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Financial Services Law Insights and Observations

Federal regulators temporarily lower community bank leverage ratio

Federal Issues Agency Rule-Making & Guidance FDIC Federal Reserve OCC Bank Supervision Community Banks CARES Act Covid-19

Federal Issues

On April 6, federal regulators issued two interim final regulatory capital rules that will modify the framework of the Community Bank Leverage Ratio (CBLR) in order to enable qualifying community banking organizations (banks) to support lending during the Covid-19 pandemic. The first rule implements Section 4012 of the CARES Act, making temporary changes to the framework of the CBLR so that banks with a leverage ratio of at least eight percent starting in the second quarter of 2020 “may elect to use the community bank leverage ratio framework.” The rule also provides a two-quarter grace period for community banks whose leverage ratios fall below the eight percent requirement, provided that the bank’s leverage ratio does not fall below seven percent. The second interim final rule allows for the temporary CBLR gradually to transition to eight and one-half percent in 2021, and then back to nine percent at the beginning of 2022.

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