Letter outlines highlights of new CBLR; takes effect Jan. 1

The community bank leverage ratio (CBLR), published in a final rule approved by the federal banking agencies late last month, is explained in a new financial institution letter (FIL) issued Monday by the federal insurer of bank deposits.

In the Federal Deposit Insurance Corp.’s (FDIC) FIL, the agency notes that the CBLR takes effect at the start of next year and will allow qualifying community banking organizations (those with less than $10 billion in total assets, among other things) to calculate a leverage ratio to measure capital adequacy, and it won’t require those banks to calculate or report risk-based capital.

“A qualifying community banking organization is defined as having less than $10 billion in total consolidated assets, a leverage ratio greater than 9%, off-balance sheet exposures of 25% or less of total consolidated assets, and trading assets and liabilities of 5% or less of total consolidated assets. It also cannot be an advanced approaches institution,” the FDIC said in the letter.

The final rule with the CBLR, which was mandated by last year’s regulatory relief legislation (the Economic Growth, Regulatory Relief, and Consumer Protection Act, EGRRCPA, S.2155), according to the FDIC, adopts tier 1 capital and the existing leverage ratio into the community bank leverage ratio framework. “The tier 1 numerator takes into account the modifications made in relation to the capital simplifications and current expected credit losses methodology (CECL) transitions rules as of the compliance dates of those rules.”

In addition, the letter states, a bank qualifying for and opting into the CBLR:

  • will not be subject to other capital and leverage requirements, and will be deemed to have met the “well capitalized” ratio requirements and be in compliance with the generally applicable capital rule; and
  • may opt out of the framework at any time, without restriction, by reverting to the generally applicable risk-based capital rule.

If a bank ceases to meet any qualifying criteria in a future period and has a leverage ratio greater than 8%, the bank will be allowed a grace period of two reporting periods to satisfy the CBLR qualifying criteria or comply with the generally applicable capital requirements, the FIL notes.

FDIC FIL-66-2019