The proposal aims to free up large bank balance sheets and promote US Treasury market intermediation, which the current regulations may hinder.
On June 27, 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) (collectively, the agencies) issued a proposal (the Proposal) to lower the enhanced supplementary leverage ratio (eSLR) for global systemically important bank holding companies (GSIBs) and their insured depository institution subsidiaries (IDIs). According to the agencies, “[t]he [P]roposal would modify certain leverage capital standards applicable to the largest and most systemically important banking organizations so that they serve as a backstop to risk-based capital requirements and do not discourage these banking organizations from engaging in low-risk activities.”
Under the Proposal, the eSLR standards would be matched at the GSIB and IDI levels with the intention of calibrating a banking organization’s eSLR with its systemic risk profile. This would promote consistency across a GSIB and its subsidiaries and align the eSLR with the leverage ratio framework published by the Basel Committee on Banking Supervision.
The agencies are seeking to reform capital requirements for GSIBs and their IDIs to serve as a backstop rather than a constraint that disincentives banks from engaging in lower-risk, lower-return activities. The goal of the Proposal is to “enhance effective capital management across … banking organization[s]” and reduce impediments to US Treasury market intermediation by GSIBs and their IDIs. This in turn may support the healthy functioning of the US Treasury market as well as the “stability of the domestic and global banking and financial systems.”
In addition to modifying the eSLR, the FRB also proposed to amend its associated long-term debt (LTD) and total loss-absorbing capacity (TLAC) requirements applicable to GSIBs to align with the proposed eSLR amendments.
The OCC also proposed revising the criteria it uses to identify which OCC-supervised banks are subject to the eSLR standard, by “remov[ing] the existing asset size thresholds and instead applying the eSLR standard to those national banks and federal savings associations that are subsidiaries of GSIBs identified by the Board’s GSIB surcharge framework.”
The Current eSLR
The eSLR was established in 2014 as part of the reforms devised in the wake of the Great Financial Crisis to bolster safety and soundness in the financial system. It was intended to act as a backstop to risk-based capital requirements, which require banks to hold capital based on the risk exposures of different assets (e.g., a US Treasury security with lower risk is treated differently than a higher risk corporate bond or junk bond).
The eSLR treats all asset exposures equally and dictates how much capital a bank must hold on its balance sheet against its total assets, regardless of the underlying assets’ risk level.
Under the existing rule:
- US GSIBs must maintain an eSLR of 5%, which includes a minimum supplementary leverage ratio of 3% plus a 2% buffer.
- IDI subsidiaries of US GSIBS must maintain an eSLR of 6% to qualify as “well capitalized” under the FRB’s prompt corrective action framework.
Proposed Changes to the eSLR for GSIBS
- The minimum supplementary leverage ratio of 3% would remain unchanged, but the additional fixed 2% eSLR buffer would be reduced to half of the GSIB’s Method 1 surcharge (as calculated under the FRB’s risk-based GSIB surcharge framework).
The agencies estimate that the Proposal would lead to an aggregate reduction in the tier 1 capital requirement for GSIBs of less than 2% on average (approximately $13 billion in aggregate).
Proposed Changes to the eSLR for IDIs
- The 6% eSLR for IDIs would be amended to mirror the eSLR of its parent holding company (i.e., 3% supplementary leverage ratio plus half of the parent GSIB’s Method 1 surcharge).
- The Proposal would remove the eSLR threshold of 6% as a consideration for being “well capitalized” under the prompt corrective action framework.
The agencies estimate that the Proposal would lead to an aggregate reduction in the tier 1 capital requirement for IDI subsidiaries of approximately 27% on average (approximately $213 billion in aggregate).
According to the Proposal, “almost all of this capital would need to be retained within their consolidated holding companies because the proposal would only slightly reduce GSIB holding company tier 1 capital requirements.” In addition, the agencies note, “GSIBs’ ability to distribute their equity capital to external shareholders [such as through dividend payments or other capital distributions] would be limited by common equity tier 1 capital requirements.”
The Proposal seeks to provide greater discretion to GSIBs to determine optimal capital allocation across all levels of the organization, with the agencies aiming for the freed-up capital to be flexibly allocated to US Treasury intermediation activities.
