Monthly LRA Update

REGULATORY DEVELOPMENTS

Industry Response to Proposed Modifications to Enhanced Supplementary Leverage Ratio Standards

As covered in our June LRA Update, banking regulators recently released and sought comment on a proposal to modify the Enhanced Supplementary Leverage Ratio (eSLR) standards. A key objective of the proposed changes is to reduce disincentives for large banking organizations from intermediating in the U.S. Treasury market.

On August 26 the International Swaps and Derivatives Association (ISDA), the Securities Industry and Financial Markets Association (SIFMA), and the Futures Industry Association (FIA) jointly submitted a comment letter to the banking regulators expressing support for the proposed modifications to the eSLR standards. The letter includes the following language supporting the proposed modifications:

The Associations strongly support the proposal to modify the current 2% eSLR leverage buffer applicable to U.S. GSIBs to 50% of the U.S. GSIB’s risk-based GSIB capital surcharge calculated under Method 1 of the Federal Reserve’s GSIB surcharge rule. The Associations also strongly support the proposal to replace the current 6% “well-capitalized” threshold for a depository institution subsidiary of a U.S. GSIB with an eSLR leverage buffer standard equal to 50% of the risk-based GSIB capital surcharge applicable to the depository institution’s U.S. GSIB holding company as calculated under Method 1. These revisions would reduce the likelihood that the eSLR would serve as a binding constraint, as opposed to a backstop to risk-based capital requirements, consistent with the general purpose of leverage-based capital requirements. The revisions also should help facilitate banking organization participation in U.S. Treasury markets and other low-risk, high-volume activities.

The ISDA, SIFMA, and FIA also expressed the opinion that the proposals be implemented by January 1, 2026. Additionally, the organizations commented on potential further enhancements to the U.S. regulatory capital framework, including that rules should recognize the risk-mitigation benefits of cross-product netting agreements under the standardized approach.

Separately, in a letter dated August 8, Democratic members of the Senate Committee on Banking, Housing, and Urban Affairs urged regulators to “provide Congress and the public with more rigorous data and analysis on the economic impacts” of the proposed modifications of the eSLR standards, specifically requesting further information on both short-term and long-term impacts and possible risks. Committee members also requested an extension of the comment period by 90 days.

OTHER DEVELOPMENTS

Banking Organizations Joint Letter Requesting Exception under Potential Federal Data Privacy Laws

On August 19 a group of banking organizations (including SIMFA and the American Bankers Association) jointly submitted a letter to the House Committee on Energy and Commerce regarding potential federal data privacy laws. This letter was a supplement to a prior letter sent to the Committee’s Data Privacy Working Group and included language requesting that any federal data protection legislation include language substantially similar to the Kentucky Consumer Data Protection Act, which states that provisions would not apply to financial institutions which are already subject to the Gramm-Leach-Bliley Act.

The letter also touches on the challenges and costs associated with maintaining compliance with various state-level data privacy and protection laws.

NAIC Risk-Based Capital Model Governance (EX) Task Force – August Meeting

On August 15 the NAIC Risk-Based Model Governance (EX) Task Force held its summer meeting. A primary charge of the task force is to develop a set of guiding principles for the risk-based capital framework to ensure a consistent approach to future risk-based capital adjustments.The meeting included a summary of comments received on proposed preliminary risk-based capital principles and questions, following a recent request for comment by the task force. The NAIC had engaged Bridgeway Analytics as a consultant to assist in gathering and quantifying responses. Comments were submitted by various state insurance departments and commissioners, as well as insurance carriers and organizations, including the ACLI, Transamerica, and MetLife. Commenters were generally supportive of the spirit of the proposed principles of the task force.