Statement by
Martin J. Gruenberg, Chairman, FDIC
On
Leverage Capital and Basel III Rulemakings
FDIC Board Meeting,
Washington, DC
April 8, 2014
Today, we are considering two important leverage capital rules, and a third rulemaking
to finalize the FDIC's Interim Final Rule on the Basel III Capital Accord.
The first rule is a joint interagency final rule to strengthen the supplementary leverage
capital requirements for the largest and most systemically-important banking
organizations. The final rule would apply to eight large organizations that have been
designated as Global Systemically Important Banks—or G-SIBs.
By strengthening the leverage capital requirements for these institutions, the final rule
puts in place a substantial additional buffer of capital that benefits the financial system
as a whole and reduces the potential systemic risk these institutions pose. Capital
shortfalls at these institutions have the potential to result in significant adverse
economic effects and contribute to systemic distress on both a domestic and
international scale.
Insured banks covered by the final rule would need to satisfy a six percent
supplementary leverage ratio threshold to be considered well capitalized for prompt
corrective action (PCA) purposes. Bank Holding Companies covered by the final rule
would need to maintain a supplementary leverage ratio of more than five percent, made
up of a three percent minimum ratio plus a two percent buffer. By comparison, the
Basel framework requires only a three percent minimum leverage ratio at the bank and
holding company level.
The banking agencies' analysis indicates that a three percent minimum supplementary
leverage ratio would not have meaningfully constrained leverage during the years
leading to the crisis. The final rule addresses this concern by strengthening leverage
capital requirements to an extent comparable to the strengthening of risk-based capital
requirements in Basel III, ensuring these two capital frameworks stay in an effective
complementary relationship.
The final rule is a substantial strengthening of leverage capital requirements for these
institutions that will place additional private capital at risk before the Deposit Insurance
Fund, and reduce the likelihood that federal resolution mechanisms would need to be
called on. Stronger capital also will increase the ability of these firms to continue to
serve as a source of credit to the economy during periods of economic adversity.
Martin J. Gruenberg, Chairman, FDIC
On
Leverage Capital and Basel III Rulemakings
FDIC Board Meeting,
Washington, DC
April 8, 2014
Today, we are considering two important leverage capital rules, and a third rulemaking
to finalize the FDIC's Interim Final Rule on the Basel III Capital Accord.
The first rule is a joint interagency final rule to strengthen the supplementary leverage
capital requirements for the largest and most systemically-important banking
organizations. The final rule would apply to eight large organizations that have been
designated as Global Systemically Important Banks—or G-SIBs.
By strengthening the leverage capital requirements for these institutions, the final rule
puts in place a substantial additional buffer of capital that benefits the financial system
as a whole and reduces the potential systemic risk these institutions pose. Capital
shortfalls at these institutions have the potential to result in significant adverse
economic effects and contribute to systemic distress on both a domestic and
international scale.
Insured banks covered by the final rule would need to satisfy a six percent
supplementary leverage ratio threshold to be considered well capitalized for prompt
corrective action (PCA) purposes. Bank Holding Companies covered by the final rule
would need to maintain a supplementary leverage ratio of more than five percent, made
up of a three percent minimum ratio plus a two percent buffer. By comparison, the
Basel framework requires only a three percent minimum leverage ratio at the bank and
holding company level.
The banking agencies' analysis indicates that a three percent minimum supplementary
leverage ratio would not have meaningfully constrained leverage during the years
leading to the crisis. The final rule addresses this concern by strengthening leverage
capital requirements to an extent comparable to the strengthening of risk-based capital
requirements in Basel III, ensuring these two capital frameworks stay in an effective
complementary relationship.
The final rule is a substantial strengthening of leverage capital requirements for these
institutions that will place additional private capital at risk before the Deposit Insurance
Fund, and reduce the likelihood that federal resolution mechanisms would need to be
called on. Stronger capital also will increase the ability of these firms to continue to
serve as a source of credit to the economy during periods of economic adversity.
In short, this is a rule of significant consequence. In my view, this final rule may be the
most significant step we have taken to reduce the systemic risk posed by these large,
complex banking organizations.
The second rulemaking is a joint interagency Notice of Proposed Rulemaking (NPR) to
revise the denominator measure for the supplementary leverage ratio, and introduce
related public disclosure requirements, consistent with changes recently announced by
the Basel Committee. The changes in this NPR would apply to all advanced
approaches banking organizations. This includes the eight covered companies that
would be subject to the enhanced leverage capital standards we are considering today,
and the other advanced approaches organizations that are subject to the three percent
minimum supplementary leverage capital ratio.
As the staff noted, this NPR is estimated to result in a modest overall strengthening of
the denominator of the supplementary leverage capital ratio. The most important
proposed changes would require more capital for credit derivatives, and less for
traditional loan commitments.
The third rulemaking we are considering today is to finalize the Interim Final Rule that
the FDIC issued last year for Basel III. The FDIC Board wanted to consider the Basel III
rule in relation to the strengthening of the supplementary leverage capital ratio.
I am pleased that we are now in a position to finalize both the enhanced supplementary
leverage capital ratio and the FDIC's Basel III rule, as well as issue the NPR.
I would like to thank our FDIC staff, as well as OCC and Federal Reserve Board staff,
for their exceptional and tireless work on these important rulemakings. I would
especially like to thank my fellow members of the FDIC Board for their strong support
and advocacy for strengthening the leverage capital requirements for large, systemically
important banking organizations.
most significant step we have taken to reduce the systemic risk posed by these large,
complex banking organizations.
The second rulemaking is a joint interagency Notice of Proposed Rulemaking (NPR) to
revise the denominator measure for the supplementary leverage ratio, and introduce
related public disclosure requirements, consistent with changes recently announced by
the Basel Committee. The changes in this NPR would apply to all advanced
approaches banking organizations. This includes the eight covered companies that
would be subject to the enhanced leverage capital standards we are considering today,
and the other advanced approaches organizations that are subject to the three percent
minimum supplementary leverage capital ratio.
As the staff noted, this NPR is estimated to result in a modest overall strengthening of
the denominator of the supplementary leverage capital ratio. The most important
proposed changes would require more capital for credit derivatives, and less for
traditional loan commitments.
The third rulemaking we are considering today is to finalize the Interim Final Rule that
the FDIC issued last year for Basel III. The FDIC Board wanted to consider the Basel III
rule in relation to the strengthening of the supplementary leverage capital ratio.
I am pleased that we are now in a position to finalize both the enhanced supplementary
leverage capital ratio and the FDIC's Basel III rule, as well as issue the NPR.
I would like to thank our FDIC staff, as well as OCC and Federal Reserve Board staff,
for their exceptional and tireless work on these important rulemakings. I would
especially like to thank my fellow members of the FDIC Board for their strong support
and advocacy for strengthening the leverage capital requirements for large, systemically
important banking organizations.