MNI BRIEF: Fed Govs Approve Draft Rule To Ease Leverage Ratio

The Federal Reserve Board of Governors on Wednesday voted 5-2 to approve a draft rule to ease leverage rules for big banks, a shift regulators hope will free up more cash for facilitating Treasury market trading and ensure the rules serve as a backstop to risk-based capital requirements rather than a binding constraint. 

Fed Chair Jerome Powell and Vice Chair for regulation Miki Bowman backed the proposal, as did governors Lisa Cook, Phil Jefferson and Chris Waller. Governors Michael Barr and Adriana Kugler voted against the SLR change, arguing it would significantly reduce capital requirements with dubious benefits for Treasury market intermediation. (See: MNI: Fed Governors Oppose Proposal To Ease Bank Leverage Rule)

The proposal is now open for 60 days of public comment. The Board also seeks feedback on modifications to the calculation of the SLR’s denominator, such as excluding U.S. Treasuries held for trading at broker-dealers or excluding all U.S. Treasuries and reserves, similar to emergency SLR relief during the pandemic.