Vice Chair for Supervision Barr Previews Upcoming Capital Rule Changes
Or, in some cases, what won't be changing
Today Federal Reserve Board Vice Chair for Supervision Michael Barr delivered remarks at the Bipartisan Policy Center as a preview of a forthcoming proposal by the U.S. federal banking regulators to revise the U.S. capital rules.
Vice Chair for Supervision Barr’s speech confirmed the widely held expectation that, in general, capital requirements for large banks are going to increase - “equivalent to requiring the largest banks hold an additional 2 percentage points of capital, or an additional $2 of capital for every $100 of risk-weighted assets.”
This post looks at a few of the more specific details shared, or at least hinted at, in today’s discussions, based on a comparison to where the rules currently stand.1
In-Scope Firms
Current U.S. Framework
Currently under the U.S. capital rules all large firms2 are required to calculate risk-weighted assets for credit risk under the standardized approach. In addition. U.S. GSIBs and Category II firms are subject to what in the United States are called the advanced approaches. Such firms must calculate RWAs for credit risk under both the standardized and advanced approaches, and must in addition also calculate RWAs for operational risk and CVA risk RWAs.3 (In addition, see below section on market risk RWAs, where the current scope of application is determined a little differently.)
Under the current rules there is no “output floor” as such, but by virtue of the agencies’ application of the Collins Amendment to the Dodd-Frank Act the binding capital ratio for advanced approaches firms is whichever of the standardized or advanced approaches produces the less favorable result.
Preview of Proposal
Vice Chair for Supervision Barr believes the newly revised risk-based capital rules should apply to all banks and bank holding companies4 with $100 billion or more in total assets. Partly this is a result of recent experience, but it is also according to Vice Chair for Supervision Barr simply because the Basel III endgame moves away from internal models for credit risk and operational risk, and thus RWA calculations for these risks will be less burdensome for slightly smaller banks to implement than they were previously.
One thing the speech was a little vague on was the extent, if any, to which firms above $100 billion would be spared from certain other capital-related requirements, even if the newly revised generally applicable risk-based capital rules apply to them. For example, Category IV firms are not currently subject to the SLR or CCyB (if ever activated) - is that going to change, too? Also not addressed explicitly was how the proposal will interact with the Collins Amendment, including whether anything ought to be done to implement the Basel output floor, or whether that all is in the U.S. effectively moot.
Relevant Excerpt from Speech
One important question involves the size of institutions that the new risk-based capital rules should apply to, and I will recommend that the enhanced capital rules apply to banks and bank holding companies with $100 billion or more in assets. A threshold of $100 billion would subject more banks to our most risk-sensitive capital rules compared to the current framework, which applies to firms that are internationally active or have $700 billion or more in assets. This expanded scope is appropriate for two reasons. First, the proposed rules are less burdensome for banks to implement than the current requirements, since they don't require a bank to develop a suite of internal credit risk and operational risk models to calculate regulatory capital. Second, our recent experience shows that even banks of this size can cause stress that spreads to other institutions and threatens financial stability. The risk of contagion implies that we need a greater degree of resilience for these firms than we previously thought, as the losses posed to society by the failure of a given firm are greater, and the probability that another firm may be a victim to another firm's failure are higher. The enhancements to the capital rules should improve the resilience of these firms.
RWAs for Credit Risk
Current U.S. Framework
As noted above, in general all banking organizations must calculate RWAs for credit risk under the standardized approaches. Category I and Category II firms must also calculate RWAs for credit risk under the advanced approaches, which make use of internal models.
Preview of Proposal
Consistent with changes agreed on the international level, the proposal will seek to move away from internal models and toward a more standardized set of approaches.
Relevant Excerpt from Speech
First, for a firm's lending activities, the proposed rules would end the practice of relying on banks' own individual estimates of their own risk and instead use a more transparent and consistent approach. Currently, large banks use their own internal models to estimate certain types of credit risk. These internal models for credit risk suffer from several deficiencies. Experience suggests that banks tend to underestimate their credit risk because they have a strong incentive to lower their capital requirements. In addition, the data doesn't lend itself to robust modeling and back testing in some cases because defaults are relatively infrequent. And estimates of credit risk for similar exposures can vary substantially across firms. So, skepticism is in order. Standardized credit risk approaches—meaning we apply the same requirements to each bank and not let each bank develop their own requirements—appear to do a reasonably good job of approximating risks. And we have the additional rigor of a supervisory stress test to assess the credit risk of lending activities.
