Citibank 2014 Annual Report Download - page 68

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Supplementary Leverage Ratio
Under the Final Basel III Rules, Advanced Approaches banking organizations,
including Citi and Citibank, N.A., are also required to calculate a
Supplementary Leverage ratio, which significantly differs from the Tier 1
Leverage ratio by also including certain off-balance sheet exposures within
the denominator of the ratio (Total Leverage Exposure).
In September 2014, the U.S. banking agencies adopted revisions to the
Final Basel III Rules (Revised Final Basel III Rules) with respect to the
definition of Total Leverage Exposure as well as the frequency with which
certain components of the Supplementary Leverage ratio are calculated. As
revised, the Supplementary Leverage ratio represents end of period Tier 1
Capital to Total Leverage Exposure, with the latter defined as the sum of
the daily average of on-balance sheet assets for the quarter and the average
of certain off-balance sheet exposures calculated as of the last day of each
month in the quarter, less applicable Tier 1 Capital deductions.
Under the Revised Final Basel III Rules, the definition of Total Leverage
Exposure has been modified from that of the Final Basel III Rules in certain
respects, such as by permitting limited netting of repo-style transactions
(i.e., qualifying repurchase or reverse repurchase and securities borrowing
or lending transactions) with the same counterparty and allowing for the
application of cash variation margin to reduce derivative exposures, both of
which are subject to certain specific conditions, as well as by distinguishing
and expanding the measure of exposure for written credit derivatives.
Moreover, the credit conversion factors (CCF) to be applied to certain off-
balance sheet exposures have been conformed to those under the Basel III
Standardized Approach for determining credit risk-weighted assets, with the
exception of the imposition of a 10% CCF floor.
Consistent with the Final Basel III Rules, Advanced Approaches banking
organizations will be required to disclose the Supplementary Leverage ratio
commencing January 1, 2015. Further, U.S. GSIBs and their subsidiary
insured depository institutions, including Citi and Citibank, N.A., will be
subject to enhanced Supplementary Leverage ratio standards. The enhanced
Supplementary Leverage ratio standards establish a 2% leverage buffer for
U.S. GSIBs in addition to the stated 3% minimum Supplementary Leverage
ratio requirement in the Final Basel III Rules. If a U.S. GSIB failed to
exceed the 2% leverage buffer, it would be subject to increasingly onerous
restrictions (depending upon the extent of the shortfall) regarding capital
distributions and discretionary executive bonus payments. Accordingly,
U.S. GSIBs are effectively subject to a 5% minimum Supplementary Leverage
ratio requirement. Additionally, the final rule requires that insured depository
institution subsidiaries of U.S. GSIBs, including Citibank, N.A., maintain
a Supplementary Leverage ratio of 6% to be considered “well capitalized”
under the revised prompt corrective action framework established by the
Final Basel III Rules. Citi and Citibank, N.A. are required to be compliant
with these higher effective minimum ratio requirements on January 1, 2018.