Board of Governors of the Federal Reserve System

I want to welcome everyone, both those here in person and online, to the Federal Reserve's open meeting. I would also like to thank the staff for their presentations today and all of the agencies for their work to get us here. This proposal, in various forms, has been in the making for several years and I am pleased that we are here today to consider it.

Over a decade ago, in the aftermath of the Global Financial Crisis, the agencies adopted the supplementary leverage ratio, or SLR, as a capital requirement that would be a backstop to risk-based requirements. This was an important step in ensuring the resilience of the banking system.

However, since that time, conditions have changed. When the Board originally approved the SLR—and the enhanced SLR, or eSLR, for our largest banks—we expected reserves in the banking system to substantially decline in the following years. Instead, we have seen bank reserves increase substantially. We also have seen Treasury holdings in the banking system climb precipitously. This stark increase in the amount of relatively safe and low-risk assets on bank balance sheets over the past decade or so has resulted in the leverage ratio becoming more binding. Based on this experience, it is prudent for us to reconsider our original approach. Because banks play an essential intermediation role in the Treasury market, we want to ensure that the leverage ratio does not become regularly binding and discourage banks from participating in low-risk activities, such as Treasury market intermediation.

To that end, the agencies have worked together to propose a method for adjusting the leverage ratio's calibration, while still ensuring the resiliency of the system and not disincentivizing low-risk activities. And importantly, this proposal is consistent with the leverage ratio framework from the Basel Committee.

I look forward to the presentation today.