The Supplementary Leverage Ratio, or SLR ratio, is a capital rule that requires the largest U.S. banks to hold Tier 1 capital equal to at least 3% of their total leverage exposure, a figure that captures both on-balance-sheet assets and off-balance-sheet items like derivatives and credit commitments. Unlike risk-weighted capital rules that let banks hold less capital against assets considered safe, the SLR treats every dollar of exposure the same. Regulators introduced it after the 2008 financial crisis as a blunt backstop against hidden leverage. A final rule effective April 1, 2026, recalibrates the enhanced version of the ratio for the eight largest U.S. banks.
How the Ratio Is Calculated
The formula divides Tier 1 capital by total leverage exposure. Tier 1 capital is the highest-quality funding a bank holds, primarily common stock and retained earnings, and it absorbs losses before depositors or creditors take a hit.
The denominator is broader. Under 12 CFR 217.10(c), total leverage exposure includes the average of all on-balance-sheet assets measured daily during the reporting quarter, plus the average of off-balance-sheet exposures measured at the end of each of the three most recent months.1eCFR. 12 CFR 217.10 – Minimum Capital Requirements That captures traditional loans and securities alongside derivative contracts, repurchase agreements, and credit commitments that never appear on the balance sheet. The result is a single percentage showing how thick a bank’s capital cushion is relative to everything it has on the line.
How It Differs From Other Capital Requirements
The standard Tier 1 leverage ratio uses the same numerator but only divides by on-balance-sheet consolidated assets. The SLR adds off-balance-sheet exposures to the denominator, producing a larger denominator and a lower ratio for the same amount of capital.2Congressional Research Service. Leverage Ratios in Bank Capital Requirements That wider net is the point.
Risk-weighted capital ratios work differently. They assign each asset a weight based on perceived riskiness, so a Treasury bond might carry a near-zero weight while a corporate loan carries a much heavier one. In practice, risk weights proved unreliable during the financial crisis, when mortgage-backed securities carrying favorable weights suffered catastrophic losses.2Congressional Research Service. Leverage Ratios in Bank Capital Requirements The SLR exists because those models can be wrong. By ignoring risk weights, it prevents a bank from loading up on assets that look safe on paper while quietly expanding its total footprint.
Which Banks Have to Meet It
The SLR targets the largest and most interconnected institutions. Category I banking organizations, which include all eight U.S. global systemically important banks (G-SIBs), must calculate and disclose the ratio. Category II and Category III organizations are also covered, generally firms with total consolidated assets above $250 billion or significant cross-jurisdictional activity or short-term wholesale funding.3Office of Financial Research. Banks’ Supplementary Leverage Ratio Large insured depository institution subsidiaries of these holding companies face the same obligation.
Smaller banks in Category IV and below are not subject to the SLR. They must meet the standard Tier 1 leverage ratio, which does not include off-balance-sheet exposures in the denominator.
The 3% Minimum and the Enhanced Standard
Every covered banking organization must maintain an SLR of at least 3%.3Office of Financial Research. Banks’ Supplementary Leverage Ratio Dropping below that floor triggers regulatory consequences under the prompt corrective action framework, which can restrict a bank’s activities and require it to develop a plan to rebuild capital.
The eight U.S. G-SIBs face a stricter standard called the enhanced supplementary leverage ratio, or eSLR. Under rules that applied through early 2026, these holding companies had to maintain a flat 2% buffer on top of the 3% minimum, bringing their effective requirement to 5%. Their insured depository institution subsidiaries needed a 6% SLR to be classified as “well capitalized” under the prompt corrective action framework.4Federal Reserve. Final Rule on Enhanced Supplementary Leverage Ratio Standards Falling short of the buffer restricted the bank’s ability to pay dividends and discretionary bonuses to executives.
