Regulators Don't Budge on Community Bank Leverage Ratio

Sep 17, 2019
Federal regulators issued a final rule to hold the Community Bank Leverage Ratio at 9 percent as proposed—denying ICBA-led efforts to lower the threshold to 8 percent and expand capital relief to more community banks.

Banks with less than $10 billion in assets that have a tier 1 leverage ratio above 9 percent can opt to be considered well-capitalized and exempt from risk-based capital requirements, including the Basel III capital rules. Regulators will use tier 1 capital rather than “tangible equity” as the numerator, and they dropped the idea of incorporating Prompt Corrective Action proxy levels into the CBLR framework. Instead, they will allow a two-quarter grace period for banks with a leverage ratio between 8 and 9 percent.

Regulators said the CBLR framework will be available for banks to use in their March 31, 2020, call report. The FDIC said it will issue a compliance guide to accompany the rule.

The FDIC also finalized a rule that permits community banks to use the simpler regulatory capital requirements for mortgage-servicing assets, certain deferred-tax assets arising from temporary differences, investments in the capital of unconsolidated financial institutions, and minority interest when measuring their tier 1 capital as of Jan. 1, 2020. Banks will be able to use the new measure of tier 1 capital under the CBLR framework.

The S. 2155 regulatory relief law required the banking agencies to set the CBLR between 8 and 10 percent. After regulators proposed setting the threshold at 9 percent, ICBA led numerous efforts to lower it to 8 percent, which would benefit more than 500 additional well-capitalized community banks.

ICBA will continue working with policymakers to extend relief from the risk-based capital rules to more community banks.