State bank regulators oppose Fed’s plan to reduce leverage ratio requirement

A proposal by the Federal Reserve Board and Office of the Comptroller of the Currency to reduce the enhanced supplementary leverage ratio requirement for large banks was blasted by the Conference of State Bank Supervisors (CSBS).

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The proposal could threaten the nation’s financial stability and hurt the resiliency of the U.S. banking system, while also creating risks for community banks, CSBS said in a June 25 letter to the regulators.

By recalibrating the enhanced supplementary leverage ratio standards for the most systemically important banks, the proposal would reduce the capital requirement of those banks by $120 billion. By comparison, the Federal Deposit Insurance Fund had a balance of only $93 billion as of the end of 2017.

CSBS President and CEO John Ryan said there should be agreement across all federal banking agencies before any revisions to the enhanced supplementary leverage ratio are issued or adopted. That 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,” Ryan wrote in the letter.

While state regulators oppose the proposed reduction of the enhanced supplementary leverage ratio requirement for large banks, they support recalibrating the supplementary leverage ratio for custodial banks, as required by the Economic Growth, Regulatory Relief and Consumer Protection Act.