The board of the Federal Deposit Insurance Corp. passed a final rule on the community bank leverage ratio, setting the minimum required CBLR at 9%.
The new ratio, which will be defined as the ratio of Tier 1 capital to average total consolidated assets, will be an option for banks with less than $10 billion in consolidated assets, off-balance-sheet exposures of 25% or less of consolidated assets, and total trading assets and liabilities of 5% or less of assets.
Banks that meet these criteria and have a CBLR above 9% will only be required to report one ratio, instead of the current four required ratios. The rule will go into effect Jan. 1, 2020. Banks can opt into and out of the framework on form FR Y-9C.
Despite receiving comments that bankers and banking trade groups wanted the ratio lowered to 8%, the regulators kept the level at 9%. "The agencies estimated that a threshold of 8% could allow a material number of community banks to operate with less capital than is required today," FDIC Chair Jelena McWilliams said.
Proposed qualifications of mortgage-servicing assets of 25% or less of tangible equity and temporary-difference deferred-tax assets of 25% or less of tangible common equity were removed from the final rule.
The final rule did change prompt corrective action proxy levels from the original proposal. Under the final rule, banks with a CBLR between 8% and 9% will have a two-quarter "grace period" to bring their ratios above 9% before they are considered less than well-capitalized.
All four members of the board voted for the final rule.
"This approach rewards qualifying banks that choose to opt into the rule for having strong leverage capital, and provides an incentive for banks that don't qualify to strengthen their capital," FDIC board member and former FDIC Chair Martin Gruenberg said. "This seems to me, on balance, to be a win-win outcome."
The regulator also updated the numerator of the CBLR calculation to the existing definition of Tier 1 capital. This will save community banks from having to learn a new calculation, according to comment letters.
