In this report, FedFin builds on our prior analyses of the U.S. Basel III risk-based rules to analyze the final “supplementary” leverage ratio applicable under the final rules to advanced-approaches banks, i.e., banks and BHCs with assets over $250 billion. In contrast to the basic (and now higher) leverage ratio applied to all insured depository institutions under the final rule (a four percent on-balance sheet requirement), the advanced supplementary leverage ratio imposes a three percent requirement for both on-balance sheet assets and certain off-balance sheet ones based on Tier 1 capital. It comes in concert with a pending proposal also for an “enhanced” supplementary leverage ratio that would apply to BHCs with over $700 billion in assets or $10 trillion in assets under management, as well as potentially still more surcharges for designated U. S. G-SIBs and for some or all of BHCs with assets over $50 billion. Off-balance sheet leverage charges, even at the relatively low level now finalized and defined in a manner that recognizes most netting, still requires significant changes in the balance sheets of affected banks that will likely alter the availability and cost of unfunded commitments and other off-balance sheet assets now subject to this capital requirement.
The full report is available to retainer clients. To find out how you can sign up for the service, click here