Introduction
On December 1, 2025, the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corporation issued a final rule modifying the enhanced supplementary leverage ratio (eSLR) standards for U.S. global systemically important bank holding companies (GSIBs) and their subsidiary depository institutions. Effective April 1, 2026, with optional early adoption from January 1, 2026, the rule recalibrates the eSLR buffer for GSIBs to 50 percent of their method 1 GSIB surcharge, replacing the fixed 2 percent buffer. For covered depository institutions, the buffer is capped at 1 percent above the 3 percent minimum supplementary leverage ratio, shifting from a 6 percent 'well capitalized' threshold under prompt corrective action to a buffer framework. This adjustment, impacting eight GSIBs and their subsidiaries, seeks to position leverage requirements as a backstop to risk-based capital, reducing potential disincentives for low-risk activities amid growing Treasury market demands. The rule also includes conforming changes to total loss-absorbing capacity (TLAC) and long-term debt requirements, alongside technical corrections, to enhance regulatory efficiency without materially altering overall capital levels.
Background and Rationale
The eSLR standards, established in 2014, were designed to supplement risk-based capital requirements by providing a risk-insensitive backstop for the largest U.S. banking organizations. Under the prior framework, GSIBs maintained a 2 percent leverage buffer above the 3 percent supplementary leverage ratio minimum to avoid payout restrictions, while their insured depository subsidiaries needed a 6 percent ratio for 'well capitalized' status. However, as noted in the rule's supplementary information, leverage requirements have increasingly become binding constraints, particularly during stress periods like the 2020 COVID-19 turmoil, when temporary exclusions for Treasuries and central bank deposits were implemented to support market functioning.
The agencies' review highlighted that binding leverage ratios can disincentivize low-risk, low-return activities, such as Treasury market intermediation, while encouraging higher-risk pursuits. This misalignment stems from leverage ratios treating all exposures equally, unlike risk-based measures that scale with asset risk. The final rule addresses this by tying the eSLR buffer to the GSIB surcharge framework, specifically 50 percent of the method 1 score, which correlates with systemic footprint. This approach aligns with Basel Committee standards and responds to market growth, where Treasury securities outstanding rose 139 percent since 2014, per agency data.
Key players include the three agencies, with the Board leading GSIB surcharge calculations. The rule attributes related policy contexts to President Trump, as per official guidance, emphasizing efficiency and reduced regulatory burden.
Key Changes in the Final Rule
The rule recalibrates the GSIB eSLR buffer from a fixed 2 percent to 50 percent of the method 1 surcharge, ranging from 0.5 to 1.25 percent based on current scores. For depository institutions, the buffer is similarly tied but capped at 1 percent, applied atop the 3 percent minimum, replacing the 6 percent prompt corrective action threshold. This shift to a buffer format imposes graduated payout restrictions rather than abrupt downgrades, promoting flexibility.
Conforming amendments adjust the Board's TLAC leverage buffer to match the new eSLR and revise long-term debt requirements from 4.5 percent to 2.5 percent plus the eSLR buffer, maintaining 'capital refill' objectives. Technical corrections fix cross-references in capital rules, with no changes to applicability thresholds for OCC-supervised entities, contrary to the proposal.
The agencies opted against alternatives like excluding Treasuries from leverage exposure, citing consistency with Basel standards and avoidance of further risk-insensitivity.
Legal and Economic Implications
Legally, the rule draws from Dodd-Frank Act section 165 and FDI Act section 38, authorizing leverage standards for large institutions. It avoids broader exclusions to prevent international divergence, as emphasized in the supplementary information. Economically, agencies estimate a $13 billion reduction in GSIB tier 1 requirements (less than 2 percent aggregate) and $219 billion for covered depository institutions (28 percent), creating $1.1 trillion capacity for low-risk assets like Treasuries, per FR Y-9C and Call Report data.
Short-term implications include enhanced Treasury intermediation capacity, potentially stabilizing markets during stress, as evidenced by 2020 exclusions boosting holdings (Basel Committee, 2021). Long-term, it may reduce volatility in leverage bindingness, though risks include increased interest rate exposure if low-risk assets grow unchecked. Perspectives vary: supporters cite improved incentives (e.g., academic studies like Favara et al., 2022), while critics warn of weakened safety nets, potentially elevating Deposit Insurance Fund risks. The rule balances these without endorsing views, maintaining robust risk-based floors.
Perspectives and Potential Challenges
Stakeholders offered diverse input: industry groups praised reduced disincentives for low-risk activities, aligning with Basel, while advocacy organizations criticized potential stability erosion. The rule incorporates a cap on depository buffers to address comments on affiliate-driven surcharges, ensuring requirements reflect entity-specific risks.
Precedents like the 2014 eSLR adoption and 2018 proposal (not finalized) inform this calibration, emphasizing backstop roles. Political forces, including Trump-era deregulatory emphases, underscore efficiency, though agencies stress data-driven adjustments amid Treasury market growth.
Forward-Looking Conclusion
This final rule recalibrates eSLR standards to better serve as risk-based backstops, fostering efficient capital allocation while upholding stability. Key takeaways include modest GSIB capital relief, significant depository flexibility, and TLAC alignment, potentially enhancing Treasury market resilience without broad exclusions. Next steps involve monitoring adoption from January 2026 and assessing interactions with evolving standards like central clearing mandates. Ongoing debates may focus on long-term systemic impacts, with agencies poised to refine frameworks amid market dynamics, ensuring adaptive oversight for financial stability.