RWAs for Market Risk
Current U.S. Framework
All banking organizations with trading assets and trading liabilities equal to either: (i) 10 percent or more of total assets or (ii) $1 billion or more must calculate risk-weighted assets for market risk. Currently this includes Category I firms, Category II firms and most – but not all – Category III and Category IV firms, as well as certain other firms with less than $100 billion in total assets that have comparatively large broker-dealer operations.
The current RWA calculations are based on the “Basel 2.5” revisions to the market risk framework that were adopted after the 2008 financial crisis.
Preview of Proposal
The details here are important and the speech for understandable reasons did not go into them, but as a general matter Vice Chair for Supervision Barr’s speech signals that the U.S. regulators intend to make changes to the market risk framework consistent with those made by the Basel Committee following its Fundamental Review of the Trading Book (FRTB).
One small thing not mentioned, but of interest to a few firms, is whether the current approach to determining which firms are subject to the market risk framework will be retained (meaning that some firms above $100 billion will get a reprieve, while some below $100 billion, unlike with other aspects of the rules, will also need to deal with new requirements), or whether this too will be an area where firms above $100 billion get scoped in and everyone else is out.
Relevant Excerpt From Speech
Second, for a firm's trading activities, the proposed rules would adjust the way that the firm measures market risk, which is the risk of loss from movements in market prices, such as interest rate, equity price, foreign exchange, and commodities risk. The proposed changes better align market risk capital requirements with market risk exposure and provide supervisors with improved tools. The proposal would continue to permit firms to use internal models to capture the complex dynamics of most market risks but would not rely on banks modeling certain market risks that are too hard to model. Internal models of market risk can be more readily validated than internal models of credit risk because they are based on daily data and outcomes generally are known relatively quickly. The proposal would raise model quality standards. Firms would also be required to model risk at the level of individual trading desks for particular asset classes, instead of at the firm level. The proposal would also introduce a standardized approach that is well-aligned with the modeled approach, for use where the modeled approach is not feasible.
RWAs for Operational Risk
Current U.S. Framework
Firms in Category I and Category II of the Board’s tailoring framework, known as advanced approaches firms, must calculate risk-weighted assets for operational risk using the Advanced Measurement Approaches (AMA), which make use of internal models.
Preview of Proposal
Consistent with changes made by the Basel Committee, Vice Chair for Supervision Barr says that the U.S. capital rules will move away from the AMA toward the new Basel Standardized Measurement Approach for operational risk. See earlier post on this for a slightly more detailed look at what the new approach involves.
A key question flagged in that previous post was where the Internal Loss Multiplier (ILM) would be set. Notably, the speech today reads to me as if the ILM will not be set at one for all firms, as the industry has hoped and as has been done in certain other jurisdictions, but will instead vary from banking organization to banking organization.
One other open question not addressed in the speech is whether any changes will be made to the way the Basel Standardized Measurement Approach treats fee and services income, but based on the rest of the speech one can probably make an educated guess what the answer will be.
Relevant Excerpt from Speech
Third, for operational losses—such as trading losses or litigation expenses—the proposed rules would replace an internal modeled operational risk requirement with a standardized measure. The proposal would approximate a firm's operational risk charge based on the firm's activities, and adjust the charge upward based on a firm's historical operational losses to add risk sensitivity and provide firms with an incentive to mitigate their operational risk.
AOCI Filter
Current U.S. Framework
Firms in Category I and Category II of the Board’s tailoring framework must recognize the impact of accumulated other comprehensive income in regulatory capital, meaning that gains (losses) on available-for-sale securities flow through to regulatory capital. Category III, Category IV and smaller firms may elect to opt-out of recognizing AOCI in regulatory capital (AOCI filter). Once an AOCI opt-out election is made the election cannot be reversed.
Preview of Proposal
This had already been signaled elsewhere, but Vice Chair for Supervision Barr’s speech today confirms that Category III and Category IV firms will no longer be able to opt-out of recognizing AOCI in regulatory capital. Both the speech and remarks in the Q&A afterwards emphasized that this change would come with an appropriate transition period.
Relevant Excerpt from Speech
Importantly, the proposed adjustments would require banks with assets of $100 billion or more to account for unrealized losses and gains in their available-for-sale (AFS) securities when calculating their regulatory capital. This change would improve the transparency of regulatory capital ratios, since it would better reflect banking organizations' actual loss-absorbing capacity.
