The U.S. Department of the Treasury issued a determination on a request for an exemption, by RBC US Group Holdings LLC, from certain requirements of the rule implementing the qualified financial contracts (QFC) recordkeeping requirements under the Dodd-Frank Act. The granted exemption is applicable January 04, 2022. In addition, the US Agencies issued a statement to provide information on the use of the two-quarter grace period under the optional community bank leverage ratio framework; these US Agencies are the Federal Reserve Board (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
The community bank leverage ratio framework provides qualifying community banking organizations with the option to calculate only a simple leverage ratio, rather than both risk-based and leverage-based measures of capital adequacy. Following the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the US Agencies temporarily lowered the community bank leverage ratio requirement to better allow community banking organizations to support households and businesses during the COVID-19 pandemic. The statement notes that beginning in the first quarter of 2022, the community bank leverage ratio requirement will revert to its original level of 9%. The statement discusses the availability of a two-quarter grace period that generally allows banking organizations additional time to build capital and manage their balance sheets to either remain in the framework or prepare to comply with risk-based capital requirements. Starting on January 01, 2022, a qualifying community banking organization will be subject to a leverage ratio requirement of 8% to use the two-quarter grace period. At the end of the two-quarter grace period, the banking organization must meet all the qualifying criteria to remain in the community bank leverage ratio framework. A community banking organization that does not meet all the qualifying criteria at the end of the grace period must comply with the generally applicable rule and associated reporting requirements. The statement from the agencies does not alter any existing agency rules or regulations.
Coming back to the exemption granted by the U.S. Treasury, RBC US Group Holdings LLC had submitted, on behalf of its subsidiary City National Securities Inc, the request (in January 2020) for an exemption from the rule implementing the QFC recordkeeping requirements. RBC US Group Holdings LLC requested an exemption for City National Securities Inc. from compliance with certain sections of the rule for the current and any future QFC portfolio of City National Securities Inc. In a Federal Register Notice, the U.S. Department of Treasury highlighted that City National Securities Inc. has been granted an exemption from such requirements for any QFC entered into by City National Securities Inc. with or on behalf of any customer of City National Securities Inc. that is booked and carried in accounts at City National Securities Inc. maintained for the benefit of such customer. City National Securities Inc. has been also granted an exemption from the requirements of the rule for any QFC entered into by City National Securities Inc. with a clearing broker that relates to the clearing of any QFC, provided that City National Securities Inc. maintains documentation of any agreement between City National Securities Inc. and each such clearing broker.
- Notification on Leverage Ratio Framework
- Statement on Leverage Ratio Framework (PDF)
- Notice on QFC Decision
Keywords: Americas, US, Banking, COVID-19, Regulatory Capital, Community Banks, QFC, CARES Act, Leverage Ratio, Qualified Financial Contracts, US Treasury, US Agencies
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