Do you qualify for Community Bank Leverage Ratio Under the Transitional Ratio Requirements?
Do you qualify for Community Bank Leverage Ratio Under the Transitional Ratio Requirements?
On April 6, 2020, in an effort to allow community banks to focus on lending to creditworthy households and businesses due the strains on the U.S. economy caused by COVID-19 the requirements set forth in the FDIC’s final rules in September 2019 for the Community Bank Leverage Ratio (CBLR) were modified to allow a gradual transition to the leverage ratio requirements of 9%.
A bank that has leverage ratios as indicated in the gradual transition below may elect to use the CBLR framework if it meets the other criteria (see September 2019 criteria below under bold print) and will have until 1/1/22 before the CBLR requirement is re-established at >9%:
- Beginning Q2 2020-year end => 8%
- Year 2021–8.5%
- Thereafter–9%
The interim rule also maintains a 2-quarter grace period for banks whose leverage ratio falls not > 1% below the applicable CBLR.
In addition, on April 9, 2020 the FDIC issued FIL-37-2020 which indicates that loans made under the Payment Protection Program receive a zero percent risk weight under the agencies’ regulatory capital rules regardless of whether they are pledged as collateral to the Federal Reserve’s Paycheck Protection Program Lending (PPPL) Facility. However, the loans are to be included in leverage ratio requirements unless they are pledged as collateral to the PPPL Facility.
Article compiled by Cindy Tice. For additional information contact her at ctice@fosaudit.com.