On May 15, 2020, the federal banking agencies issued an interim final rule to permit depository institutions to exclude from their supplementary leverage ratio (“SLR”) denominators through March 31, 2021 the balance sheet value of U.S. Treasury securities and funds on deposit at a Federal Reserve Bank, subject to restrictions on capital distributions. The interim final rule complements a similar interim final rule that the Federal Reserve issued in April, which excluded the same set of assets from the SLR denominator of bank holding companies, savings and loan holding companies, and intermediate holding companies of foreign banking organizations subject to the SLR (the “Holdco Rule”).
The relief provided under the interagency rule, unlike that provided under the Holdco Rule, is optional, and comes with a significant condition: a depository institution electing the relief must obtain approval from its primary federal regulator to make any capital distribution from July 1, 2020 through March 31, 2021. Capital distributions paid prior to July 1, 2020 are not restricted. The preamble to the interim final rule states that the agencies will endeavor to respond to requests for regulatory approval of capital distributions with an approval, denial, or request for additional information within 14 days.
Depository institutions will be permitted to make the election for relief within 30 days after the interim final rule is published in the Federal Register, though the agencies will consider whether to allow elections made later on a case-by-case basis.
Notably, the preamble to the interim final rule clarifies that the relief applies to U.S. Treasury securities that depository institutions have borrowed and re-pledged in a repo-style transaction. The preamble to the final rule also includes solicits comment on whether the agencies should exclude additional assets, such as deposits at foreign central banks, foreign sovereign debt, and U.S. government-guaranteed debt, from the SLR denominator.
The interim final rule does not provide any relief under the Tier 1 leverage ratio that applies generally to banking organizations of all sizes, nor any relief under the community bank leverage ratio.