A&A Update – FDIC Issues Final Rule for Community Bank Leverage Ratio

On September 17, 2019, the Federal Deposit Insurance Corporation issued its final rule for the new Community Bank Leverage Ratio (CBLR).

The new capital ratio provides for an optional, simplified measure of capital adequacy for qualifying community banking organizations with less than $10 billion in total consolidated assets, off-balance-sheet exposures of 25 percent or less of consolidated assets, and total trading assets and liabilities of 5 percent or less of assets.

Institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9 percent will be considered well capitalized and will only be required to report one ratio, instead of the four capital ratios currently required.

Under the new rule, a two-quarter grace period is applied to institutions that maintain a leverage ratio between 8 percent and 9 percent to provide time for those institutions to bring their ratio above 9 percent. Institutions that are unable to restore compliance with the 9 percent threshold or institutions that fail to maintain a leverage ratio of 8 percent will be forced to utilize the Schedule RC-R and risk- weighted capital requirements.

The CBLR is not designed to reduce the amount of regulatory capital that community banks are required to maintain. It is instead intended to simplify the calculation of regulatory capital by creating a more streamlined leverage ratio.

The main components and requirements of the CBLR framework are as follows:

A qualifying community banking organization may opt into and out of the CLBR framework by completing the associated reporting requirements on its call report. The rule becomes effective January 1, 2020.