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TCH Praises Step Forward and Offers Recommendations for Further Improving Bank Capital Proposals

TCH files comment letters on stress buffer requirements and enhanced supplementary leverage ratio/total loss-absorbing capacity proposals

For Immediate Release:
Contact: Sean Oblack, 202.649.4629



Washington, DC – Late yesterday, The Clearing House filed two comment letters with the Federal banking agencies responding to meaningful capital proposals that have the potential to significantly impact banks’ ability to serve their customers and promote economic growth. The first letter responded to the Federal Reserve’s stress buffer requirements proposal, which would create a single, integrated set of capital requirements by harmonizing the Federal Reserve’s stress testing regime and Dodd Frank Act requirements with the point-in-time requirements of the Basel III capital standards.  The second letter responded to the Federal Reserve and Office of the Comptroller of the Currency’s proposal regarding the enhanced supplementary leverage ratio (eSLR) standards, which seeks to modify the current capital framework so that the eSLR serves as a backstop, and not the binding capital constraint, as the banking agencies and the Basel Committee intended and makes conforming changes to the total loss-absorbing capacity (TLAC) and eligible long-term debt (LTD) requirements applicable to U.S. GSIBs. 


“The Fed and the OCC are wise to review the effectiveness of the post-crisis capital framework,” said Greg Baer, President of the Clearing House Association.  “The enhanced leverage ratio — set at roughly double international norms — has incentivized banks to move away from low-risk assets, with significant adverse effects on capital market liquidity.  The CCAR stress test drives capital allocation across the large banks subject to it, so its assumptions should be realistic and its outputs reasonable.  The Federal Reserve’s proposal eliminates unrealistic assumptions that banks would grow their balance sheets and continue making share repurchases in the midst of a crisis, but needs to go further — for example, to ensure that the stress scenario bears some relation to a plausible reality, and to reduce year-to-year volatility in bank capital requirements as the Fed changes that scenario. Finally, this proposal highlights the need to revisit a U.S. GSIB surcharge that has severe methodological flaws, has not been updated to reflect post-crisis reforms that have significantly and measurably reduced systemic risk, and is roughly double the Basel standard.”


Other noteworthy recommendations for further improvements to the stress buffer requirements proposal include:

  • As empirically evidenced by the 2018 DFAST results, the proposal heightens the urgency to address the volatility of estimated stress losses through increased transparency of supervisory models, a public notice-and-comment period for stress scenarios, and realistic scenario parameters for supervisory scenario design.
  • The final stress buffer requirements should not include an additional component for four quarters of planned common dividends in light of the payout restrictions under the Federal Reserve’s capital rule, and changes should be made to the definition of eligible retained income and other mechanics of the payout restrictions to more realistically reflect the actions firms would take and to retain an appropriate measure of capital management flexibility for firms’ boards of directors under stressed conditions.  The proposal also should be amended to take into account the different circumstances of the U.S. IHCs of FBOs.
  • Consistent with the intended elimination of any quantitative objection to a firm’s capital plan, the Federal Reserve should amend the capital plan rule to fully eliminate any residual basis for a quantitative objection to a firm’s capital plan, consistent with the Federal Reserve’s expectations for a firm’s board of directors and senior management to be responsible for capital planning.
  • Stress buffer requirements should not become effective until one year after initial notice to avoid disruptions in capital markets, and the proposed reconsideration and mulligan procedures should be improved.
  • The proposal should recognize that the treatment of the GSIB surcharge as additive to the SCB makes it imperative to review and reassess the U.S. implementation of the GSIB surcharge, which currently suffers from conceptual and methodological flaws and is inconsistent with the international framework, putting U.S. GSIBS on an unlevel playing field compared to their international peers.
  • Risk-insensitive capital measures should not be part of stress buffer requirements.

Additional noteworthy recommendations for the improvements to the eSLRand TLAC include:

  • The U.S. GSIB surcharge calibration should be reassessed in light of the eSLR requirement.
  • The denominators for leverage capital requirements should be modified to further improve the regulatory capital framework, including by implementing the U.S. Treasury Department’s 2017 recommendations.
  • The eSLR requirement for subsidiary IDIs of U.S. GSIBs should be implemented as a buffer requirement.
  • The Federal Reserve should make further changes to the TLAC SLR and LTD SLR requirements applicable to U.S. GSIBs in addition to modifying these requirements to reflect the recalibration of the eSLR.




About The Clearing House.  The Clearing House is a banking association and payments company that is owned by the largest commercial banks and dates back to 1853.  The Clearing House Payments Company L.L.C. owns and operates core payments system infrastructure in the United States and is currently working to modernize that infrastructure by building a new, ubiquitous, real-time payment system.  The Payments Company is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume.  Its affiliate, The Clearing House Association L.L.C., is a nonpartisan organization that engages in research, analysis, advocacy and litigation focused on financial regulation that supports a safe, sound and competitive banking system. 

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