The federal bank regulatory agencies have issued a final rule modifying certain regulatory capital standards. The aim is to reduce disincentives for banking organizations to participate in lower-risk activities, such as intermediating in U.S. Treasury markets.
This new rule closely resembles the proposal released in June but introduces changes at the depository institution level. It adjusts leverage capital standards for the largest and most systemically important banking organizations, ensuring these standards act as a backstop to risk-based capital requirements without discouraging involvement in low-risk activities. The standard will be set based on each organization’s systemic risk profile.
For depository institution subsidiaries, the final rule places a cap on the enhanced supplementary leverage ratio at one percent, resulting in an overall requirement of no more than four percent for these institutions. This approach takes into account differences between holding companies and their subsidiaries regarding capital needs and systemic risk profiles. According to the agencies, this adjustment helps ensure that leverage requirements serve as a backstop during periods of financial stress.
The agencies project that overall capital levels maintained by banking organizations will remain largely unchanged after implementation of this rule. They estimate that tier 1 capital requirements for affected bank holding companies will decrease by less than two percent overall. Depository institution subsidiaries may see greater reductions; however, due to existing restrictions at the holding company level, this capital generally cannot be distributed to external shareholders.
Additionally, conforming amendments have been made to other regulations linked with leverage capital standards, including total loss-absorbing capacity and long-term debt requirements.
The final rule becomes effective April 1, 2026. Banking organizations can choose to adopt the modified standards starting January 1, 2026.