Proposed Changes to the LTD and TLAC Requirements
- LTD: The agencies propose to revise the minimum leverage-based external LTD requirement for GSIBs to “total leverage exposure multiplied by 2.5% (the minimum supplementary leverage ratio of three percent minus 0.5% to allow for balance sheet depletion) plus the eSLR buffer standard under the Proposal.”
- Overall requirements would decrease by $132 billion, or 16%, in aggregate.
- TLAC: The agencies propose to “replace the two percent TLAC leverage buffer with a new TLAC leverage buffer equal to the [Proposal’s] eSLR buffer standard . . . . [to] maintain the original alignment of the TLAC leverage buffer and the eSLR standards.” The Proposal, however, would not change the minimum level of TLAC that a GSIB is required to maintain.
- Overall requirements would decline by $90 billion or 5%, in aggregate.
Statements For and Against
The FRB voted 5-2 in favor of the Proposal.
- FRB Chairman Jerome Powell supported the Proposal, noting that given banking system conditions have changed since the eSLR was first adopted in 2014, it is “prudent for [the FRB] to reconsider [its] original approach” to adjust the leverage ratio’s calibration. He also noted that the Proposal is consistent with the Basel Committee’s leverage ratio framework.
- FRB Vice Chair for Supervision Michelle Bowman supported the Proposal’s eSLR recalibration, highlighting the Proposal’s promotion of US Treasury market functioning and resilience, and “reducing the likelihood of market dysfunction and the need for the Federal Reserve to intervene in a future stress event.”
- FRB Governor Christopher Waller supported the Proposal, noting that a recalibration of the eSLR from a de-facto binding requirement back to a risk-based capital backstop as it was originally conceived would be a positive step for bank health and market functioning, as it would realign incentives and give GSIBs wider latitude in asset allocation.
- FRB Governor Michael Barr opposed the Proposal, stating that it significantly reduces bank capital while “significantly increase[ing] the risk that a GSIB bank would fail.” He was also “skeptical that it will achieve the stated objective of improving the resiliency of the Treasury market” as “[f]irms could just as easily shift to other activities with low risk-based capital requirements and significantly higher returns than Treasury market intermediation.”
- FRB Governor Adriana Kugler opposed the Proposal, stating that the Proposal’s reduction in tier 1 capital requirements may contribute to “elevated financial stability risk.” She also echoed Governor Barr’s skepticism regarding the Proposal’s purported benefits to the Treasury market. She also would have preferred a Proposal that took a holistic approach, taking in account risk-based capital levels “once Basel III endgame and stress testing-related changes are finalized.”
The FDIC voted 3-0 in favor of the Proposal.
- FDIC Vice Chairman (Acting Chairman) Travis Hill supported the Proposal, as it would free up capital at the subsidiary level and “provide more capacity for institutions to engage in low-risk activities such as U.S. Treasury market intermediation,” while maintaining strong capital standards at the holding company level.
- Acting Comptroller of the Currency Rodney E. Hood supported the Proposal for many of the reasons noted above, and added that the Proposal “is expected to support increased lending and economic activity. . . . [which] could lead to more favorable terms for consumers and businesses.”
- Consumer Financial Protection Bureau Acting Director Russell Vought supported the Proposal, but did not issue a statement.
Conclusion
By recalibrating the eSLR to serve as a backstop rather than a binding constraint, the agencies are seeking to promote effective GSIB capital management and remove disincentives for banks to engage in low-risk activities, particularly in the US Treasury market. Although the Proposal does not exclude low-risk assets (e.g., US Treasuries and central bank reserves) from the eSLR calculation, for which many in the banking industry have advocated, this shift is expected to free up significant capital, allowing holding companies greater discretion in asset allocation and potentially fostering increased lending and economic activity.
The Proposal reflects a broader regulatory shift under the Trump administration aimed at reducing the stringent “gold-plated” safeguards that have characterized US bank capital regulations post-financial crisis, perceived by critics and the banking industry as excessive and onerous compared to international standards.
Although the Proposal has garnered support for its potential benefits, it has also faced criticism regarding the potential risks that providing greater discretion to GSIBs in determining capital allocation could pose to financial system stability.
The Proposal is open for public comment until August 26, 2025.
