Saturday, June 25, 2022

Leverage ratio returns to 9% for new year

With the expiration of coronavirus-related relief provided under the CARES Act, the community bank leverage ratio will revert to a minimum of 9% starting on Jan. 1, 2022, the banking agencies said in late December.

Banking organizations that elect the CBLR framework on their March 31, 2022, call reports will be subject to the requirement.

“The community bank leverage ratio framework includes a two-quarter grace period that generally allows banking organizations additional time to build capital and manage their balance sheets to either remain in the framework or prepare to comply with the generally applicable risk-based and leverage capital requirements,” the agencies added.

The CBLR had been set at 8% since spring 2020. ABA and the state associations have been advocating passage of H.R. 6145, a bill introduced by Rep. Tracey Mann (R-Kan.) that would direct the regulators to set the CBLR between 8% and 8.5% until the end of 2024.

“Since the beginning of the COVID-19 pandemic in early 2020, the banking industry has been at the forefront of pandemic response,” ABA and the state associations said in a recent letter. “All of these developments have put banks, particularly community banks’ leverage ratios, under significant strain.

Because of their response to these extraordinary challenges, community banks have seen their balance sheets grow significantly and unexpectedly, both from PPP lending and from increased deposits as customers built large liquidity reserves in the face of the pandemic.”

The ABA continued its response with a comment from its president and CEO, Rob Nichols.

“While today’s announcement by banking regulators on the scheduled year-end community bank leverage ratio increase was anticipated, it underscores the need for a legislative solution to support community banks and the services they provide to their customers, clients and communities,” he said.

That is why ABA recently joined 51 state bankers associations in expressing our support for Rep. Tracey Mann’s Community Bank Relief Act of 2021, which would direct regulators to fix the CBLR at a level between 8.0% and 8.5% between Jan. 1, 2022 and Dec. 31, 2024.

“As the President made clear, the pandemic is still with us, and many community banks face leverage ratio constraints in part because of their sustained efforts to help customers and communities cope with the COVID-19 pandemic. This sensible, temporary solution would provide important relief to these institutions without undue risk to the financial system or to the communities in which these banks operate.

“We urge Congress to consider the bill as soon as possible.”