GSIB Surcharge
Current U.S. Framework
U.S. GSIBs are subject to an additional surcharge - that is, an additional amount of CET 1 capital (as a percentage of RWAs), on top of the stress capital buffer and CCyB (if set above zero) - that they must maintain to avoid becoming subject to restrictions on capital distributions and discretionary bonus payments.
Under the U.S. capital rules, there are two methodologies for determining GSIB score and associated GSIB surcharge – Method 1, which is consistent with the Basel approach, and Method 2, which generally produces higher scores. Method 1 is based on five systemic risk categories: size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity, and their associated systemic indicator(s). Method 2, like Method 1, looks at size, interconnectedness, complexity and cross-jurisdictional activity, but rather than substitutability includes a “short-term wholesale funding score.” A firm’s applicable GSIB score is determined by the higher of the scores produced by Method 1 and Method 2.
GSIB scores fall into various “buckets” – e.g., 130-229, 230-329, etc. – and applicable surcharges increase in 0.5% increments as bucket increases. Importantly, scores are currently calculated based only on year-end balance sheets.
Various groups have taken issue with the current U.S. approach to calculating GSIB surcharges from a number of directions. For example:
U.S. banks believe the use of Method 2 is an example of U.S. regulators inappropriately “gold-plating” Basel standards, such that the rules that apply to U.S. GSIBs are tougher than those that apply to, for example, European firms.5
More generally, there are also assertions that some of the indicators used in identifying systemic risk simply do not relate all that closely to actual risks.
From the other direction, concerns have also been raised that the measurement of systemic indicators as of year-end leads to incentives to engage in “window dressing” behavior by shrinking balance sheets or taking other steps as year-end approaches, sometimes with possible negative effects for the overall functioning of financial markets.
Preview of Proposal
Vice Chair for Supervision Barr’s speech today suggests that certain modest steps will be taken to address some of these concerns, without engaging in the broader-scale reworking of the surcharge framework desired by the U.S. GSIBs.
Specifically:
To address potential window dressing behavior, systemic indicators will be measured on average basis over the whole year, rather than only at year-end.
GSIB surcharges will increase in 10-basis point increments, rather than 50-basis point increments, in an attempt to address cliff effects.
In other words, while under the current approach a reasonably large increase (or decrease) in GSIB score may not affect a firm’s surcharge if it stays in the same overall bucket, under the proposed approach such increases (or decreases) would be more likely to affect the overall surcharge, and thus increase the sensitivity of the framework to changes in bank risk profile.6
Certain unspecified changes to the measurement of some systemic indicators will be made to “better align them with risk.”
This third change could, in theory, address some concerns banks currently have with the GSIB surcharge framework. It is also, in theory, consistent with the commitment the Board made when adopting the rule in 2015 to “periodically reevaluate the framework to ensure that factors unrelated to systemic risk do not have an unintended effect on a bank holding company’s systemic indicator scores.”
At the same time, Vice Chair for Supervision Barr also signaled that changes will not be made to fixed elements of the calibration of the surcharge to, as some had hoped, reflect changes in the economy since the surcharge was adopted. Interestingly, one reason Vice Chair for Supervision Barr’s holistic review has arrived at this conclusion is that he believes continuing to require a robust GSIB surcharge from the U.S. GSIBs will “promote competitive opportunities for large banks that are not-G-SIBs in order to maintain the diversity of our banking system.”
Relevant Excerpt from Speech
I am not recommending fundamental changes to the underlying framework at this time, but I will be recommending a series of adjustments of a more technical nature that would not reduce the resiliency of the largest banks or the strength of the surcharge. Specifically, I will recommend that the Board propose to adjust the G-SIB surcharge framework to better match a firm's systemic footprint. First, the proposal would measure on an average basis over the full year the indicators that are currently measured only as of year-end. This change would more accurately reflect the systemic risk profile of a firm and reduce incentives for a firm to reduce its G-SIB surcharge by temporarily altering its balance sheet at year end through so-called "window dressing." Second, the proposal would reduce "cliff effects" in the G-SIB surcharge by measuring G-SIB surcharges in 10-basis point increments instead of the current 50-basis point increments. Third, the proposal would make improvements to the measurement of some systemic indicators to better align them with risk. These changes would ensure that the G-SIB surcharge better reflects the systemic risk of each G-SIB.
