CBLR framework proposal detailed in OCC bulletin

Banking regulators’ proposal to create a community bank leverage ratio (CBLR) framework that allows a simple measurement of capital for qualifying institutions is detailed in a bulletin issued Friday by the Office of the Comptroller of the Currency (OCC).

The proposed rule, issued jointly by the OCC, Federal Deposit Insurance Corp. (FDIC), and Office of the Comptroller of the Currency (OCC) under the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155), was also published in the Federal Register Friday with a public comment deadline of April 9.

In Bulletin 2019-6, the OCC notes that qualifying community banking organizations that comply with and elect to use the CBLR framework and that maintain a CBLR greater than 9% would be considered to have met the capital requirements for the “well-capitalized” capital category under the agencies’ prompt corrective action (PCA) frameworks “and would no longer be subject to the generally applicable capital rule.”

“Because the CBLR framework is intended to be relatively simple to implement, it is based on a subset of data that are currently reported by banks in their regulatory filings,” the OCC said in the bulletin.

OCC’s bulletin highlights the following requirements for institutions to qualify for the proposed new framework:

  • Have average total consolidated assets of less than $10 billion and not be an affiliate or subsidiary of a banking organization subject to the advanced approaches rule.
  • Have mortgage servicing assets of 25% or less of CBLR tangible equity.
  • Have deferred tax assets arising from temporary timing differences, net of valuation allowances, of 25% or less of CBLR tangible equity.
  • Have off-balance-sheet exposures (excluding derivative exposures and unconditionally cancelable commitments) of 25% or less of total consolidated assets.
  • Have total trading assets and trading liabilities of 5% or less of total consolidated assets.
  • Have a CBLR greater than 9%.

The OCC bulletin also addresses instances in which a bank fails to meet all the requirements of the framework.

OCC Bulletin 2019-6