Banking Agencies Propose Community Bank Leverage Ratio

The Federal Reserve Board, FDIC and Office of the Comptroller of the Currency (collectively, the “agencies”) proposed a rule that would simplify capital requirements for qualifying community banking organizations that opt into a community bank leverage ratio (“CBLR”) framework. According to the agencies, the proposed CBLR framework is a “simple alternative methodology to measure capital adequacy” and would provide substantial regulatory relief to smaller banking organizations, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Under the proposal, a qualifying community banking organization would be defined as a depository institution or depository institution holding company that meets the following criteria:

  • total consolidated assets of less than $10 billion;
  • total off-balance sheet exposures of 25 percent or less of total consolidated assets;
  • total trading assets and trading liabilities of five percent or less of the total consolidated assets;
  • mortgage servicing assets of less than 25 percent of CBLR tangible equity; and
  • deferred tax assets from temporary differences that the institution could not realize through net operating loss carrybacks, net of any related valuation allowances, of 25 percent or less of CBLR tangible equity.

Banking organizations that elect to use the CBLR and maintain a CBLR of over nine percent generally would be exempt from complying with other risk-based and leverage capital requirements and would be considered to have met the “well capitalized” ratio requirements for purposes of Section 38 of the Federal Deposit Insurance Act.