivalent amount of all off-balance sheet exposures 
of the FDIC-supervised institution, excluding repo-style transactions, 
repurchase or reverse repurchase or securities borrowing or lending 
transactions that qualify for sales treatment under U.S. GAAP, and 
derivative transactions, determined using the applicable credit 
conversation factor under Sec.  324.33(b), provided, however, that the 
minimum credit conversion factor that may be assigned to an off-balance 
sheet exposure under this paragraph is 10 percent; and
    (I) For an FDIC-supervised institution that is a clearing member:
    (1) A clearing member FDIC-supervised institution that guarantees 
the performance of a clearing member client with respect to a cleared 
transaction must treat its exposure to the clearing member client as a 
derivative contract for purposes of determining its total leverage 
exposure;
    (2) A clearing member FDIC-supervised institution that guarantees 
the performance of a CCP with respect to a transaction cleared on 
behalf of a clearing member client must treat its exposure to the CCP 
as a derivative contract for purposes of determining its total leverage 
exposure;
    (3) A clearing member FDIC-supervised institution that does not 
guarantee the performance of a CCP with respect to a transaction 
cleared on behalf of a clearing member client may exclude its exposure 
to the CCP for purposes of determining its total leverage exposure;

[[Page 57750]]

    (4) An FDIC-supervised institution that is a clearing member may 
exclude from its total leverage exposure the effective notional 
principal amount of credit protection sold through a credit derivative 
contract, or other similar instrument, that it clears on behalf of a 
clearing member client through a CCP as calculated in accordance with 
part (c)(4)(ii)(D); and
    (5) Notwithstanding paragraphs (c)(4)(ii)(I)(1) through (3) of this 
section, an FDIC-supervised institution may exclude from its total 
leverage exposure a clearing member's exposure to a clearing member 
client for a derivative contract, if the clearing member client and the 
clearing member are affiliates and consolidated for financial reporting 
purposes on the FDIC-supervised institution's balance sheet.
* * * * *

0
17. Section 324.172 is amended by adding paragraph (d) to read as 
follows:


Sec.  324.172  Disclosure requirements.

* * * * *
    (d) Except as otherwise provided in paragraph (b) of this section, 
an advanced approaches FDIC-supervised institution must publicly 
disclose each quarter its supplementary leverage ratio and its 
components as calculated under subpart B of this part in compliance 
with paragraph (c) of this section; however, the disclosures required 
under this paragraph are required without regard to whether the FDIC-
supervised institution has completed the parallel run process and has 
received notification from the FDIC pursuant to Sec.  324.121(d).

0
18. Amend Sec.  324.173 by revising paragraph (a) introductory text and 
adding paragraph (c) and Table 13 to Sec.  3.173 to read as follows:


Sec.  324.173  Disclosures by certain advanced approaches FDIC-
supervised institutions.

    (a) Except as provided in Sec.  324.172(b), an FDIC-supervised 
institution described in Sec.  324.172(b) must make the disclosures 
described in Tables 1 through 13 to Sec.  324.173. The FDIC-supervised 
institution must make the disclosures required under Tables 1 through 
12 publicly available for each of the last three years (that is, twelve 
quarters) or such shorter period beginning on January 1, 2014. The 
FDIC-supervised institution must make the disclosures required under 
Table 13 publicly available beginning on January 1, 2015.
* * * * *
    (c) Except as provided in Sec.  324.172(b), an FDIC-supervised 
institution described in Sec.  324.172(d) must make the disclosures 
described in Table 13 to Sec.  324.173; provided, however, the 
disclosures required under this paragraph are required without regard 
to whether the FDIC-supervised institution has completed the parallel 
run process and has received notification from the FDIC pursuant to 
Sec.  324.121(d). The FDIC-supervised institution must make these 
disclosures publicly available beginning on January 1, 2015.

