The federal banking agencies today finalized several rules originally issued as interim final rules during the spring weeks of the emergency coronavirus response. The final rules:
- Set the community bank leverage ratio at 8% through 2020 and increase it to 8.5% for 2021 before it returns to 9% on Jan. 1, 2022, as required in the CARES Act (unchanged from interim final rule).
- Revise the definition of eligible retained income for all institutions subject to the agencies’ capital rule to make any automatic limitations on capital distributions more gradual (unchanged from interim final rule).
- Give banks implementing the current expected credit loss standard this year the option to delay for two years the phase-in of the standard’s regulatory capital effects (finalized with clarifications and adjustments in response to public comments).
In its comment letter on the latter rule, the American Bankers Association warned of potential unintended consequences that could arise from the 25% add-back applied across the board without regard to lending product, as CECL credit loss provisions are likely to adversely impact consumer lending significantly more than commercial lending. The agencies noted the comments but did not change the final rule in response.