Reg capital, CBLR proposal catches eye – and ire – of key GOP senators

A proposal to simplify regulatory capital requirements for community banks by the federal banking agencies has caught the eye – and ire – of Republican senators, as they outlined in a letter to the leaders of the agencies Tuesday seeking changes.

In the letter (dated June 25) to Federal Deposit Insurance Corp. (FDIC) Board Chairman Jelena McWilliams, Federal Reserve Board Chairman Jerome H. (“Jay”) Powell, and Comptroller of the Currency Joseph Otting, the 20 GOP senators (including Senate Banking Committee Chairman Mike Crapo, R-Idaho) argued that the agencies’ notice of proposed rulemaking, “Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations,” does not meet Congress’s objective of simplifying the capital regime for community banks.

“Indeed, the CBLR (community bank leverage ratio) framework as proposed will present new challenges for community banks that prove no less complex than the current capital framework,” wrote the senators, seven of whom (such as Crapo) are members of the Senate Banking Committee, which has oversight of the banking agencies.

“Of principal concern, the proposal introduces a new Prompt Corrective Action (‘PCA’) framework that would effectively serve as a disincentive to the CBLR, creates adverse capital and liquidity scenarios, and ultimately complicates capital deliberations and decisions for community bankers,” the senators added. “Therefore, redesigning PCA as part of establishing the CBLR framework, as currently proposed, would directly counter congressional intent.”

The senators wrote they “encourage” the agencies to rethink the proposal’s changes to the PCA framework (including reducing the proposed CBLR level from 9% to 8%), citing heightened liquidity and capital pitfalls community banks could encounter. “If left unaltered, community banks may choose to forego opting in to the proposed CBLR framework, and the CBLR will fail to achieve the regulatory capital relief envisioned by Congress,” they asserted.

Other Banking Committee senators signing the letter included: Tom Cotton (Ark.), Mike Rounds (S.D.), David Perdue (Ga.), Thom Tillis (N.C.) John Kennedy (La.) and Kevin Cramer (ND).

Letter from 20 Republican senators on federal banking agencies’ regulatory capital proposal