PCA guidelines outlined in bulletin – but not EGRRCPA ‘simplified framework’ for community banks

Guidelines and rescissions for “prompt corrective action” (PCA) for national banks and federal savings associations have been updated by the institutions’ federal regulator in a bulletin issued Friday – but it does not reflect changes for qualifying community banks made under recent regulatory relief law.

The bulletin (2018-33), issued by the Office of the Comptroller of the Currency (OCC), notes that this year’s Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155) requires the agency – along with the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) – “to establish a simplified leverage ratio capital framework for qualifying community banks.”

But the bulletin also notes that the framework – which would specify a minimum leverage ratio that would deem a qualifying bank to be well-capitalized for PCA purposes – “as of the publication of this OCC bulletin” was not yet established.

The bulletin, it also states, rescinds OCC Banking Circular 268, “Prompt Corrective Action,” and OCC Bulletin 1994-43, “Prompt Corrective Action – Capital Restoration Plans Guidelines: Guidelines.”

PCA capital category ratios for national banks and FSAs outlined in the bulletin are:

PCA capital category Threshold ratios
Total RBC ratio Tier 1 RBC rati CET1 RBC ratio Tier 1 leverage ratio
Well capitalized 10% 8% 6.5% 5%
Adequately capitalized 8% 6% 4.5% 4%
Undercapitalized < 8% < 6% < 4.5% < 4%
Significantly undercapitalized < 6% < 4% < 3% < 3%
Critically undercapitalized Tangible equity to total assets ≤ 2%

Tangible equity means the amount of tier 1 capital, as calculated in accordance with 12 CFR 3, plus the amount of outstanding perpetual preferred stock (including related surplus) not included in tier 1 capital. Total assets means quarterly average total assets as reported on the bank’s call report. The OCC reserves the right to require a bank to compute and maintain its tangible equity ratio on the basis of actual, rather than average, total assets. Refer to 12 CFR 6.2.

Prompt Corrective Action: Guidelines and Rescissions