Community Bank Leverage Ratio: Final Rule

Summary

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the federal banking agencies) issued a final rule to relieve regulatory burden on certain qualifying community banks by revising the community bank leverage ratio (CBLR) framework.

This bulletin rescinds OCC Bulletin 2021-66, "Community Bank Leverage Ratio Framework: Interagency Statement."

Highlights

The CBLR framework provides a simple measure of capital adequacy for certain community banks. In 2019, the federal banking agencies issued a final rule establishing the CBLR framework, which became effective January 1, 2020.

The final rule amends the CBLR framework to

• revise the minimum leverage ratio requirement from greater than 9 percent to greater than 8 percent;
• revise the "grace period" for a bank that elects to use the CBLR framework but temporarily fails to meet all of the qualifying criteria, including the leverage ratio requirement, to provide that
  • the community bank will have four quarters to return to compliance, provided the community bank maintains a leverage ratio greater than 7 percent and does not exceed a limit of eight quarters in the grace period over a five-year period;
  • a community bank that has a leverage ratio equal to or less than the grace period minimum of 7 percent will be required to comply with the applicable risk-based capital standards.

Background

The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) was enacted on May 24, 2018. Section 201 of the EGRRCPA, titled "Capital Simplification for Qualifying Community Banks," directed each federal banking agency to develop a community bank leverage ratio for qualifying community banks, with qualifying criteria based on the bank's risk profile.

Section 201(c) of the EGRRCPA provides that a qualifying community bank that opts into the CBLR framework and maintains a minimum leverage ratio of not less than 8 percent and not more than 10 percent will be considered to have met the generally applicable minimum capital requirements and the capital ratio requirements for the "well-capitalized" category under the Prompt Corrective Action framework.

Section 201(b) of the EGRRCPA further requires each federal banking agency to establish procedures for the treatment of a qualifying community bank whose leverage ratio falls below the CBLR requirement.

Further Information

Please contact Carl Kaminski, Assistant Director, Bank Advisory Group, Chief Counsel's Office, at (202) 649-5490, or Benjamin Pegg, Technical Expert, Capital Policy, at (202) 649-6370.

Jonathan V. Gould
Comptroller of the Currency

Related Link

• Agencies Finalize Changes to Community Bank Leverage Ratio (PDF)