Depository subsidiaries of large U.S. banks could see required capital fall by about $213 billion under finalised rules that ease a key leverage test, the FDIC said. Regulators set the enhanced supplementary leverage ratio (eSLR) at a base 3% plus half of a bank’s Method 1 GSIB surcharge (capped at 4%), lowered the community bank leverage ratio (CBLR) to 8%, and said the rule takes effect on 1 April 2026 with voluntary adoption from 1 January 2026.

What regulators changed Federal banking regulators finalised adjustments that recast how the enhanced supplementary leverage ratio (eSLR) applies to the largest banks and lowered the community bank leverage ratio (CBLR) for smaller institutions. - eSLR is now set at a base of 3% plus one-half of a firm's Method 1 Global Systemically Important Bank (GSIB) surcharge, capped at 4% for any given bank subsidiary. - The agencies converted the eSLR from a prompt corrective action threshold into a leverage buffer, so breaches won't automatically change a bank's supervisory capital category. - The FDIC and Office of the Comptroller of the Currency approved the package unanimously; the Federal Reserve approved it by a 5-2 vote. Smaller banks that opt into the CBLR will see the threshold lowered from 9% to 8%, and the FDIC extended the period banks can remain in the CBLR framework without meeting all qualifying criteria. Numbers and timing FDIC staff estimated the change will reduce required Tier 1 capital by roughly $13 billion for GSIBs overall (under 2% of required Tier 1 capital for those firms). By contrast, depository institution subsidiaries of large banks would see average capital requirements fall by about 27%, equal to roughly $213 billion, according to the FDIC memo. The final rule takes effect 1 April 2026; banks may adopt the revised standard voluntarily from 1 January 2026 to align internal capital planning and reporting. Why regulators acted Acting FDIC Chair Travis Hill said the adjustment was intended to restore the eSLR’s role as a backstop rather than a binding constraint that could push banks away from low-risk activities. Regulators argued the original risk-blind leverage regime became more restrictive as government debt holdings rose and could discourage market-making in Treasuries, especially during stress. The agencies said the revisions aim to keep risk-based capital rules central while aligning the eSLR to capture tail risk. Why this matters The change is a clear tilt away from a blunt, risk‑blind leverage standard toward a more risk-sensitive capital framework — something regulators say should reduce incentives for banks to pull back from Treasury market‑making. TD Cowen analyst Jaret Seiberg said it signals momentum toward broader capital simplification and could precede further changes, including tweaks to the Basel III endgame and the GSIB surcharge calculation. Industry reaction and next steps Kenneth E. Bentsen Jr., president of the Securities Industry & Financial Markets Association, welcomed the move, saying it should ease capital frictions that hamper market functioning and help primary dealers maintain trading capacity in U.S. Treasury markets. Jaret Seiberg, banking analyst at TD Cowen, said the revision signals momentum toward broader capital simplification and could precede further changes, including Basel III endgame proposals and a potential revamp of the GSIB surcharge calculation.

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The final rule takes effect on 1 April 2026; banks may opt in voluntarily from 1 January 2026.

This article was created with AI assistance.