Statement by FDIC Chairman Jelena McWilliams on Final Rulemaking:
Capital and Liquidity Tailoring for Large Banking Organizations
October 15, 2019
In May 2018, Congress enacted the Economic Growth, Regulatory Relief,
and Consumer Protection Act (the “Act”), which raised the asset threshold for the
application of enhanced prudential standards under the Dodd-Frank Act to $250
billion, while giving the Federal Reserve Board the authority to apply enhanced
standards to firms with total consolidated assets between $100 billion and $250
billion under certain conditions. In November 2018 and April 2019, the federal
banking agencies issued proposed rules to implement this provision for large
domestic and foreign banking organizations.
After receiving many helpful comments, today we consider a final rule to
tailor capital and liquidity regulations applicable to these firms. The rule would
implement the Act by tailoring the application of regulatory capital and liquidity
requirements based on a banking organization’s size, risk profile, and systemic
footprint by placing them into one of four categories.
Category I includes the largest, systemically important banks: those firms
identified as U.S. global systemically important banks (G-SIBs). As I have said on
many occasions: maintaining strong capital and liquidity requirements at these
banks is an essential policy objective. Importantly, these banks will remain subject
to the most rigorous capital and liquidity standards without change. Smaller and
less complex firms will be subject to standards that are tailored in a manner that
better fits their risk profiles.
All of the banking organizations covered by this rule would continue to be
subject to robust capital requirements. Any bank with total consolidated assets
above $100 billion would still be subject to the total risk-based capital ratio, the
tier 1 risk-based capital ratio, the common equity tier 1 risk-based capital ratio, the
tier 1 leverage ratio, and the capital conservation buffer, in addition to supervisory
stress testing. Banks that qualify as Category III or higher would also be subject to
the countercyclical capital buffer and the supplementary leverage ratio, and the G-
SIBs would additionally remain subject to the G-SIB surcharge, the enhanced
Capital and Liquidity Tailoring for Large Banking Organizations
October 15, 2019
In May 2018, Congress enacted the Economic Growth, Regulatory Relief,
and Consumer Protection Act (the “Act”), which raised the asset threshold for the
application of enhanced prudential standards under the Dodd-Frank Act to $250
billion, while giving the Federal Reserve Board the authority to apply enhanced
standards to firms with total consolidated assets between $100 billion and $250
billion under certain conditions. In November 2018 and April 2019, the federal
banking agencies issued proposed rules to implement this provision for large
domestic and foreign banking organizations.
After receiving many helpful comments, today we consider a final rule to
tailor capital and liquidity regulations applicable to these firms. The rule would
implement the Act by tailoring the application of regulatory capital and liquidity
requirements based on a banking organization’s size, risk profile, and systemic
footprint by placing them into one of four categories.
Category I includes the largest, systemically important banks: those firms
identified as U.S. global systemically important banks (G-SIBs). As I have said on
many occasions: maintaining strong capital and liquidity requirements at these
banks is an essential policy objective. Importantly, these banks will remain subject
to the most rigorous capital and liquidity standards without change. Smaller and
less complex firms will be subject to standards that are tailored in a manner that
better fits their risk profiles.
All of the banking organizations covered by this rule would continue to be
subject to robust capital requirements. Any bank with total consolidated assets
above $100 billion would still be subject to the total risk-based capital ratio, the
tier 1 risk-based capital ratio, the common equity tier 1 risk-based capital ratio, the
tier 1 leverage ratio, and the capital conservation buffer, in addition to supervisory
stress testing. Banks that qualify as Category III or higher would also be subject to
the countercyclical capital buffer and the supplementary leverage ratio, and the G-
SIBs would additionally remain subject to the G-SIB surcharge, the enhanced
supplementary leverage ratio, and the total loss absorbing capacity rule, among
other heightened standards.
The cumulative impact on capital among affected banking organizations is
immaterial, with an estimated total decrease of less than one percent. However,
the elimination of the advanced approaches framework for Category III and
Category IV banks represents meaningful compliance burden relief without
reducing capital adequacy or sacrificing safety and soundness.
With respect to liquidity standards, the final rule recognizes that strong
buffers are critical for the most systemically important banks. Under the final rule,
banks in Category I and Category II and banks in Category III that rely on large
amounts of short-term wholesale funding would remain subject to the same
rigorous standards that they are today.
The remaining Category III banks would be subject to a reduced Liquidity
Coverage Ratio (LCR). This approach would continue to mandate that these banks
maintain strong reserves of liquid assets, while recognizing that such firms are
smaller and less complex than banks subject to the full LCR. The final rule sets
this requirement at 85 percent of the full LCR, at the top of the proposed range of
70 to 85 percent.
Category IV banks would generally no longer be subject to standardized
liquidity standards under the final rule,1 but would continue to be subject to
liquidity stress-testing and liquidity risk management requirements at the holding
company level. The aggregate liquidity impact is about a two percent reduction in
minimum required liquidity for domestic and foreign banking organizations with
more than $100 billion in assets.
I am pleased to support this final rule. It represents meaningful and
appropriate tailoring to capital and liquidity standards while ensuring that the
largest, most systemically important banks remain subject to the most rigorous
requirements. It strikes an appropriate balance that ensures the largest banks have
sufficient liquid assets to withstand periods of stress while taking into account the
potential broader market impacts.
1 Bank holding companies in Category IV with more than $50 billion in short-term wholesale funding would
however be subject to a reduced LCR.
other heightened standards.
The cumulative impact on capital among affected banking organizations is
immaterial, with an estimated total decrease of less than one percent. However,
the elimination of the advanced approaches framework for Category III and
Category IV banks represents meaningful compliance burden relief without
reducing capital adequacy or sacrificing safety and soundness.
With respect to liquidity standards, the final rule recognizes that strong
buffers are critical for the most systemically important banks. Under the final rule,
banks in Category I and Category II and banks in Category III that rely on large
amounts of short-term wholesale funding would remain subject to the same
rigorous standards that they are today.
The remaining Category III banks would be subject to a reduced Liquidity
Coverage Ratio (LCR). This approach would continue to mandate that these banks
maintain strong reserves of liquid assets, while recognizing that such firms are
smaller and less complex than banks subject to the full LCR. The final rule sets
this requirement at 85 percent of the full LCR, at the top of the proposed range of
70 to 85 percent.
Category IV banks would generally no longer be subject to standardized
liquidity standards under the final rule,1 but would continue to be subject to
liquidity stress-testing and liquidity risk management requirements at the holding
company level. The aggregate liquidity impact is about a two percent reduction in
minimum required liquidity for domestic and foreign banking organizations with
more than $100 billion in assets.
I am pleased to support this final rule. It represents meaningful and
appropriate tailoring to capital and liquidity standards while ensuring that the
largest, most systemically important banks remain subject to the most rigorous
requirements. It strikes an appropriate balance that ensures the largest banks have
sufficient liquid assets to withstand periods of stress while taking into account the
potential broader market impacts.
1 Bank holding companies in Category IV with more than $50 billion in short-term wholesale funding would
however be subject to a reduced LCR.