‘Simplified,’ reduced capital framework for banks under $10 billion finalized

Community banks with less than $10 billion in assets (among other requirements) could qualify for simplified capital requirements under a rule finalized Tuesday by the federal banking regulators.

The Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) said in a joint release that the final rule would allow qualifying community banks to adopt a simple leverage ratio to measure capital adequacy. Under the new framework, the agencies said, requirements would be removed for calculating and reporting risk-based capital ratios for a qualifying community bank that opts into the framework.

The rule was mandated by the passage last year of regulatory relief legislation (the Economic Growth, Regulatory Relief, and Consumer Protection Act, EGRRCPA, S.2155).

To qualify for the framework, the agencies said, a community bank must have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9%. About 85% of all community banks can qualify for the community bank leverage ratio framework (CBLR), the agencies said.

The CBLR framework will first be available for community banking organizations to use in their March 31, 2020, call report (or Form FR Y-9C, as applicable), the agencies said. Banking organizations can opt into or out of the CBLR framework in a subsequent call report or Form FR Y-9C, as applicable. The agencies have prepared a compliance guide to accompany the rule, they said.

The agencies said some changes were made from the proposed rule, which was issued in November of last year. In particular, the CBLR incorporates tier 1 capital as the numerator. “In addition, a community bank that falls out of compliance with the framework will have a two-quarter grace period to come back into full compliance, provided its leverage ratio remains above 8%. A bank will be deemed well-capitalized during the grace period,” the agencies said.

Federal Bank Regulatory Agencies Issue Final Rule to Simplify Capital Calculation for Community Banks

Be the first to comment

Leave a Reply

Your email address will not be published.