Proposal would adjust supervisory framework to make it easier for large banks to be considered 'well managed' and not subject to activity restrictions

Proposal would adjust supervisory framework to make it easier for large banks to be considered 'well managed' and not subject to activity restrictions

On July 2, 2025, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a proposal to lower the enhanced supplementary leverage ratio (eSLR) for large U.S. banks. The aim is to free up bank balance sheets and promote U.S. Treasury market intermediation, which current regulations may hinder [1].

The proposal seeks to modify the eSLR for global systemically important bank holding companies (GSIBs) and their insured depository institution subsidiaries (IDIs). The eSLR is currently set at 5% for GSIBs and 6% for IDIs. The proposed changes would reduce these ratios, allowing banks greater flexibility in capital allocation [1].

Under the proposal, the eSLR standards would be matched at the GSIB and IDI levels, aligning with the leverage ratio framework published by the Basel Committee on Banking Supervision. This aims to promote consistency across a GSIB and its subsidiaries and align the eSLR with the leverage ratio framework [1].

The proposal also includes amendments to the associated long-term debt (LTD) and total loss-absorbing capacity (TLAC) requirements for GSIBs. The minimum leverage-based external LTD requirement for GSIBs would decrease, and the TLAC leverage buffer would be replaced with the new eSLR buffer standard [1].

The FRB voted 5-2 in favor of the proposal, with Chairman Jerome Powell noting that the current eSLR is a de-facto binding requirement that hinders low-risk activities. The proposal is supported by the FDIC and the OCC, with the FDIC’s Acting Chairman Travis Hill emphasizing the potential for increased low-risk activities and economic activity [1].

However, the proposal has faced criticism. Governor Michael Barr and Governor Adriana Kugler opposed the proposal, expressing concerns about the reduction in bank capital and the potential risks to financial stability [1].

The proposal is open for public comment until August 26, 2025. It reflects a broader regulatory shift aimed at reducing stringent post-financial crisis capital regulations, which some perceive as excessive [1].

References:
[1] https://www.globalfinregblog.com/2025/07/banking-regulators-propose-to-ease-enhanced-supplementary-leverage-ratio-for-large-us-banks/