Remarks by
Martin J. Gruenberg
Member, Board of Directors
Federal Deposit Insurance Corporation
An Essential Post-Crisis Reform Should Not Be Weakened:
The Enhanced Supplementary Leverage Capital Ratio
Peterson Institute for International Economics
Washington, DC
September 6, 2018
Martin J. Gruenberg
Member, Board of Directors
Federal Deposit Insurance Corporation
An Essential Post-Crisis Reform Should Not Be Weakened:
The Enhanced Supplementary Leverage Capital Ratio
Peterson Institute for International Economics
Washington, DC
September 6, 2018
1
Introduction
I would like to thank the Peterson Institute for inviting me to speak this morning.
A central lesson of the financial crisis of 2008 was that the buildup of leverage—in other
words, reliance on debt—at the largest financial institutions in the United States increased the
vulnerability of the financial system and was a critical contributor to the crisis.
The enhanced supplementary leverage capital ratio, which is an unweighted measure of
equity as a percentage of an institution’s exposures designed to constrain reliance on debt, was,
in my view, the key post-crisis reform that addressed this issue. This capital requirement, which
the federal banking agencies—the Federal Reserve Board, the Office of the Comptroller of the
Currency (OCC), and the FDIC—established after the financial crisis for the eight U.S. global
systemically important banking organizations, or G-SIBs,1 is the issue I would like to address
today.
On April 11 of this year, the Federal Reserve Board and the OCC released a joint notice
of proposed rulemaking, or NPR, to make changes to the enhanced supplementary leverage ratio
capital requirement applied to the eight U.S. G-SIBs and their federally insured bank
subsidiaries. The changes would have the effect of reducing the capital requirement. They are
not technical fixes. They would significantly weaken constraints on financial leverage in
systemically important banks put in place in response to the crisis.
According to the NPR, the proposed changes would reduce capital requirements at the
lead federally insured banks of the eight G-SIBs by $121 billion. This roughly 20 percent
reduction in capital would benefit the affiliates, parent companies, and shareholders of these
institutions. It would, however, make the banks themselves more vulnerable to disruption and
failure.
In my remarks, I will briefly address why the banking agencies initially implemented the
enhanced supplementary leverage ratio and the strong performance of the banks that have been
subject to it. I will summarize the changes that have been proposed and their immediate and
1 The eight U.S. G-SIBs include four universal banking organizations: Bank of America Corporation, Citigroup Inc., JPMorgan
Chase & Co., and Wells Fargo & Company; two investment banking organizations: Goldman Sachs Group, Inc., and Morgan
Stanley; and two custody banks: Bank of New York Mellon Corporation, and State Street Corporation.
Introduction
I would like to thank the Peterson Institute for inviting me to speak this morning.
A central lesson of the financial crisis of 2008 was that the buildup of leverage—in other
words, reliance on debt—at the largest financial institutions in the United States increased the
vulnerability of the financial system and was a critical contributor to the crisis.
The enhanced supplementary leverage capital ratio, which is an unweighted measure of
equity as a percentage of an institution’s exposures designed to constrain reliance on debt, was,
in my view, the key post-crisis reform that addressed this issue. This capital requirement, which
the federal banking agencies—the Federal Reserve Board, the Office of the Comptroller of the
Currency (OCC), and the FDIC—established after the financial crisis for the eight U.S. global
systemically important banking organizations, or G-SIBs,1 is the issue I would like to address
today.
On April 11 of this year, the Federal Reserve Board and the OCC released a joint notice
of proposed rulemaking, or NPR, to make changes to the enhanced supplementary leverage ratio
capital requirement applied to the eight U.S. G-SIBs and their federally insured bank
subsidiaries. The changes would have the effect of reducing the capital requirement. They are
not technical fixes. They would significantly weaken constraints on financial leverage in
systemically important banks put in place in response to the crisis.
According to the NPR, the proposed changes would reduce capital requirements at the
lead federally insured banks of the eight G-SIBs by $121 billion. This roughly 20 percent
reduction in capital would benefit the affiliates, parent companies, and shareholders of these
institutions. It would, however, make the banks themselves more vulnerable to disruption and
failure.
In my remarks, I will briefly address why the banking agencies initially implemented the
enhanced supplementary leverage ratio and the strong performance of the banks that have been
subject to it. I will summarize the changes that have been proposed and their immediate and
1 The eight U.S. G-SIBs include four universal banking organizations: Bank of America Corporation, Citigroup Inc., JPMorgan
Chase & Co., and Wells Fargo & Company; two investment banking organizations: Goldman Sachs Group, Inc., and Morgan
Stanley; and two custody banks: Bank of New York Mellon Corporation, and State Street Corporation.