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    US Agencies Propose Leverage Ratio for Qualifying Community Banks

    November 21, 2018

    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


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    Comment Due Date: FR + 60 Days

    Keywords: Americas, US, Banking, Community Banks, Leverage Ratio, EGRRCP Act, Prompt Corrective Action, Proportionality, US Agencies

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