US Agencies (FDIC, FED, and OCC) issued two interim final rules that make changes to the community bank leverage ratio (CBLR) framework and implement Section 4012 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The two rules will modify the CBLR framework so that beginning in the second quarter 2020 and until the end of the year, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use CBLR framework. Also, community banking organizations will have until January 01, 2022, before the CBLR requirement is re-established at greater than 9%. The changes in the rule will impact the FR Y-9C report for banks. The effective date for these interim final rules is April 23, 2020 while the comment period for these rules ends on June 08, 2020.
The interim final rule on temporary changes to CBLR framework makes temporary changes to the CBLR framework, pursuant to section 4012 of CARES Act. As of the second quarter 2020, a banking organization with a leverage ratio of 8% or greater (and that meets other qualifying criteria) may elect to use CBLR framework. 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% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The temporary changes to the CBLR framework that are implemented by this statutory interim final rule will cease to be effective as of the earlier of the termination date of the national emergency concerning COVID-19 declared by the President on March 13, 2020, under the National Emergencies Act, or December 31, 2020. To provide clarity to banking organizations, the agencies concurrently issued an interim final rule that provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement.
The interim final rule on transition for CBLR Framework provides a graduated transition to a CBLR requirement of 9% from the temporary 8% CBLR requirement. When the requirements in the transition interim final rule become applicable, the CBLR will be 8% beginning in the second quarter of calendar year 2020, 8.5% through calendar year 2021, and 9% 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 1 percentage point below the applicable CBLR requirement. The agencies are providing community banking organizations with a clear and gradual transition back to the 9% leverage ratio requirement previously established by the agencies. This transition will allow community banking organizations to focus on supporting lending to creditworthy households and businesses, given the recent strains on the U.S. economy due to the C0VID-19 outbreak. FED has temporarily revised the instructions to the FR Y-9C report to accurately reflect the transition provision as modified by the statutory interim final rule and the transition interim final rule.
- FED Press Release
- Interim Rule on Temporary Changes
- Interim Rule on Transition
- FDIC Financial Institution Letter
Comment Due Date: June 08, 2020
Effective Date: April 23, 2020
Keywords: Americas, US, Banking, CBLR Framework, COVID-19, CARES Act, Leverage Ratio, Credit Risk, Community Banks, Basel III, US Agencies
Previous ArticleHKMA Announces Initiative to Support SMEs Amid COVID-19 Outbreak
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.
ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.
FINMA published guidance (06/2020) on extending or discontinuing various exemptions that were granted due to the COVID-19 crisis.
SRB launched a consultation on the minimum data needed for valuation of a bank in resolution.