Banking and Finance Law Daily Wrap Up, CAPITAL AND BASEL ACCORDS—Banking trade groups differ on proposed eSLR changes, (Aug 28, 2025)

By Jonathan Anderson

The ABA touted greater flexibility, while the ICBA raised concerns about systemic risks.

The American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) submitted comments with opposing views about a proposal by federal financial regulators to ease capital standards for global systemically important bank holding companies (GSIBs). The ABA voiced support for the measure and encouraged further review of long-term debt requirements. Meanwhile, the ICBA said the plan gives preferential treatment to the largest financial institutions and exacerbates systemic risks.

Background. In June 2025, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve, and the Federal Deposit Insurance Corporation issued a draft notice of proposed rulemaking to modify the enhanced supplementary leverage ratio (eSLR), total loss-absorbing capacity (TLAC), and long-term debt-related capital requirements for GSIBs and their insured depository institution subsidiaries (IDIs). The plan reduces aggregate tier 1 capital requirements for the banks by 1.4 percent and applies an eSLR buffer at the GSIB parent and each depository institution subsidiary equal to half of the GSIB’s method 1 surcharge under the Fed’s risk-based GSIB surcharge framework (see Banking and Finance Law Daily, June 26, 2025).

ABA supports proposal. In its Aug. 26, 2025, comment, the ABA said it “strongly supports” the proposal, which the association described as “an important and overdue step toward restoring the eSLR’s intended role as a backstop to risk-based capital requirements.” The ABA also encouraged review of long-term debt requirements and said the agencies should continue exploring broader leverage ratio reforms in future rulemakings.

Buffer standard. The ABA urged the agencies to cap the buffer at 2 percent, “consistent with the current calibration, to ensure the eSLR remains a backstop to risk-based capital ratios.” The ABA said such action would help reduce how often the eSLR functions as a binding constraint and returns it “to a more appropriate role in the overall regulatory capital framework.”

Flexibility. The ABA argued that the proposed changes would provide GSIBs and their depository institution subsidiaries “with greater flexibility to meet customer needs and support the economy.” Because of current tier 1 risk-based capital requirements, the proposal would “not appreciably reduce the level of tier 1 capital held by bank holding companies,” the association said.

Other entities. The ABA said the proposal would ease constrictions on bank balance sheets that affect activities of legal entities other than broker-dealers within consolidated banking organizations. As such, the proposal would ease constraints on banks’ subsequent capacity to hold Treasury securities.

Stress testing. The ABA called for reconsideration of “the scoping mechanism for the global market shock (GMS) component of the Federal Reserve’s stress testing framework.” The association further asked the agencies to “reconsider the current weighting applied to repos backed by U.S. Treasuries in the weighted short-term wholesale funding (wSTWF) metric under the FR Y-15 framework.”

Leverage ratio requirements. The ABA encouraged the agencies to explore broader reforms to the capital framework, including review of the tier 1 leverage ratio and the leverage ratio framework more broadly. The ABA also asked the agencies to “reduce the community bank leverage ratio (CBLR) from 9 percent to 8 percent.”

Leverage buffer vs. corrective action. The ABA said that at the IDI level, the eSLR standard “should be applied as a capital buffer requirement rather than part of the prompt corrective action (PCA) ‘well capitalized’ threshold.”

Long-term debt requirements. The ABA asked the agencies to “revisit the need for long-term debt requirements in general.” The association expressed support for “an appropriately calibrated TLAC requirement for covered BHCs,” but added that “separate long-term debt requirement is unnecessary and should be eliminated.”

Unintended consequences. The ABA said it did not believe any unintended consequences would result from “aligning the application of the eSLR standard for OCC-regulated banks to ensure a consistent scope of application across the Federal banking agencies.”

Intermediation activities. The ABA said the proposal “would provide GSIBs and their depository institution subsidiaries with greater balance sheet capacity.” The association argued that when the eSLR serves as a binding capital constraint, it “disincentivizes institutions from low-risk low-return activities, such as U.S. Treasury market intermediation.”

Long-term outlook, periods of stress. The ABA said the proposal would “facilitate greater balance sheet capacity,” the importance of which, the association said, was demonstrated during the COVID-19 pandemic.

ICBA opposes proposal. In its Aug. 26, 2025, comment, the ICBA said that although it “supports thoughtful regulatory modernization, the proposal fundamentally undermines critical safeguards and creates unacceptable systemic risks that exceed any claimed benefits.” The association asked the agencies to withdraw the proposal and maintain current eSLR standards. The ICBA also requested that the agencies consider capital needs of community banks in future rulemaking efforts and incorporate competitive impact analyses. The association also said the proposal and other regulatory changes that impact systemic risk and competition “should be informed by thorough studies and be presented as part of a cohesive framework” to allow for informed public assessment and comment.

Systemic risks. The ICBA said that the proposal gives preferential treatment to the largest financial institutions, thereby further entrenching their status of “Too Big to Fail” firms that pose the most significant threats to the financial system. The ICBA further expressed concern with loosening capital requirements at IDIs and relying on GSIBs “to serve as a source of strength to their subsidiary IDIs,” despite the lack of completed rulemaking. Proposed amendments to the TLAC “and long-term debt (LTD) framework would further undermine the resiliency of GSIB IDIs during a crisis, undercutting the single point of entry (SPOE) strategy the firms have proposed and increasing resolution risks,” the comment reads.

Competition. The ICBA argued that the proposal “disrupts the competitive landscape and tilts the playing field even further in favor of Too Big to Fail institutions.” Community banks, the association said, would “remain subject to existing capital requirements.” GSIBs and IDIs may see cost advantages from the proposal, which the ICBA said may result in further concentration of market share and exacerbation of consolidation in the banking system. The ICBA asked the agencies to analyze the proposal’s competitive effects, “including the impact that its downstream negative effects on community banks would have for small businesses, agricultural lending, and customers across the country.”

Justification, harms. The ICBA questioned the justification for the proposal, describing it as speculative and arguing that it “fails to outweigh the potential harms.” The association said it was not clear that the adjustments to the eSLR would positively impact the Treasury market, and it further wrote that the agencies failed to ensure that GSIBs and their subsidiaries would use the newly available capital to participate in the Treasury market. “Finalizing the proposal with its lack of clear rationale would be arbitrary and capricious, and the agencies should withdraw it,” the ICBA said.

Companies: American Bankers Association; Independent Community Bankers of America

RegulatoryActivity: BankHolding BankingOperations CapitalBaselAccords DepositInsurance FederalReserveSystem FinancialStability PrudentialRegulation SecuritiesDerivatives