Some have argued that certain fixed dollar elements of the G-SIB surcharge should be updated for changes in the economy since the surcharge was adopted. I am not recommending changes to the fixed elements of the calibration of the surcharge. Maintaining the fixed elements of the G-SIB surcharge should help to provide a further incentive for G-SIBs to reduce their systemic footprint, and to promote competitive opportunities for large banks that are not-G-SIBs in order to maintain the diversity of our banking system, while providing further protections against systemically risky events.
Countercyclical Capital Buffer
Current U.S. Framework
The countercyclical capital buffer (CCyB) is an additional capital buffer that regulators can choose to require banks to maintain when the risk of above normal losses is elevated. See earlier post on this blog for additional details on the mechanics.
In the United States the default is for the CCyB to be set at zero, and since its adoption the CCyB has never moved off zero.
Some people dislike this just as a general matter, saying that the Board should have raised the CCyB off zero in 2019, for example.
Others, including former Vice Chair for Supervision Quarles, have wondered whether the approach of setting the CCyB at zero as the default is the right one, or whether instead the default should be to set the CCyB at some positive number, such that it could be reduced in times of stress. The United Kingdom, for example, takes this approach. This setting of the CCyB above zero in normal times could be accompanied by changes to the calibration of other capital requirements to keep the overall effect neutral.
Preview of Proposal
Without taking an explicit position on whether or when the CCyB should be moved off zero under current conditions, Vice Chair for Supervision for Barr in his speech today stated that he believes the current framework - that is, setting the CCyB at zero in normal times - is appropriate and therefore is not proposing any changes.
One thing not mentioned in today’s speech, but that process-focused nerds like the author of this blog hoped a holistic review may have clarified, is that the Federal Reserve Board’s policy statement adopted in 2016 said that the Board “expects to consider at least once per year the applicable level of the U.S. CCyB.” See also the testimony before Congress of then-Governor Lael Brainard: “The Board votes once a year on the level of the CCyB.”
The last publicly recorded Board vote on the CCyB was in December of 2020.
Relevant Excerpt from Speech
As part of the holistic review, I have evaluated whether to adjust the CCyB framework. I do not plan to recommend to the Board that we adjust the CCyB framework. The goal of the countercyclical capital buffer is to build buffers in good times to help prepare for bad times. As called for under our current CCyB framework, I would recommend that the Board activate a positive buffer if macroeconomic conditions suggested that it would be appropriate. Conversely, where times of stress would justify lowering capital buffers, we will consider taking accommodating actions as we did in the midst of the COVID-19 crisis.
Enhanced Supplementary Leverage Ratio
Current U.S. Framework
U.S. GSIBs must maintain a leverage buffer in addition to the generally applicable 3% supplementary leverage ratio requirement7 or will face restrictions on capital distributions and discretionary bonus payments. This buffer is referred to in the United States as the enhanced supplementary leverage ratio, or eSLR. Currently at the holding company level the buffer requirement is a flat 2% for all U.S. GSIBs, meaning U.S. GSIBs are effectively subject at the holding company level to an SLR requirement of 5%.
Possible changes floated to the SLR have included amendments to the definition of total leverage exposure - i.e., the denominator of the ratio - to exclude central bank reserves and possibly also U.S. Treasuries. 8
Separately, another open question has been whether the Federal Reserve Board will seek to align the eSLR with the leverage ratio buffer adopted by the Basel Committee on Banking Supervision, which rather than applying a flat 2% buffer requirement to all firms applies a variable buffer based on the firm’s GSIB surcharge. See earlier post on this for a more complete discussion.
Preview of Proposal
Here the holistic review has concluded that things are working fine as is. Vice Chair for Supervision Barr sees the evidence that the current SLR framework has reduced Treasury market intermediation as “inconclusive” and believes in any event that given the changes to risk-based capital requirements described above, the leverage ratio is less likely to be a binding constraint. Thus, no changes to exclude reserves or Treasuries are currently necessary.
Vice Chair for Supervision Barr’s speech did not share his reasoning for sticking with the 2% buffer requirement rather than going with the Basel approach.9
Relevant Excerpt from Speech
Some have argued that when banks are close to the eSLR as a binding constraint that it has reduced Treasury market intermediation. The evidence on that is inconclusive. To the extent it matters, the revisions in risk-based capital requirements I discussed today would mean that the eSLR generally would not act as the binding constraint at the holding company level, where Treasury intermediation occurs. To the extent that there are problems with Treasury market intermediation in the future for which the eSLR might matter, the Board could consider an adjustment.
