US Agencies (OCC, FED, and FDIC) issued a notice of proposed rulemaking that would provide a simplified measure of capital adequacy for qualifying community banking organizations consistent with section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act). The qualifying community banking organizations that comply with, and elect to use, the community bank leverage ratio (CBLR) framework and that maintain a CBLR greater than 9% would be considered to have met the capital requirements for the “well-capitalized” capital category under the agencies’ prompt corrective action (PCA) frameworks and would no longer be subject to the generally applicable capital rule. Comment period on this consultation ends on April 09, 2019.
The proposed rule would also require changes to the regulatory reporting forms that collect regulatory capital information (namely, the Call Reports FFIEC 031, 041, and 051 and the Form FR Y–9C) and these changes will be addressed in one or more separate Federal Register notices. This proposed rule would apply to qualifying community banks, which include national banks and federal savings associations that have less than USD 10 billion in total consolidated assets and meet other prudential criteria. The proposed CBLR framework, which is a simple, alternative methodology to measure capital adequacy for qualifying community banks, would provide material regulatory relief to certain banks. To begin using the proposed CBLR framework, a bank would have to meet the following requirements:
- Have average total consolidated assets of less than USD 10 billion and not be an affiliate or subsidiary of a banking organization subject to the advanced approaches rule
- Have mortgage servicing assets of 25% or less of CBLR tangible equity
- Have deferred tax assets arising from temporary timing differences, net of valuation allowances, of 25% or less of CBLR tangible equity
- Have off-balance-sheet exposures (excluding derivative exposures and unconditionally "cancellable" commitments) of 25% or less of total consolidated assets
- Have total trading assets and trading liabilities of 5% or less of total consolidated assets
- Have a CBLR greater than 9%
For qualifying community banks that used the CBLR but no longer meet all of the requirements (other than the minimum CBLR), the proposal would provide a grace period of two consecutive calendar quarters, during which a bank could continue to use the CBLR framework, providing the bank time to return to compliance with the qualifying criteria or move to the generally applicable capital rule. If the bank did not meet the qualifying criteria at the end of the grace period, it would be required to move promptly to the generally applicable capital rule. Under the proposal, a qualifying community bank that used the CBLR would be considered well-capitalized if its CBLR were greater than 9.0%; adequately capitalized if its CBLR were greater than or equal to 7.5% percent but less than or equal to 9%; undercapitalized if its CBLR were greater than or equal to 6.0% but less than 7.5%; and significantly undercapitalized if its CBLR were less than 6.0%. If a qualifying community bank’s CBLR fell below 6%, the qualifying community bank would be required to promptly provide the information necessary for OCC to calculate the tangible equity ratio pursuant to the PCA framework under 12 CFR 6.
Section 201 of the EGRRCP Act directs the US Agencies to develop a CBLR of not less than 8% and not more than 10% for depository institutions and depository institution holding companies with total consolidated assets of less than USD 10 billion. Section 201 of the act further provides that the agencies may determine that a banking organization is not a qualifying community banking organization based on the risk profile of the banking organization’s. The act states that such a determination shall be based on consideration of off-balance-sheet exposures, trading assets and liabilities, total notional derivatives exposures, and other factors that the agencies determine appropriate.
Comment Due Date: April 09, 2019
Keywords: Americas, US, Banking, EGRRCP Act, Regulatory Capital Rules, Community Banks, Leverage Ratio, CBLR Framework, Prompt Corrective Action, Capital Adequacy, US Agencies
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).