Community banking organizations that have leverage ratios of 8% or more – and which meet certain other conditions – may begin using the community bank leverage ratio (CBLR) framework beginning in the second quarter of 2020 and through year’s end; they will have until the start of 2022 to take advantage of the framework before the ratio gradually reverts to 9%, the federal banking agencies said Monday.
In a joint statement, the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) said they had issued two interim final rules about the temporary changes to the CBLR to implement provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which requires the agencies to temporarily lower the community bank leverage ratio to 8%.
“Under the interim final rules, the community bank leverage ratio will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter,” the agencies said.
The agencies also noted that the interim final rules maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1% below the applicable community bank leverage ratio.
According to the three agencies, the gradual transition back to the 9% level set in place last year under the 2018 regulatory relief legislation, the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155) will allow community banking organizations to “focus on supporting lending to creditworthy households and businesses given the recent strains on the U.S. economy caused by the coronavirus.”
The interim final rules will be effective as of the publication of the rules in the Federal Register; the agencies will accept comments on the interim final rules for 45 days after publication.
As adopted in 2018, the CBLR final rule took effect Jan. 1, 2019; it gave qualifying community banks the option to use a “simplified” measure of capital adequacy instead of risk-based capital, beginning with their March 31, 2020, call reports. Among other things, the final rule allowed a community banking organization to qualify for the CBLR framework if it had a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities.
As adopted by the banking agencies, advanced approaches institutions may not qualify for the CBLR.