US Agencies Announce Changes to CBLR Framework in Light of COVID-19

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.

Related Links

• 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