Stress Tests - Global Market Shock and Projected Operational Risk Losses
Current U.S. Framework
The Federal Reserve Board’s supervisory stress test includes a global market shock (GMS) component intended to stress trading, private equity, and other fair-valued positions. The GMS applies to a subset of firms with significant trading activity.10
In addition to other issues they have with the GMS, trade groups have been making the case that the GMS will be duplicative with the FRTB changes to the market risk framework discussed above - see here from SIFMA and from BPI, for instance.
Separately, banks have long taken issue with the way the Board models losses in relation to operational risk. See for example, the Board’s characterization of Bank of America’s arguments last year: “BAC also asserts that the increase in its noninterest expense projections is due to an overly simplistic dependence of the Federal Reserve’s models for expenses and operational losses—which are included in noninterest expenses—on firms’ total assets.” There is also here, as with the GMS, a more general concern about duplication.
Preview of Proposal
Vice Chair for Supervision Barr today acknowledged both of these concerns and pledged to think about them, although his remarks also suggest banks still have work to do to convince him these concerns ultimately have merit.
Relevant Excerpt from Speech
As part of the holistic review, I have evaluated the Board's stress testing framework. […] I have concluded that the framework for stress testing generally remains sound, but that we should review our global market shock and the stress test's approach to estimating operational risk so that they provide a complementary lens to our risk-based standards on market risk and operational risk, respectively.
Banks have raised concerns that the changes to the risk-based capital framework I described earlier, combined with the stress test, result in a "double counting" of risk that is already captured in the minimum requirements. Conceptually, this shouldn't be the case, as the changes in the risk-based capital requirements affect the way that minimum capital requirements are calculated, and the stress test is used to calculate the buffer. But we will seek comments on all elements of the proposed risk-based capital adjustments, including whether interaction with the stress test results in an inappropriate treatment.
Long-Term Debt Requirement
Current U.S. Framework
The U.S. GSIBs are required to meet total loss absorbing capacity (TLAC) requirements, both as a percentage of risk-weighted assets and as a percentage of total leverage exposure. TLAC is made up of CET 1 capital, Additional Tier 1 capital, and eligible debt securities11 with a maturity longer than one year.
In addition to the general TLAC standard, and different from the approach in some jurisdictions, U.S. regulations also impose a standalone long-term debt requirement. U.S. GSIBs must maintain LTD equal to at least 6% + applicable GSIB surcharge of RWAs, and must also maintain LTD equal to at least 4.5% of total leverage exposure.
For purposes of the rule, long-term debt consists of eligible debt securities with a maturity longer than two years, plus eligible debt securities with a maturity between one and two years (subject to a 50% haircut).
Proposal
Vice Chair for Supervision Barr confirmed in his speech that a long-term debt requirement of some kind is going to be proposed to apply to all firms with $100 billion or more in total assets, but the speech did not shed any further light on a few of the more specific details. For instance, will the LTD requirement be set at a level similar to how it is set for U.S. GSIBs (excluding the GSIB surcharge, of course), or will it be calibrated at a lower number? Will there be differentiation between Category II, III and IV firms in the size of the LTD requirement? Will LTD issuance need to be by the holding company, or will issuance by the bank itself also be acceptable?
Relevant Excerpt from Speech
A related proposal will be to introduce a long-term debt requirement for all large banks. Long-term debt improves the ability of a bank to be resolved upon failure because the long-term debt can be converted to equity and used to absorb losses. Such a measure would reduce losses borne by the Federal Deposit Insurance Corporation's (FDIC) Deposit Insurance Fund, and provide the FDIC with additional options for restructuring, selling, or winding down a failed bank. I support applying a long-term debt requirement to all institutions with $100 billion or more in assets. This would add an important safeguard to a class of banks that came under pressure this spring after the failure of Silicon Valley Bank. If SVB had enough long-term debt outstanding, it might have reduced the risk of a run by uninsured depositors; and it might have given the FDIC more options to resolve the bank or merge it with a healthy institution. And importantly, more long-term debt at SVB would have reduced the cost to the FDIC of its resolution. All of these factors would have reduced the risk of contagion to other banks.
