Rules that modify the community bank leverage ratio, ease automatic restrictions on dividend and other distributions and allow banks to mitigate the impact for two years of new accounting standards related to credit losses were all made final by federal banking regulators Wednesday.
In a release, the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, and Office of the Comptroller of the Currency (OCC) said they had finalized “interim final rules” issued earlier this year regarding the three issues. More specifically the final rules address:
- Temporary modification of the community leverage ratio: Under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted in late March in response to the financial impact of the coronavirus crisis, the leverage ratio for the smaller banks was mandated to be reduced. The final rule (unchanged from two interim final rules issued in April), according to the agencies, temporarily lowers the community bank leverage ratio threshold and provides a gradual transition back to the prior level. The threshold would be 8% for the remainder of this year, 8.5% for 2021, and 9% beginning Jan. 1, 2022. The final rule takes effect as of Oct. 1.
- Automatic restrictions on distributions: The final rule – originally issued as two interim final rules (one only by the Fed) – makes automatic restrictions on capital distributions, such as share repurchases, dividend payments, and bonus payments more gradual, as intended, the agencies said. It takes effect Jan. 1.
- Current expected credit losses (CECL): The final rule gives eligible institutions (those that implement the CECL accounting standard this year) the option to mitigate the estimated capital effects of the standard for two years, followed by a three-year transition period. The agencies said this effectively gives institutions a transition period of up to five years.
The final rule does include a change from the interim rule: it expands the pool of eligible institutions to include any institution adopting CECL in 2020.
The CECL final rule is effective immediately upon publication in the Federal Register.