Federal banking regulators moved Wednesday afternoon to ease one capital rule for big banks, a change that particularly could help big custody banks such as State Street and the Bank of New York Mellon.
The announcement from the Federal Reserve and the Office of the Comptroller of the Currency is the second significant change to post-crisis banking rules in as many days.
The two agencies proposed to alter a rule that requires banks to maintain a certain level of capital relative to their assets. In effect, the rule limits how indebted the banks can become to fund their operations.
The rule, called the enhanced supplementary leverage ratio, is a blunt requirement imposed on the biggest banks. It was intended to be a backstop to other capital rules that apply to banks’ assets adjusted for riskiness.
The Fed and OCC propose to change the minimum ratio from being a one-size-fits-all 5 percent requirement and instead tie the ratio to another measure that is calculated on a bank-by-bank basis.
The requirement thus would be “more closely tailored to each firm,” the agencies said in a joint release.
The regulators had become concerned that the leverage ratio was penalizing big banks that have many low-risk assets, such as custody banks whose main business is safekeeping assets for other financial firms.
While those banks would have an easier time clearing the minimum capital requirements on a risk-weighted basis, they might struggle with the blunter leverage ratio that doesn’t account for their low-risk assets.
Bipartisan legislation that passed the Senate last month also would relax the leverage ratio for custody banks. It would allow them to exempt deposits at the Fed from the tally of assets in calculating the ratio.
That provision has been criticized by some regulatory experts, who regard it as the first step toward lowering capital requirements more broadly. The bill awaits agreement between the House and the Senate.
The Fed said its proposed rule would lessen total capital for the affected banks by about $400 million, or just 0.04 percent of the total.
