61776 Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Rules and Regulations
1 84 FR 3062 (February 8, 2019).
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 1, 3, 5, 6, 23, 24, 32, 34,
160, and 192
[Docket ID OCC–2018–0040]
RIN 1557–AE59
FEDERAL RESERVE SYSTEM
12 CFR Parts 206, 208, 211, 215, 217,
223, 225, 238, and 251
[Regulation Q; Docket No. R–1638]
RIN 7100–AF 29
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303, 324, 337, 347, 362,
365, and 390
RIN 3064–AE91
Regulatory Capital Rule: Capital
Simplification for Qualifying
Community Banking Organizations
AGENCY: Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are adopting
a final rule that provides for a simple
measure of capital adequacy for certain
community banking organizations,
consistent with section 201 of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act (final
rule). Under the final rule, depository
institutions and depository institution
holding companies that have less than
$10 billion in total consolidated assets
and meet other qualifying criteria,
including a leverage ratio (equal to tier
1 capital divided by average total
consolidated assets) of greater than 9
percent, will be eligible to opt into the
community bank leverage ratio
framework (qualifying community
banking organizations). Qualifying
community banking organizations that
elect to use the community bank
leverage ratio framework and that
maintain a leverage ratio of greater than
9 percent will be considered to have
satisfied the generally applicable risk-
based and leverage capital requirements
in the agencies’ capital rules (generally
applicable rule) and, if applicable, will
be considered to have met the well-
capitalized ratio requirements for
purposes of section 38 of the Federal
Deposit Insurance Act. The final rule
includes a two-quarter grace period
during which a qualifying community
banking organization that temporarily
fails to meet any of the qualifying
criteria, including the greater than 9
percent leverage ratio requirement,
generally would still be deemed well-
capitalized so long as the banking
organization maintains a leverage ratio
greater than 8 percent. At the end of the
grace period, the banking organization
must meet all qualifying criteria to
remain in the community bank leverage
ratio framework or otherwise must
comply with and report under the
generally applicable rule. Similarly, a
banking organization that fails to
maintain a leverage ratio greater than 8
percent would not be permitted to use
the grace period and must comply with
the capital rule’s generally applicable
requirements and file the appropriate
regulatory reports.
DATES: The final rule is effective on
January 1, 2020.
FOR FURTHER INFORMATION CONTACT:
OCC: David Elkes, Risk Expert,
Benjamin Pegg, Risk Expert, or Jung Sup
Kim, Risk Specialist, Capital and
Regulatory Policy (202) 649–6370; or
Carl Kaminski, Special Counsel, or
Daniel Perez, Senior Attorney, or Rima
Kundnani, Senior Attorney, Chief
Counsel’s Office, (202) 649–5490, for
persons who are deaf or hearing
impaired, TTY, (202) 649–5597, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
Climent, Manager, (202) 872–7526;
Andrew Willis, Lead Financial
Institutions Policy Analyst, (202) 912–
4323, or Christopher Appel, Senior
Financial Institutions Policy Analyst II,
(202) 973–6862, Division of Supervision
and Regulation; or Mark Buresh, Senior
Counsel, (202) 452–270; or Andrew
Hartlage, Counsel, (202) 452–6483,
Legal Division, Board of Governors of
the Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, bbosco@fdic.gov;
Stephanie Lorek, Senior Capital Markets
Policy Analyst, slorek@fdic.gov; Dushan
Gorechan, Financial Analyst,
dgorechan@fdic.gov; Kyle McCormick,
Financial Analyst, kmccormick@
fdic.gov; Capital Markets Branch,
Division of Risk Management
Supervision, regulatorycapital@fdic.gov,
(202) 898–6888; or Michael Phillips,
Counsel, mphillips@fdic.gov;
Supervision Branch, Legal Division,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background
B. Summary of the Final Rule
II. Proposed Rule
A. Proposed Community Bank Leverage
Ratio Framework
B. Summary of Comments
III. Final Rule
A. Qualifying Criteria for the Community
Bank Leverage Ratio Framework
1. Leverage Ratio of Greater Than 9 Percent
2. Total Consolidated Assets
3. Total Off-Balance Sheet Exposures
4. Total Trading Assets and Trading
Liabilities
5. Advanced Approaches Banking
Organizations
B. Definition of the Leverage Ratio’s
Numerator and Denominator
1. Numerator
2. Denominator
C. Calibration of the Leverage Ratio in
Order To Qualify for the Community
Bank Leverage Ratio
D. Ability To Opt Into and Out of the
Community Bank Leverage Ratio
Framework
E. Ongoing Compliance With the
Community Bank Leverage Ratio
Framework
1. Meeting the Definition of a Qualifying
Community Banking Organization
2. Treatment of a Community Banking
Organization That Falls Below Certain
Leverage Ratio Levels
F. FDIC Deposit Insurance Assessments
Regulations
G. Other Affected Regulations
H. Effective Date of the Final Rule
IV. Regulatory Analyses
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. OCC Unfunded Mandates Reform Act of
1995
E. Riegle Community Development and
Regulatory Improvement Act of 1994
F. The Congressional Review Act
I. Introduction
A. Background
On February 8, 2019, the Office of the
Comptroller of the Currency (OCC), the
Board of Governors of the Federal
Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC)
(collectively, the agencies) published a
notice of proposed rulemaking (the
proposed rule or proposal) 1 to
implement section 201 of the Economic
Growth, Regulatory Relief, and
VerDate Sep<11>2014 19:15 Nov 12, 2019 Jkt 250001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\13NOR2.SGM 13NOR2
1 84 FR 3062 (February 8, 2019).
