US Agencies Propose Leverage Ratio for Qualifying Community Banks
US Agencies (OCC, FED, and FDIC) proposed to simplify regulatory capital requirements for qualifying community banking organizations, as required by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCP Act). The proposal would provide regulatory burden relief to the qualifying community banking organizations by giving them an option to calculate a simple leverage ratio, rather than multiple measures of capital adequacy. The proposal will require changes to the FFIEC 031, FFIEC 041, and FFIEC 051 Call Reports, Form FFIEC 101 on risk-based capital reporting for institutions subject to the advanced capital adequacy framework, Form FR Y-9C on consolidated financial statements for holding companies, and Forms FR Y-14A and Q on capital assessments and stress testing. These forms will be addressed in one or more separate Federal Register notices. Comments on this consultation will be accepted for 60 days after publication in the Federal Register.
Under the proposal, a community banking organization would be eligible to elect for the community bank leverage ratio framework if it has less than USD 10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a community bank leverage ratio greater than 9%. A qualifying community banking organization that has chosen the proposed framework would not be required to calculate the existing risk-based and leverage capital requirements. A firm would also be considered to have met the capital ratio requirements to be well-capitalized for the agencies' prompt corrective action rules, provided it has a community bank leverage ratio greater than 9%.
Section 201 of the EGRRCP Act, titled “Capital Simplification for Qualifying Community Banks,” directs the agencies to develop a community bank leverage ratio of not less than 8% and not more than 10% for qualifying community banks. EGRRCP Act defines a qualifying community banking organization as a depository institution or depository institution holding company with total consolidated assets of less than USD 10 billion. In addition, the Act directs the agencies to establish procedures for the treatment of qualifying community banking organizations that fall below the community bank leverage ratio level established by the agencies. A qualifying community banking organization that exceeds the community bank leverage ratio level established by the agencies is considered to have met:
- The generally applicable leverage and risk-based capital requirements under the agencies’ capital rule
- The capital ratio requirements to be considered well-capitalized under the agencies’ prompt corrective action framework (in the case of insured depository institutions)
- Any other applicable capital or leverage requirements
Related Links
Comment Due Date: FR + 60 Days
Keywords: Americas, US, Banking, Community Banks, Leverage Ratio, EGRRCP Act, Prompt Corrective Action, Proportionality, US Agencies
Related 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.