UPDATE: Rule allowing holding companies of small community banks to keep higher debt levels (for ownership transfers) takes effect

An interim final rule facilitating the transfer of ownership of small community banks by allowing their holding companies to operate with higher levels of debt than would normally be permitted was issued Tuesday by the Federal Reserve.

The regulation expands the applicability of the Fed’s small bank holding company statement, as required by regulatory relief legislation enacted in May (the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155)).

In a release, the Fed said that while holding companies that meet the conditions of the policy statement are excluded from consolidated capital requirements, their depository institutions continue to be subject to minimum capital requirements.

The interim regulation, the Fed noted, raises the small company holding company statement’s asset threshold from $1 billion to $3 billion in total consolidated assets. The statement also applies to savings and loan holding companies with less than $3 billion in total consolidated assets, the Fed said.

UPDATED: The rule became effective Thursday on publication in the Federal Register; comments will be accepted for 60 days after publication (not 30, as the Fed originally reported).

According to the Fed, the new EGRRCPA law directs the agency to revise its policy statement (Regulation Y, Appendix C; Policy Statement) to raise the consolidated assets threshold from $1 billion to $3 billion within 180 days of the enactment of EGRRCPA (May 24). The Fed said the last time it raised the asset limit was in 2015, when the limit was increased from $500 million to $1 billion. “The Board is issuing this interim final rule to increase the asset threshold to $3 billion consistent with EGRRCPA,” the Fed noted — and is making no other changes to the policy statement “at this time.”

The Fed also stated that the interim final rule applies to small savings and loan holding companies to the same extent as small bank holding companies, “by operation of Regulation LL.”

Federal Reserve Board issues interim final rule expanding the applicability of the Board’s small bank holding company policy statement