Banking and Finance Law Daily Proposal would exclude central bank deposits from supplementary leverage ratio
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Friday, March 29, 2019

Proposal would exclude central bank deposits from supplementary leverage ratio

By J. Preston Carter, J.D., LL.M.

Banking regulators seek comments on a proposal that would exclude central bank deposits from the supplementary leverage ratio of the regulatory capital rule.

The Office of the Comptroller of the Currency, Federal Reserve Board, and Federal Deposit Insurance Corporation are proposing to amend the supplementary leverage ratio of the regulatory capital rule to exclude certain funds of banking organizations deposited with central banks if the banking organization is predominantly engaged in custody, safekeeping, and asset servicing activities. The proposal would implement section 402 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The agencies are seeking comments on their notice of proposed rulemaking, due 60 days from its date of publication in the Federal Register.

Section 402 of EGRRCPA requires the agencies to amend the supplementary leverage ratio to not take into account funds of a custodial bank that are deposited with certain central banks. Amounts that exceed the total value of deposits of the custodial bank linked to fiduciary or custodial and safekeeping accounts, however, will be included when calculating the supplementary leverage ratio. Under section 402, central bank deposits that qualify for the exclusion include deposits of custodial banks placed with (1) the Federal Reserve System, (2) the European Central Bank, and (3) central banks of member countries of the Organisation for Economic Co-operation and Development (OECD). Section 402 defines a custodial bank as "any depository institution holding company predominantly engaged in custody, safekeeping, and asset servicing activities, including any insured depository institution subsidiary of such a holding company."

Under the joint proposal, a depository institution holding company would be 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 assets under custody (AUC)-to-total assets of at least 30:1. AUC would equal the average of a U.S. top-tier depository institution holding company’s assets under custody for the four most recent calendar quarters, and total assets would equal the average of the U.S. top-tier depository institution holding company’s total consolidated assets for the four most recent calendar quarters. Also under the proposal, a custodial banking organization would exclude deposits placed at a "qualifying central bank" from the denominator of the supplementary leverage ratio to the extent that they are linked to fiduciary or custody and safekeeping accounts.

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