The banking agencies today advanced proposed interagency rulemaking to expand the eligibility criteria for the community bank leverage ratio, or CBLR, while also extending the grace period for banks that elect to use it.
The proposal would lower the CBLR requirement from 9% to 8%, which would allow an additional 475 community banks to use the framework if they choose to do so, according to a board memo. It would also expand the time banks can remain in the CBLR framework without meeting the qualifying criteria, from two quarters to four quarters. The Federal Reserve and the Office of the Comptroller of the Currency also are advancing the proposal.
The CBLR was created in 2019 as an optional framework for community banks to reduce their regulatory burden by removing the requirements for calculating and reporting risk-based capital ratios. Banking agencies estimate that roughly 84% of community banks qualify for the CBLR but only 40% have elected to use it — a figure that has barely budged in recent years.
At the meeting where the FDIC board voted to approve the change, FDIC Chairman Travis Hill said the proposed changes seek to encourage more community banks to use the CBLR.
“The U.S. economy and communities across the nation benefit tremendously from the presence of local community banks,” Hill said. “Today’s action is one of many to promote the long-term viability of the community bank model while continuing to ensure that banks maintain adequate levels of capital and operate in a safe and sound manner.”
In a statement, American Bankers Association President and CEO Rob Nichols called the FDIC decision “an important change that will allow a much broader range of community banks to utilize this simplified capital framework.
“The CBLR adjustment will allow community banks to do even more to support their local economies,” he said.