The 2026 Recalibration
A final rule published in December 2025 overhauls the eSLR effective April 1, 2026, with optional early adoption starting January 1, 2026. The flat 2% buffer for G-SIB holding companies is replaced with a tailored buffer equal to 50% of each firm’s G-SIB surcharge calculated under the Federal Reserve’s method 1 framework. Because G-SIB surcharges vary from bank to bank, the new buffer will differ across firms rather than applying one number to all eight.5Federal Register. Modifications to the Enhanced Supplementary Leverage Ratio Standards for US GSIBs
For insured depository institution subsidiaries, the new rule sets a buffer equal to 50% of the parent G-SIB’s method 1 surcharge, capped at 1%. Added to the 3% floor, the maximum effective requirement for these subsidiaries drops to 4%, well below the previous 6% threshold.5Federal Register. Modifications to the Enhanced Supplementary Leverage Ratio Standards for US GSIBs The agencies declined requests to exclude Treasury securities or central bank reserves from the SLR denominator, opting instead to ease the buffer calibration.
What Counts as Total Leverage Exposure
The denominator is deliberately expansive. It captures obligations that other capital metrics overlook, which is what gives the ratio its bite.
On-Balance-Sheet Assets
Every asset on the bank’s books counts at full carrying value, including low-risk holdings like Treasury securities and deposits held at Federal Reserve Banks.6Federal Register. Temporary Exclusion of US Treasury Securities and Deposits at Federal Reserve Banks From the Supplementary Leverage Ratio – Section: I. Background Under risk-weighted rules, those holdings consume little or no capital. Under the SLR, a dollar of Treasuries requires the same capital as a dollar of commercial loans.
Derivatives
Banks must include two components for derivative contracts: the current replacement cost if the counterparty were to default today, plus a potential future exposure estimate reflecting how much that cost could grow over the contract’s remaining life.6Federal Register. Temporary Exclusion of US Treasury Securities and Deposits at Federal Reserve Banks From the Supplementary Leverage Ratio – Section: I. Background For credit derivatives where a bank has sold protection, the effective notional amount of that protection counts as an exposure.
Repos and Off-Balance-Sheet Items
Repurchase agreements, reverse repos, and securities lending transactions all feed into total leverage exposure. So do off-balance-sheet commitments like undrawn credit lines and financial guarantees. The framework generally does not let banks reduce these exposures by netting them against collateral, though narrow exceptions exist for derivative contracts where daily cash variation margin meets specific conditions and for certain matched repo transactions with the same counterparty.7Federal Register. Regulatory Capital Rules – Revisions to the Supplementary Leverage Ratio Outside those cases, collateral does not shrink the denominator.
Treasuries, Fed Reserves, and the Expired COVID Relief
The SLR’s equal treatment of all assets has an unusual side effect. Holding more Treasuries or keeping larger reserve balances at the Fed increases a bank’s total leverage exposure and pushes the ratio down, even though neither activity adds meaningful credit risk. When the Federal Reserve expanded its balance sheet during the COVID-19 pandemic in early 2020, bank reserves ballooned and SLR ratios fell, raising concerns that dealers would pull back from Treasury market intermediation.
Regulators responded with a temporary rule allowing depository institutions to exclude Treasuries and Fed deposits from the SLR denominator. That relief expired on March 31, 2021, and has not been reinstated.8Federal Register. Temporary Exclusion of US Treasury Securities and Deposits at Federal Reserve Banks From the Supplementary Leverage Ratio These assets are permanently included in the denominator today.
A few large bank holding companies with major dealer subsidiaries have found in recent years that the SLR, rather than risk-weighted requirements, is the binding capital constraint on their operations.9Federal Reserve. Dealers’ Treasury Market Intermediation and the Supplementary Leverage Ratio When it is the tightest limit, every additional Treasury position a dealer takes on requires capital, even though the credit risk is essentially zero. This is the core policy tension around the ratio.
Where the Ratio Is Reported
Covered banking organizations report the SLR to regulators through the FR Y-9C consolidated financial statements.10Federal Reserve Board. Consolidated Financial Statements for Holding Companies – FR Y-9C Under Basel III’s Pillar 3 framework, banks must also publicly disclose their leverage ratio data so investors and counterparties can see how much capital cushion sits behind the institution’s exposures.11Bank for International Settlements. Pillar 3 Disclosure Requirements – Updated Framework Most G-SIBs publish their SLR in quarterly earnings supplements, making it one of the more accessible capital metrics for anyone tracking the health of a major bank.