The Community Bank Leverage Ratio (CBLR): Regulators Working Together

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In May of 2018, the Senate passed S. 2155 – The Economic Growth, Regulatory Relief and Consumer Protection Act. Included in S. 2155 was a requirement that federal and state regulators work to create a simplified regulatory capital ratio framework designed to provide regulatory relief to community banks.

On Tuesday, Sept. 18, 2019, the FDIC issued a final rule to implement the Community Bank Leverage Ratio (CBLR) framework.

State regulators and the Conference of State Bank Supervisors (CSBS) staff worked closely with federal regulators to craft a final rule that will provide much needed regulatory relief for community banks.

The final rule adopted several of the recommendations made by state regulators and CSBS, including:

  • The elimination of a proposed proxy prompt corrective action framework that would be punitive for banks that opted for the CBLR and fell below the 9% capital threshold.
  • Adoption of the existing definition of Tier 1 capital as the numerator of the CBLR rather than creating a new and additional capital adequacy measure.
  • Creation of a two-quarter transition period for a bank that fall below the 9% CBLR level before the bank would need to begin reporting risk-based capital ratios again.

The rule has an effective date of Jan. 1, 2020 and applies only to banks with less than $10 billion in consolidated assets. Additionally, there is a two-quarter grace period to meet the requirement for certain qualifying institutions.