FDIC Approves New Leverage Standards for Community Banks

September 19, 2019 | Community Banking, Insights, News
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“Here’s the Latest on the New Community Bank Leverage Standards

New community bank leverage standards will reshape the industry.

The FDIC approved a different measure of leverage for community banks to avoid the complexity of Basel III regulations.

Banks with under $10 billion in assets can now use the Community Bank Leverage ratio instead of the Basel requirement.

Banks with a leverage ratio of less than 9% and 9 percent ratio and if they hold 25 or less percent of assets in off-balance sheet exposures, and 5 percent or less of assets in trading assets and liabilities.

This should save some time and money for smaller banks.

FDIC Praises New Standards

FDIC Chair Jelena McWilliams praised the new community bank leverage standards. McWilliams outlined the standards this week.

The final rule adopts the existing definition of Tier 1 in the numerator of the community bank leverage ratio.

“Using the existing tier 1 definition provides more consistency with the existing framework,” McWilliams said. “It was clear that the overwhelming majority of commenters preferred this approach rather than the proposed simpler definition of tangible equity.”

Meanwhile, the so-called “PCA proxies” in the proposed rule are not part of the final standards.

“Instead, the final rule allows for a grace period during which a community bank that has fallen below the 9 percent CBLR can work toward the 9 percent requirement before being classified as less than well-capitalized under the PCA framework, or can undertake necessary steps to return to the risk-based system,” McWilliams said.

American Banking Association CEO Rob Nichols applauded the FDIC’s efforts.

“We applaud the FDIC for approving a Community Bank Leverage Ratio that recognizes the fact that the vast majority of community banks already meet or exceed risk-based capital requirements,” he said. “We also appreciate the FDIC’s emphasis that the CBLR is an optional alternative to the risk-based capital framework.”

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