Dive Brief:

• The Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) temporarily relaxed the supplementary leverage ratio rule to help banks do more lending during the pandemic.

• The recent announcement follows a similar move made by the Federal Reserve regarding bank holding companies in April.

• "The temporary modifications will provide flexibility to certain depository institutions to expand their balance sheets in order to provide credit to households and businesses in light of the challenges arising from the coronavirus response," the two agencies said in a joint statement Friday.

Dive Insight:

The supplemental leverage ratio, which directs larger banks to hold more capital against their assets, was enacted after the 2008 financial crisis. 

"The interim final rule permits depository institutions to choose to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio," the regulators said. 

The regulators estimate the interim rule, which will be in effect through March 2021, would relax bank capital requirements by as much as $55 billion if all 44 depository institutions subject to the supplementary leverage ratio opt in.

Banks that choose to change their supplementary leverage ratio calculations will be required to request approval from their primary federal banking regulator before paying dividends as long as the exclusion is in effect, the regulators said. 

FDIC Chair Jelena McWilliams said the adjustment "will support the ability of [insured depository institutions] to accommodate customer deposit inflows and serve as financial intermediaries in the U.S. Treasury market without incentivizing taking on additional risk."

Not all board members, however, agreed with the decision.

FDIC Board Member Martin Gruenberg, who voted against the interim rule, said "now is not the time" to reduce the leverage capital of the most systemically important banks in the U.S.

"We learned the hard way during the 2008 financial crisis the importance of preserving loss absorbing leverage capital at systemically important banks," he said in a statement. "The capital of U.S. banks may look strong today, but that profile may change drastically over the next 12 months as credit losses mount. This is particularly true given the severity and scope of the current crisis involving extraordinary levels of economic contraction, business closures, job loss, and potential bankruptcies." 

Gruenberg also called the ruling "too broad in scope" and questioned the discretionary aspect of the rule.

"It does not ensure uniform treatment and may actually raise market concerns if institutions are treated differently," he said. 

Former FDIC Chair Sheila Bair also voiced her disapproval of the ruling in a series of tweets Sunday. 

"Allowing banks to reduce capital minimums now is the wrong move. The Fed itself has warned of dire economic conditions that could result in significant losses for banks. They should be building, not reducing, capital, to remain solvent and lending through this crisis," she wrote.

Bair, however, applauded the FDIC and OCC for requiring pre-approval of shareholder distributions. 

"No bank should be paying dividends right now," she said. "Hopefully this pre-approval requirement will dissuade banks from weakening their capital position. I am also glad that the relief is temporary, expiring at the end of March next year. No doubt big bank lobbyists will press to make it permanent. I hope the regulators stand firm."

Bair, who headed the FDIC under President George W. Bush, is reportedly under consideration to lead the Congressional Oversight Commission charged with monitoring how the Federal Reserve and U.S. Treasury used the coronavirus relief funds, according to Quartz.