FDIC backs plan impacting bank capital rule on US Treasuries.

FDIC backs plan impacting bank capital rule on US Treasuries.

The Federal Deposit Insurance Corporation (FDIC) has thrown its support behind a proposal to modify the enhanced supplementary leverage ratio (eSLR) for U.S. global systemically important banks (GSIBs). The proposal aims to address the issue of frequently-binding leverage capital requirements and enhance the capacity of large banking organizations to engage in low-risk activities, such as U.S. Treasury market intermediation.

The FDIC's proposed rule would replace the existing gold-plated eSLR standards for U.S. GSIBs with a buffer that equals 50 percent of a GSIB's capital surcharge calculated under method 1 of the Federal Reserve's GSIB surcharge framework. This change would reduce aggregate required tier 1 capital by approximately $13 billion, a reduction of approximately 1.4 percent at the holding company level.

The proposal is part of broader efforts to adapt regulatory capital requirements in response to the COVID-19 pandemic and ongoing market stresses. In March 2020, U.S. fiscal and monetary authorities implemented unprecedented measures to support the economy, leading to significant expansions in bank balance sheets. To accommodate this growth, regulators temporarily adjusted the SLR to enable banking organizations to continue serving as financial intermediaries [2].

The FDIC's proposal seeks to address the concern that a binding leverage capital requirement can disincentivize banks from engaging in critical low-risk, low-return activities. By providing more capacity for institutions to engage in these activities, the proposal aims to enhance the resilience of the U.S. Treasury market and reduce the likelihood of market dysfunction.

However, the proposal has drawn criticism from some quarters. Fed Gov. Michael Barr, who voted against the proposal, argued that significantly lowering the eSLR could increase incentives for firms to game their risk-based requirements by lowering their risk-weighted asset density. Barr also noted that Treasury market intermediation primarily occurs at the broker-dealer level, not the bank level [1].

The FDIC is seeking public comment on the proposal for 60 days. The agency has acknowledged the need for strong capital standards to ensure a resilient banking system and has expressed a willingness to consider alternative modifications to the eSLR's calculation [2].

References:
[1] https://www.bankingdive.com/news/eslr-capital-requirements-27-tier-1-bank-holding-company-bowman-barr/751767/
[2] https://www.fdic.gov/news/speeches/2025/proposed-rule-regarding-modifications-enhanced-supplementary-leverage-ratio