FDIC Final Rule Sets Community Bank Leverage Ratio at 9%

The FDIC today approved a final rule allowing community banks with a leverage capital ratio of at least 9% to be considered in compliance with Basel III capital requirements and exempt from the complex Basel calculation. The final rule implements a section of the S. 2155 regulatory reform law that directed the agencies to set a community bank leverage ratio between 8% and 10%

Under the final rule, banks with less than $10 billion in assets may elect the community bank leverage ratio framework if they meet the 9 percent ratio and if they hold 25 or less percent of assets in off-balance sheet exposures, and 5 percent or less of assets in trading assets and liabilities. For institutions that fall below the 9% capital requirement but remain above 8%, the final rule establishes a 2 quarter grace period to either meet the qualifying criteria again or comply with the generally applicable capital rule.

The American Bankers Association and the state associations originally raised the idea of allowing highly capitalized banks to be exempt from the Basel III calculations in a comment letter more than four years ago. ABA President and CEO Rob Nichols today welcomed the action from FDIC. “We applaud the FDIC for approving a Community Bank Leverage Ratio that recognizes the fact that the vast majority of community banks already meet or exceed risk-based capital requirements,” Nichols said. “We also appreciate the FDIC’s emphasis that the CBLR is an optional alternative to the risk-based capital framework.”

He added, however, that ABA continues to support an 8% community bank leverage ratio, “which the law provided for and which would allow hundreds of additional banks to qualify for the capital framework . . . We hope that as the FDIC becomes more comfortable with the CBLR, it will reassess this rule and allow community banks with ample capital to use an 8% ratio.”