Modifications to the Community Bank Leverage Ratio Framework

Summary:

The Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency issued two interim final rules that make changes to the community bank leverage ratio framework and implement Section 4012 of the Coronavirus Aid, Relief, and Economic Security Act.

Statement of Applicability: The two interim final rules are applicable to all non-advanced approaches FDIC-supervised institutions with less than $10 billion in total consolidated assets.

Highlights:

• The Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, and Office of the Comptroller of the Currency issued two interim final rules that make changes to the community bank leverage ratio framework.
• One interim final rule implemented section 4012 of the Coronavirus Aid, Relief, and Economic Security Act (statutory interim final rule). The statutory interim final rule provides that, as of the second quarter 2020, a banking organization with a leverage ratio of 8 percent or greater (and that meets the other existing qualifying criteria) may elect to use the community bank leverage ratio framework.
• The statutory interim final rule also establishes a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls below the 8-percent community bank leverage ratio requirement, so long as the banking organization maintains a leverage ratio of 7 percent or greater.
• The second interim final rule provides a transition from the temporary 8-percent community bank leverage ratio requirement, under the statutory interim final rule, to a 9-percent community bank leverage ratio requirement (transition interim final rule).
• When the requirements in the transition interim final rule become applicable, the community bank leverage ratio requirement will be greater than 8 percent for the second through fourth quarters of calendar year 2020, greater than 8.5 percent for calendar year 2021, and greater than 9 percent thereafter. The transition interim final rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 100 basis points below the applicable community bank leverage ratio requirement.

Suggested Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).