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
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.