In concert with a proposal to revise the enhanced supplementary leverage ratio (eSLR), the Federal Reserve has proposed a significant rewrite of its capital rules in relation to its CCAR stress testing regime governing BHCs with assets above $50 billion and certain IHCs. Interacting with prior changes to the qualitative approach to CCAR, the GSIB surcharge, and other pending stress-test changes, the new approach to the risk-based capital framework, eSLR, and CCAR are intended to rebalance the U.S. big-bank capital framework so that risk-based capital (RBC), not the leverage ratio (LR), is the binding constraint for the majority of large BHCs. An end to the quantitative aspects of CCAR in favor of the more dynamic, supervisory approach of the stress capital buffer (SCB) – not point-in-time CCAR determinations – would guide capital distributions over the course of the CCAR time horizon. Elimination of the “soft” thirty percent distribution limit enhances the likelihood of aggressive distribution expectations the Fed intends to constrain via its supervisory reviews for all covered BHCs, not just those exceeding a particular limit.
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