***
Thanks very much for reading! It was a detailed speech and I would appreciate hearing from readers about things I missed or that I misconstrued. The mailbox for comments is bankregblog@gmail.com
At various points this post in the context of the current rules refers to the Federal Reserve Board’s categorization framework under the tailoring rules adopted in 2019. As a reminder, those are:
Category I: U.S. GSIBs
Category II: at least $700 billion in total assets or at least $75 billion in cross-jurisdictional activity
Category III: at least $250 billion in total assets or at least $75 billion in any one or more of nonbank assets, weighted short-term wholesale funding, or off-balance sheet exposure
Category IV: Firms with at least $100 billion in assets not in Category I, II or III
Other Firms: Firms not within any of the above Categories. This group includes smaller regional banks with <$100 billion in assets, as well as community banks (generally defined as banking organizations with less than $10 billion in total assets).
There is no indication that the thresholds themselves are going to change, at least as part of this rulemaking, but as noted throughout the post the proposal would expand the scope of requirements applying to banking organizations within a given category, with the most significant changes for those firms in Category IV.
As a result of an act of Congress, certain community banks are permitted to elect to be subject to a “community bank leverage ratio” that is higher (9%) than the ordinarily applicable U.S. leverage ratio (4%) in exchange for not being required to calculate risk-based capital ratios.
Credit valuation adjustment (CVA) risk is the risk related to the change in fair value of an OTC derivative contract to reflect counterparty credit risk – i.e., the risk that a derivative counterparty to a bank will fail to pay money when owed. Vice Chair for Supervision Barr’s speech did not mention anything to do with CVA, but based on FDIC Chair Gruenberg’s speech a few weeks ago it is expected that the U.S. will also here as a general matter follow the revised Basel approach.
Presumably the rules will apply equally to savings and loan holding companies as well, though they were not mentioned explicitly in the speech, and I expect some folks are getting ready to argue that SLHCs are different.
This has been a point of controversy since the time the U.S. GSIB surcharge rules were adopted, as a transcript of the Board meeting to adopt them shows.
VICE CHAIRMAN FISCHER. Can you explain--help us we've got to also defend what's being done here. I don't have trouble most of the time, but big question, why are we more dangerous financial system than the others? Why should we have higher requirements? And people say we make it more difficult for American firms to compete in the international economy and all that? What is the underlying--it's just that we are more risk averse or what?
MARK VAN DER WEIDE. So I think fundamentally, we try to calibrate this review to make sure that we had addressed of cost the firms to internalize the externalities that their failure would cause on the U.S. financial system and in our view that was the right way to look at the problem and to not worry quite so much about comparisons that other countries are doing, their GSIBs in their jurisdictions. I will say that there are number of countries that have already decided to gold-plate the Basel standard in addition to us but it's not only in Sweden and Switzerland that also decided to go beyond the Basel surcharges and to go beyond them considerably roughly in the range of how far we're going beyond the Basel surcharges.
That assumes, though, that changes in GSIB score at this minute level actually reflect a meaningful change in a firm’s risk. This seems like an area where “humility and skepticism,” to use VCS Barr’s phrase, may be warranted.
This 3% supplementary leverage ratio requirement is the equivalent of the Basel leverage ratio. In the United States there is also a simple 4% leverage ratio requirement based on Tier 1 capital as a percentage of total assets, hence the characterization of the Basel standard as “supplementary.”
As the result of an act of Congress firms predominantly engaged in custody activities are already permitted to exclude qualifying deposits at certain central banks for purposes of calculating their total leverage exposure.
A cynical and unfair (but at the same time maybe not completely unfair…) heuristic for the holistic review may be that where adopting Basel standards would lead to an increase in capital requirements, the holistic review concluded that Basel standards should be adopted with minimal change. But where adoption of the Basel standards would result in a reduction of U.S. capital requirements (GSIB surcharge, eSLR), the holistic review concluded the Basel standards have it wrong.
The GMS currently applies to firms that have aggregate trading assets and liabilities of $50 billion or more, or aggregate trading assets and liabilities equal to 10 percent or more of total consolidated assets, and that are not a Category IV firm under the Board's tailoring framework. See above question re: whether VCS Barr’s statement of intent to apply the capital rules to all firms with $100 billion or more in total assets extends to this sort of thing as well.
Eligible debt securities are generally unsecured “plain vanilla” debt of a banking organization – i.e., debt without “exotic” features that could affect its loss absorbency or diminish the prospects for orderly resolution of a banking organization. This means that, among other things, structured notes, instruments with acceleration clauses, and instruments with credit-sensitive features cannot be eligible debt securities.