Federal Reserve, FDIC and OCC Modify Community Bank Leverage Ratio

The Federal Reserve Board ("FRB"), FDIC and OCC (collectively, the "Agencies") issued two interim final rules (see here and here) to modify the community bank leverage ratio in order to provide temporary relief to community banks, in accordance with Section 4012 of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

According to the Agencies, the first interim final rule:

• allows community banking organizations that have a leverage ratio of 8 percent or more, and that meet certain other criteria, to use the community bank leverage ratio framework in the second quarter of 2020; and

• implements a two-quarter grace period for certain community banking organizations that have a leverage ratio of less than 8 percent but maintain a leverage ratio of no less than 7 percent.

The Agencies also adopted a related interim final rule to provide clarity for community banking organizations regarding the transition from a temporary 8 percent community bank leverage ratio back to the standard 9 percent requirement. The Agencies stated that, under the second interim final rule:

• the community bank leverage ratio will transition from 8 percent at the beginning of the second quarter of 2020 to 8.5 percent through calendar year 2021 and then to 9 percent afterward; and

• a qualifying community banking organization will continue to be provided with a two-quarter grace period if its leverage ratio falls no more than 1 percent below a given ratio requirement.

The interim final rules are effective upon their publication in the Federal Register. Comments must be submitted within 45 days following publication of the rules.