Monthly LRA Update

TAX DEVELOPMENTS

Tax Reform Update

On July 1 the Senate passed H.R. 1 – “One Big, Beautiful Bill” Act via a 51-50 vote (with Vice President Vance casting the tie-breaking vote). While the Senate version incorporated changes relative to the version passed by the House, the legislation does not include any tax provisions that relate to the life insurance industry.

The revised bill must once again get passed by the House. If the House passes it, then it will go to the President for signature. The GOP continues to press for swift completion.

REGULATORY DEVELOPMENTS

Banking Regulators Propose Modifications to Enhanced Supplementary Leverage Ratio Standards

On June 27 the banking regulators sought comment on a proposed rule to modify the Enhanced Supplementary Leverage Ratio (eSLR) standards. Specifically, the proposal would modify the eSLR ratio buffer standard applicable to GSIBs to equal 50 percent of the bank holding company’s method 1 surcharge as determined by the Board’s GSIB risk-based capital surcharge framework. The proposal would also modify the eSLR standard for depository institution subsidiaries of GSIBs to have the same form and calibration as the GSIB parent level standard. The proposed modifications would help ensure that the eSLR ratio standards serve as a backstop to risk-based capital requirements rather than as a constraint that is frequently binding over time and through most points in the economic and credit cycle, thus reducing potential disincentives for GSIBs and their depository institution subsidiaries to participate in low-risk, low-return businesses.

A key objective of the proposed changes to the eSLR standards is to reduce disincentives for large banking organizations from intermediating in the U.S. Treasury market. The agencies are aiming to ensure that the eSLR doesn’t discourage banks from holding low-risk assets like U.S. Treasury securities, as their participation in the Treasury market is important for its smooth functioning.

While this proposed rule does not directly impact BOLI/COLI, these modifications to the eSLR will increase the likelihood that Basel III Risk-Based Capital will serve as the primary capital constraint.

FRB Removes Reputational Risk from Bank Risk Management Rating Processes

On June 23 the FRB issued a Supervisory Letter (SR 95-51) revising Attachment B to remove references to reputational risk as part of the FRB’s guidelines for rating a bank’s Risk Management Processes and Internal Controls.This action appears consistent with the developments we reported in our March LRA update. To date, we haven’t seen any published modifications to Interagency regulatory guidance for BOLI, which includes Reputational Risk as a risk consideration.