                            Table 13 to Sec.   324.173--Supplementary Leverage Ratio
----------------------------------------------------------------------------------------------------------------
                                                                          Dollar amounts in thousands
                                                             ---------------------------------------------------
                                                                  Tril         Bil          Mil          Thou
----------------------------------------------------------------------------------------------------------------
                   Part 1: Summary comparison of accounting assets and total leverage exposure
----------------------------------------------------------------------------------------------------------------
1 Total consolidated assets as reported in published
 financial statements.......................................
2 Adjustment for investments in banking, financial,
 insurance or commercial entities that are consolidated for
 accounting purposes but outside the scope of regulatory
 consolidation..............................................
3 Adjustment for fiduciary assets recognized on balance
 sheet but excluded from total leverage exposure............
4 Adjustment for derivative exposures.......................
5 Adjustment for repo-style transactions....................
6 Adjustment for off-balance sheet exposures (that is,
 conversion to credit equivalent amounts of off-balance
 sheet exposures)...........................................
7 Other adjustments.........................................
8 Total leverage exposure...................................
----------------------------------------------------------------------------------------------------------------
                                      Part 2: Supplementary leverage ratio
----------------------------------------------------------------------------------------------------------------
                 On-balance sheet exposures
 
1 On-balance sheet assets (excluding on-balance sheet assets
 for repo-style transactions and derivative exposures, but
 including cash collateral received in derivative
 transactions)..............................................
2 LESS: Amounts deducted from tier 1 capital................
3 Total on-balance sheet exposures (excluding on-balance
 sheet assets for repo-style transactions and derivative
 exposures, but including cash collateral received in
 derivative transactions) (sum of lines 1 and 2)............
 
                    Derivative exposures
 
4 Replacement cost for derivative exposures (that is, net of
 cash variation margin).....................................
5 Add-on amounts for potential future exposure (PFE) for
 derivative exposures.......................................
6 Gross-up for cash collateral posted if deducted from the
 on-balance sheet assets, except for cash variation margin..
7 LESS: Deductions of receivable assets for cash variation
 margin posted in derivative transactions, if included in on-
 balance sheet assets.......................................
8 LESS: Exempted CCP leg of client-cleared transactions.....
9 Effective notional principal amount of sold credit
 protection.................................................
10 LESS: Effective notional principal amount offsets and PFE
 adjustments for sold credit protection.....................
11 Total derivative exposures (sum of lines 4 to 10)........
 

[[Page 57751]]

 
                   Repo-style transactions
 
12 On-balance sheet assets for repo-style transactions,
 except include the gross value of receivables for reverse
 repurchase transactions. Exclude from this item the value
 of securities received in a security-for-security repo-
 style transaction where the securities lender has not sold
 or re-hypothecated the securities received. Include in this
 item the value of securities that qualified for sales
 treatment that must be reversed............................
13 LESS: Reduction of the gross value of receivables in
 reverse repurchase transactions by cash payables in
 repurchase transactions under netting agreements...........
14 Counterparty credit risk for all repo-style transactions.
15 Exposure for repo-style transactions where a banking
 organization acts as an agent..............................
16 Total exposures for repo-style transactions (sum of lines
 12 to 15)..................................................
 
              Other off-balance sheet exposures
 
17 Off-balance sheet exposures at gross notional amounts....
18 LESS: Adjustments for conversion to credit equivalent
 amounts....................................................
19 Off-balance sheet exposures (sum of lines 17 and 18).....
 
             Capital and total leverage exposure
 
20 Tier 1 capital...........................................
21 Total leverage exposure (sum of lines 3, 11, 16 and 19)..
 
                Supplementary leverage ratio
                                                             ---------------------------------------------------
 
22 Supplementary leverage ratio.............................                     (in percent)
----------------------------------------------------------------------------------------------------------------


    Dated: September 3, 2014.
Thomas J. Curry,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, September 4, 2014.
Robert deV. Frierson,
Secretary of the Board.
    Dated at Washington, DC, this 3rd day of September, 2014.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2014-22083 Filed 9-25-14; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P