‘Simple’ capital adequacy measure for banks, BHCs under $10 billion proposed

A simpler capital framework for qualified banks and bank holding companies (BHCs) with less than $10 billion in total consolidated assets was proposed in a notice issued jointly Wednesday by the federal bank and bank deposit insurance regulators.

The Federal Reserve Board, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corp. (FDIC) issued the proposal to carry out section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155). Section 201 directs the agencies to develop a community bank leverage ratio (CBLR) of not less than 8% and not more than 10% for qualifying community banking organizations, defined to mean depository institutions or depository institution holding companies that have total consolidated assets of less than $10 billion.

Under the joint agencies’ proposal, most depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets, that meet risk-based qualifying criteria, and that have a CBLR (of greater than 9% would be eligible to opt into a CBLR framework. Institutions that do so would not be subject to other risk-based and leverage capital requirements, and they would be considered to have met the well-capitalized ratio requirements under the prompt corrective action (PCA) framework and the generally applicable capital requirements.

CBLR would be calculated as the ratio of CBLR tangible equity (as defined in the proposal) divided by average total consolidated assets.

For a CBLR bank whose CBLR falls to 9% or less, the proposal establishes additional CBLR levels as proxies for the existing capital ratios for the adequately capitalized, undercapitalized, and significantly undercapitalized PCA capital categories.

In addition to the joint proposed rule notice, the FDIC on Wednesday issued a Financial Institution Letter (FIL-77-2018) to institutions it supervises (state-chartered, federally insured nonmember banks).

The joint proposed rule is out for a 60-day public comment period, which begins upon its publication in the Federal Register.

Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations (Notice for Federal Register)

FDIC FIL-77-2018

Joint release