US Agencies Consult on Leverage Ratio Framework for Community Banks
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.
Related Links
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
Previous Article
HKMA Consults on Policy Module on Capital Adequacy Regime for BanksRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.