Fed Proposal to Reduce Capital Minimum Requirements Could Disrupt Financial Stability
Washington, D.C. – The Conference of State Bank Supervisors (CSBS) opposes the proposal issued by the Federal Reserve Board and Office of the Comptroller of the Currency to reduce the “enhanced supplementary leverage ratio” (eSLR) requirement for large U.S. banks. Such a move could threaten the nation’s financial stability, reduce the resiliency of the U.S. banking system, and, indirectly, create risks for community banks, CSBS said in a comment letter dated Monday, June 25.
The proposed rule would recalibrate the enhanced supplementary leverage ratio standards for the most systemically important banking organizations in the country. In doing so, it would reduce the capital requirement of these banks by $120 billion. To put this in context, the Federal Deposit Insurance Fund had a balance of only $93 billion as of the end of 2017.
In the letter, CSBS President and CEO John R. Ryan asked for agreement across all of the federal banking agencies before any proposed revisions to the eSLR are issued or adopted, as it would “help ensure that they do not erode the benefits to financial stability from post-crisis reforms and create undue risks for the Deposit Insurance Fund”.
Although state regulators oppose the proposed reduction of the eSLR requirement for the largest banking organizations, they support recalibrating the supplementary leverage ratio for banks with predominantly custodial business models as required by the recently enacted Economic Growth, Regulatory Relief and Consumer Protection Act.
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The Conference of State Bank Supervisors (CSBS) is the national organization of bank regulators from all 50 states, American Samoa, District of Columbia, Guam, Puerto Rico and U.S. Virgin Islands. State regulators supervise roughly three-quarters of all U.S. banks and a variety of non-depository financial services. CSBS, on behalf of state regulators, also operates the Nationwide Multistate Licensing System to license and register non-depository financial service providers in the mortgage, money services businesses, consumer finance and debt industries.