On October 10, 2019, the Board of Governors of the Federal Reserve System (Board), together with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, adopted a final rule to revise the criteria for determining the applicability of regulatory capital and liquidity requirements for large U.S. banking organizations and the U.S. intermediate holding companies of certain foreign banking organizations.  The Board also adopted a final rule that establishes risk-based categories for determining prudential standards for large U.S. banking organizations and foreign banking organizations, consistent with section 165 of the Dodd-Frank Act, as amended by the Economic Growth, Regulatory Relief, and Consumer Protection Act, and with the Home Owners’ Loan Act.

The final rules establish four risk-based categories for determining the applicability of requirements under the agencies’ regulatory capital rule and liquidity coverage ratio rule.  Under the final rules, regulatory capital requirements increase in stringency based on measures of size, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure.

The final rules apply tailored regulatory capital and liquidity requirements to depository institution holding companies and U.S. intermediate holding companies with $100 billion or more in total consolidated assets as well as to certain depository institutions.

In connection with the issuance of the final rules, the Board released a chart of the four categories and the requirements for organizations in each category.  The U.S. Domestic Banking Organizations in each of the four categories are as follows:

Category 1: U.S. Global Systemically Important Banks as determined by the Financial Stability Board;

Category 2: Total assets ≥ $700B or ≥ $75B in cross-jurisdictional activity;

Category 3: Total Assets ≥ $250B or ≥ $75B in non-bank assets, weighted short-term wholesale funding, or off-balance sheet exposure;

Category 4: Other firms with total assets of $100B to $250B

As the chart indicates, firms in the lowest risk category will have reduced compliance requirements, owing to their smaller risk profile. As the risk of a firm increases and it moves into a new risk category, its requirements will increase.

The Board estimated the changes will, in the aggregate, result in a 0.6 percent decrease in required capital and a reduction of 2 percent of required liquid assets for all banks with assets of $100 billion or more. The Board emphasized that the rules do not reduce capital or liquidity requirements for firms in the highest risk categories, including U.S. global systemically important banks.