- The Federal Reserve’s approval last
week of rules implementing Basel III establish the broad
capital framework for US banks, irrespective of
today’s FDIC vote on an enhanced supplementary
- The final leverage ratio to which banks must
abide depends on the continuing work of the Basel Committee,
which released its latest consultation document on the topic
two weeks ago;
- There are rumours circulating, however, that the
leverage capital rules for big banks may be tougher than the
Basel Committee's formulation;
- The Fed’s final rules implementing
Basel III are essentially the same as the proposed rules,
except for some concessions for community
US Federal Reserve approved rules implementing Basel III
last week, speculation has mounted over whether the Federal
Deposit Insurance Corporation (FDIC) would go a step further
and require stricter leverage ratios for the
country’s biggest banks.
But irrespective of the outcome of
today’s FDIC meeting, including its vote on
enhanced supplementary leverage ratio standards, the
Fed’s final rules go a long way to reveal US
banks’ new overarching capital framework.
On July 2 the US central bank approved a set of three
jointly proposed with the FDIC and Office of Comptroller of the
Currency (OCC) in June 2012, which implement the Basel
Committee’s latest capital accord.
"While more still needs to be done in certain areas,
including the implementation of the supplementary leverage
ratio, we now see in pretty good detail what the final outline
of the regulatory capital structure will be here in the US,"
said Morrison & Foerster partner Charles Horn in Washington
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The Fed has stuck with the original proposal in approving a
supplementary leverage ratio that is consistent with the Basel
III framework and applies to the biggest US banks’
off-balance sheet assets.
The FDIC will vote today on the proposed interagency rules,
but as an interim final rule. This is because the agency will
also consider an enhanced version of the supplementary leverage
Sources stressed that as these are interagency rules,
it’s unlikely that the Fed would have taken its
actions last week without first reaching agreement with the
FDIC and OCC.
In addition, it seems that any decision on an enhanced
supplementary leverage ratio would pre-empt the Basel
Committee’s continuing work on leverage
requirements, the latest development being a June 26
consultative document on leverage capital and related
"The FDIC is simply beginning the US effort to implement
what the Basel Committee has agreed regarding the international
leverage ratio, on which the committee issued further guidance
on two weeks ago," said Horn.
Sources do note, however, that rumours are circulating that
the leverage capital rules for big banks may be tougher than
the Basel Committee's formulation.
The Federal Reserve noted that it would adjust its finalised
Basel III rules to reflect leverage requirements agreed at the
Proposed versus final rules
Horn noted that the final rules adopted by the Fed are more
or less the form in which they were proposed, with some
accommodations designed primarily to pick up the concerns of
the smaller banks.
These essentially consist of: no changes to the existing
risk weights for residential mortgages; the right to opt-out of
including accumulated other comprehensive income as part of the
bank’s capital; the permanent grandfathering of
certain trust preferred securities; and, an extended transition
The US’s biggest banks, on the other hand, have
received no real concessions.
"The agencies have not highlighted any significant changes
to the proposed Advanced Approaches rules, and frankly I
don’t think anyone expected them to do so," said
The OCC is expected to announce its approval of the
interagency proposed rules imminently.
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