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Financial Services Law Insights and Observations

Agencies finalize three pandemic-related rules

Federal Issues Agency Rule-Making & Guidance FDIC OCC CECL Federal Reserve Capital Covid-19

Federal Issues

On August 26, the Federal Reserve Board, FDIC, and OCC finalized three rules that were temporarily issued in March and April to assist financial institutions during the Covid-19 pandemic. Highlights of the three rules include:

  • Community Bank Leverage Ratio (CBLR). The agencies adopted, without change, two interim final rules issued in April (covered by InfoBytes here) that temporarily lower the CBLR threshold and provide a gradual transition back to the prior level in order to enable qualifying community banking organizations to support lending during the Covid-19 pandemic. Effective October 1, the final rule, among other things, lowers the leverage ratio to eight percent through 2020 and increases the ratio to 8.5 percent in 2021 and nine percent in 2022.
  • Current Expected Credit Losses (CECL). The agencies adopted, without substantial change, an interim final rule issued in March (covered by InfoBytes here), which provides an additional two years to the three-year transition period that is already available to “mitigate the estimated cumulative regulatory capital effects” of CECL. The final rule expands the pool of eligible institutions to include any institution adopting CECL in 2020 and is effective upon publication in the Federal Register.
  • Capital distributions. The agencies adopted, without change, an interim final rule issued in March revising the definition of “eligible retained income” to allow for a more gradual application of any automatic limitations on capital distributions if an institution’s capital levels decline below certain levels. Additionally, the final rule includes the adoption of a Federal Reserve-only interim final rule (covered by InfoBytes here), similarly revising the definition of “eligible retained income” for purposes of the total loss-absorbing capacity rule. The final rule is effective January 1, 2021.
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