Statement by Martin J. Gruenberg
Member, FDIC Board of Directors
Regulatory Capital Rule: Revisions to the Supplementary Leverage Ratio to Exclude
Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in
Custody, Safekeeping, and Asset Servicing Activities
November 19, 2019
The final rule before the FDIC Board today would implement Section 402 of
the Economic Growth, Regulatory Relief and Consumer Protection Act
(EGRRCPA), which directs the appropriate Federal banking agencies to amend
their rules for custodial banks to exclude central bank reserves from the
supplementary leverage ratio, thereby reducing their leverage capital requirements.
The final rule’s implementation of the statute appears to be consistent with
the clear language of the law, as was the proposed rule issued earlier this year. For
this reason, I will vote to approve this final rule.
However, I continue to have serious reservations about the policy reflected
in this change to the supplementary leverage ratio, which I view as one of the most
important reforms adopted in response to the 2008-2009 financial crisis. This
change will substantially reduce capital requirements for two of the largest, most
systemically important banking organizations in the United States. Preemptively
weakening leverage capital requirements applicable to the custodial banks, or any
of the U.S. Global Systemically Important Banks (GSIBs), unnecessarily places
financial stability and the Deposit Insurance Fund at risk.
I would ask that my full statement in regard to this final rule be included in
the record.
Member, FDIC Board of Directors
Regulatory Capital Rule: Revisions to the Supplementary Leverage Ratio to Exclude
Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in
Custody, Safekeeping, and Asset Servicing Activities
November 19, 2019
The final rule before the FDIC Board today would implement Section 402 of
the Economic Growth, Regulatory Relief and Consumer Protection Act
(EGRRCPA), which directs the appropriate Federal banking agencies to amend
their rules for custodial banks to exclude central bank reserves from the
supplementary leverage ratio, thereby reducing their leverage capital requirements.
The final rule’s implementation of the statute appears to be consistent with
the clear language of the law, as was the proposed rule issued earlier this year. For
this reason, I will vote to approve this final rule.
However, I continue to have serious reservations about the policy reflected
in this change to the supplementary leverage ratio, which I view as one of the most
important reforms adopted in response to the 2008-2009 financial crisis. This
change will substantially reduce capital requirements for two of the largest, most
systemically important banking organizations in the United States. Preemptively
weakening leverage capital requirements applicable to the custodial banks, or any
of the U.S. Global Systemically Important Banks (GSIBs), unnecessarily places
financial stability and the Deposit Insurance Fund at risk.
I would ask that my full statement in regard to this final rule be included in
the record.
2
The final rule under consideration by the FDIC Board today would
implement Section 402 of the Economic Growth, Regulatory Relief and Consumer
Protection Act (EGRRCPA). Section 402 directs the appropriate Federal banking
agencies to amend their rules for custodial banks to exclude certain assets from the
supplementary leverage capital ratio:
“Funds of a custodial bank that are deposited with a central bank shall not be
taken into account when calculating the supplementary leverage ratio as
applied to the custodial bank.”
Section 402 defines the term “custodial bank” as “any depository institution
holding company predominantly engaged in custody, safekeeping, and asset
servicing activities, including any insured depository institution subsidiary of such
a holding company.”
Under the final rule, a depository institution holding company would be
considered “predominantly engaged” under the terms of the statute if the U.S. top-
tier depository institution holding company has a ratio of assets under custody-to-
total assets of at least 30 to 1. As the preamble to the final rule points out, this
proposed standard demonstrates a clear separation between the three well-known
U.S. custody banks – Bank of New York Mellon, State Street Corporation, and
Northern Trust Corporation – and other banking organizations that might have a
large absolute dollar volume of custody assets but for which such assets are a much
smaller proportion of their total assets and thus could not reasonably be considered
as “predominantly engaged” in such activities.
The final rule’s implementation of the statute appears to be consistent with
the clear language of the law. For this reason, I will vote to approve this final rule.
Prior to the enactment of EGRRPCA, I expressed strong reservations about
this provision because it would substantially reduce capital requirements for at
least two of the largest, most systemically important banking organizations in the
United States. That is still the case, and I would like to take this opportunity to
reiterate those reservations.
Funds deposited with a central bank have long been included in leverage
ratio requirements in the United States. Making this change to the supplementary
The final rule under consideration by the FDIC Board today would
implement Section 402 of the Economic Growth, Regulatory Relief and Consumer
Protection Act (EGRRCPA). Section 402 directs the appropriate Federal banking
agencies to amend their rules for custodial banks to exclude certain assets from the
supplementary leverage capital ratio:
“Funds of a custodial bank that are deposited with a central bank shall not be
taken into account when calculating the supplementary leverage ratio as
applied to the custodial bank.”
Section 402 defines the term “custodial bank” as “any depository institution
holding company predominantly engaged in custody, safekeeping, and asset
servicing activities, including any insured depository institution subsidiary of such
a holding company.”
Under the final rule, a depository institution holding company would be
considered “predominantly engaged” under the terms of the statute if the U.S. top-
tier depository institution holding company has a ratio of assets under custody-to-
total assets of at least 30 to 1. As the preamble to the final rule points out, this
proposed standard demonstrates a clear separation between the three well-known
U.S. custody banks – Bank of New York Mellon, State Street Corporation, and
Northern Trust Corporation – and other banking organizations that might have a
large absolute dollar volume of custody assets but for which such assets are a much
smaller proportion of their total assets and thus could not reasonably be considered
as “predominantly engaged” in such activities.
The final rule’s implementation of the statute appears to be consistent with
the clear language of the law. For this reason, I will vote to approve this final rule.
Prior to the enactment of EGRRPCA, I expressed strong reservations about
this provision because it would substantially reduce capital requirements for at
least two of the largest, most systemically important banking organizations in the
United States. That is still the case, and I would like to take this opportunity to
reiterate those reservations.
Funds deposited with a central bank have long been included in leverage
ratio requirements in the United States. Making this change to the supplementary