Revisions to the Supplementary Leverage Ratio for Custodial Banking Organizations and Custody Banks: Final Rule

Summary

On January 27, 2020, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) issued a final rule that excludes from the supplementary leverage ratio (SLR) certain central bank deposits of banking organizations predominantly engaged in custody, safekeeping, and asset servicing activities consistent with section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Advanced approaches and Category III banking organizations are subject to the SLR requirement.

Highlights

• Consistent with section 402 of the EGRRCPA, the final rule revises the SLR to exclude certain funds of "custodial banking organizations" and "custody banks" that are deposited with certain central banks, subject to a specific limit.
• Under the final rule, a depository institution holding company is designated as a "custodial banking organization" and considered predominantly engaged in custody, safekeeping, and asset servicing activities if the U.S. top-tier depository institution holding company in the organization has a ratio of average assets under custody (AUC)-to-average total assets of at least 30:1 over the previous four calendar quarters. Similarly, under the provisions in the final rule applicable to national banks and federal savings associations (FSA), the OCC is designating as a "custody bank" any national bank or FSA that is a subsidiary of a custodial banking organization.
• Consistent with section 402, the final rule defines a qualifying central bank as a Federal Reserve Bank, the European Central Bank, or a central bank of a member country of the Organisation for Economic Co-operation and Development if an exposure to the member country receives a 0 percent risk weight under the capital rule and the sovereign debt of such member country is not in default or has not been in default during the previous five years.
• Under the final rule, the amount of the deposits with a qualifying central bank that a custodial banking organization is permitted to exclude from the SLR is limited to the amount of on-balance-sheet deposit liabilities that are linked to fiduciary or custody and safekeeping accounts. Specifically, the final rule provides that a custodial banking organization would be able to exclude from its total leverage exposure the lesser of
  • the amount of central bank deposits placed at qualifying central banks by the custodial banking organization (including deposits placed by consolidated subsidiaries), or
  • the amount of on-balance-sheet deposit liabilities of the custodial banking organization (including consolidated subsidiaries) that are linked to fiduciary or custodial and safekeeping accounts.

Background

Section 402 of the EGRRCPA directs the agencies to amend the capital rule to specify that funds of a "custodial bank" that are deposited with certain central banks shall not be taken into account when calculating the SLR, subject to a specified limit. The SLR applies to advanced approaches and Category III banking organizations and measures a bank's tier 1 capital relative to its total leverage exposure, which includes on-balance-sheet assets (including deposits at central banks) and certain off-balance-sheet exposures.

Further Information

Please contact Venus Fan, Risk Expert, or Guowei Zhang, Risk Expert, Capital and Regulatory Policy, at (202) 649-6370; or Rima Kundnani, Attorney, or Christopher Rafferty, Attorney, Chief Counsel's Office, at (202) 649-5490.

Jonathan V. Gould
Senior Deputy Comptroller and Chief Counsel

Related Link

• Regulatory Capital Rule: Revisions to the Supplementary Leverage Ratio to Exclude Certain Central Bank Deposits of Banking Organizations Predominantly Engaged in Custody, Safekeeping, and Asset Servicing Activities (PDF)