Fed Provides Temporary Relief to Community Banks With Pandemic-Inflated Assets

The federal banking agencies today issued an interim final rule to ease the regulatory burden of community banks that have experienced sudden asset growth as a result of participation in COVID-19 relief programs like the Paycheck Protection Program. The Fed noted that many community banks have experienced an unexpected and sharp increase in assets, swelling their balance sheets in some cases by more than 25%, but that growth is expected to be temporary.

The rule gives community banks with less than $10 billion in assets as of Dec. 31, 2019, more time to either reduce their balance sheets by shedding temporary growth or to prepare for higher regulatory and reporting standards. According to the rule, asset growth in 2020 or 2021 will not trigger new regulatory requirements for those community banking organizations until Jan. 1, 2022, at the earliest. The rule does not provide relief from CFPB regulatory and supervisory thresholds, nor does it affect compliance with the Volcker Rule.