Regulators issue final rule on revisions to Community Bank Leverage Ratio framework

Federal regulators issued a joint final rule last week that will “lower the community bank leverage ratio from nine percent to eight percent, which will provide more flexibility for community banks to opt into the framework.”

The final rule, which goes into effect on July 1, takes into account the unique business models and risk profiles of community banks.

Specifically, the final rule:

• Lowers the CBLR requirement from 9% to 8%, which would allow more community banks to qualify for the CBLR framework.
• Extends the grace period from two quarters to four quarters, in order to provide additional time for community banks to either satisfy the definition of a qualifying community banking organization under the CBLR framework, or to achieve compliance with risk-based capital requirements.
• Limits a community bank to using the grace period for a maximum of eight out of the prior 20 quarters.
• Encourages broader adoption of the CBLR framework, while maintaining strong capital standards and enabling banks that opt into the CBLR framework additional capacity to increase lending in their communities.