FDIC, FRB, and OCC Issue Modifications to Community Bank Leverage Ratio Framework for Small Banks as a Result of CARES Act

By April 7, 2020Industry Updates

Summary:

On April 6, 2020, the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency issued two interim final rules that make changes to the community bank leverage ratio framework and implement Section 4012 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). These changes relate to the minimum Tier 1 leverage ratio that can be used to take advantage of the simplified community bank leverage ratio framework. The two interim final rules are applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets.

The lower Tier 1 leverage ratio modification is temporary and will revert back to the existing 9 percent ratio effective January 1, 2022.

Highlights:

  • Two interim final rules were issued that make changes to the community bank leverage ratio framework.
  • One interim final rule implemented Section 4012 of the CARES Act (statutory interim final rule). The statutory interim final rule provides that, as of the second quarter 2020, a banking organization with a leverage ratio of 8 percent or greater (and that meets the other existing qualifying criteria) may elect to use the community bank leverage ratio framework. The existing ratio threshold is 9 percent.
  • The statutory interim final rule also establishes a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls below the 8 percent community bank leverage ratio requirement, so long as the banking organization maintains a leverage ratio of 7 percent or greater.
  • The second interim final rule provides a transition from the temporary 8 percent community bank leverage ratio requirement, under the statutory interim final rule, to a 9 percent community bank leverage ratio requirement (transition interim final rule).
  • When the requirements in the transition interim final rule become applicable, the community bank leverage ratio requirement will be greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The transition interim final rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable community bank leverage ratio requirement.

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If you wish to discuss any of these matters in more detail, please email John Brooks at jbrooks@srsnodgrass.com or call him at 814-942-9730.