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    FDIC Finalizes Rules on Community Bank Leverage Ratio Framework

    September 17, 2019

    FDIC approved a joint rule by the US Agencies that introduces an optional simplified measure of capital adequacy, as part of which certain qualifying community banks will be eligible to opt into the community bank leverage ratio (CBLR) framework. The other agencies in the United States that are expected to adopt this rule are FED and OCC. The second rule that FDIC finalized makes technical changes to the deposit insurance assessment regulations of FDIC to incorporate the CBLR framework into the deposit insurance assessment system. Both these final rules will be effective from January 01, 2020. Banking organizations can utilize the CBLR framework for filing their Call Report or Form FR Y–9C, as applicable, for the first quarter for 2020 (that is, as of March 31, 2020). FDIC also published a fact sheet on the CBLR framework, along with a statement by the FDIC Chair Jelena Williams.

    The final rule on CBLR framework provides for a simple measure of capital adequacy for certain community banking organizations, consistent with section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. Under this rule, depository institutions and depository institution holding companies that have less than USD 10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio (equal to tier 1 capital divided by average total consolidated assets) of greater than 9%, will be eligible to opt into the community bank leverage ratio framework. The qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules (generally applicable rule) and, if applicable, will be considered to have met the well-capitalized ratio requirements for purposes of section 38 of the Federal Deposit Insurance Act.

    The final rule on CBLR includes a two-quarter grace period,during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater than 9% leverage ratio requirement, generally, would still be deemed well-capitalized as long as the banking organization maintains a leverage ratio greater than 8%. At the end of the grace period, the banking organization must meet all qualifying criteria to remain in the community bank leverage ratio framework or otherwise must comply with and report under the generally applicable rule. Similarly, a banking organization that fails to maintain a leverage ratio greater than 8% would not be permitted to use the grace period and must comply with the capital rule’s generally applicable requirements and file the appropriate regulatory reports. The final rule will require changes to the Consolidated Reports of Condition and Income (FFIEC 031, FFIEC 041, and FFIEC 051) and the Consolidated Financial Statements for Holding Companies (FR Y–9C; OMB No. 7100-0128), which will be addressed in one or more separate Federal Register notices.

    The second rule finalized by FDIC is the CBLR Assessments rule, which amends the deposit insurance assessment regulations of FDIC to apply the CBLR framework to the deposit insurance assessment system. This final rule does not make any changes to the assessment methodology of FDIC for small or large institutions. The CBLR Assessments rule:

    • Prices all insured depository institutions that elect to use the CBLR framework as small institutions
    • Makes technical amendments to the FDIC assessment regulations to ensure that the assessment regulations continue to reference the prompt corrective action, or PCA, regulations for the definitions of capital categories used in the deposit insurance assessment system
    • Clarifies that an insured depository institution that elects to use the CBLR framework and also meets the definition of a custodial bank will have no change to its custodial bank deduction or reporting items required to calculate the deduction

     

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    Effective Date: January 01, 2020

    Keywords: Americas, US, Banking, Community Banks, CBLR Framework, EGRRCP Act, Leverage Ratio, Capital Adequacy, Prompt Corrective Action, Reporting, Call Reports, FDIC

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