DEPARTMENT OF TREASURY
Office of the Comptroller of the
Currency
12 CFR Parts 1, 3, 5, 6, 23, 24, 32, 34,
160, and 192
[Docket ID OCC–2018–0040]
RIN 1557–AE59
FEDERAL RESERVE SYSTEM
12 CFR Parts 206, 208, 211, 215, 217,
223, 225, 238, and 251
[Regulation Q; Docket No. R–1638]
RIN 7100–AF 29
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 303, 324, 337, 347, 362,
365, and 390
RIN 3064–AE91
Regulatory Capital Rule: Capital
Simplification for Qualifying
Community Banking Organizations
AGENCY: Office of the Comptroller of the
Currency, Treasury; the Board of
Governors of the Federal Reserve
System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
SUMMARY: The Office of the Comptroller
of the Currency, the Board of Governors
of the Federal Reserve System, and the
Federal Deposit Insurance Corporation
(collectively, the agencies) are adopting
a final rule that provides for a simple
measure of capital adequacy for certain
community banking organizations,
consistent with section 201 of the
Economic Growth, Regulatory Relief,
and Consumer Protection Act (final
rule). Under the final rule, depository
institutions and depository institution
holding companies that have less than
$10 billion in total consolidated assets
and meet other qualifying criteria,
including a leverage ratio (equal to tier
1 capital divided by average total
consolidated assets) of greater than 9
percent, will be eligible to opt into the
community bank leverage ratio
framework (qualifying community
banking organizations). Qualifying
community banking organizations that
elect to use the community bank
leverage ratio framework and that
maintain a leverage ratio of greater than
9 percent will be considered to have
satisfied the generally applicable risk-
based and leverage capital requirements
in the agencies’ capital rules (generally
applicable rule) and, if applicable, will
be considered to have met the well-
capitalized ratio requirements for
purposes of section 38 of the Federal
Deposit Insurance Act. The final rule
includes a two-quarter grace period
during which a qualifying community
banking organization that temporarily
fails to meet any of the qualifying
criteria, including the greater than 9
percent leverage ratio requirement,
generally would still be deemed well-
capitalized so long as the banking
organization maintains a leverage ratio
greater than 8 percent. At the end of the
grace period, the banking organization
must meet all qualifying criteria to
remain in the community bank leverage
ratio framework or otherwise must
comply with and report under the
generally applicable rule. Similarly, a
banking organization that fails to
maintain a leverage ratio greater than 8
percent would not be permitted to use
the grace period and must comply with
the capital rule’s generally applicable
requirements and file the appropriate
regulatory reports.
DATES: The final rule is effective on
January 1, 2020.
FOR FURTHER INFORMATION CONTACT:
OCC: David Elkes, Risk Expert,
Benjamin Pegg, Risk Expert, or Jung Sup
Kim, Risk Specialist, Capital and
Regulatory Policy (202) 649–6370; or
Carl Kaminski, Special Counsel, or
Daniel Perez, Senior Attorney, or Rima
Kundnani, Senior Attorney, Chief
Counsel’s Office, (202) 649–5490, for
persons who are deaf or hearing
impaired, TTY, (202) 649–5597, Office
of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219.
Board: Constance M. Horsley, Deputy
Associate Director, (202) 452–5239; Juan
Climent, Manager, (202) 872–7526;
Andrew Willis, Lead Financial
Institutions Policy Analyst, (202) 912–
4323, or Christopher Appel, Senior
Financial Institutions Policy Analyst II,
(202) 973–6862, Division of Supervision
and Regulation; or Mark Buresh, Senior
Counsel, (202) 452–270; or Andrew
Hartlage, Counsel, (202) 452–6483,
Legal Division, Board of Governors of
the Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869.
FDIC: Benedetto Bosco, Chief, Capital
Policy Section, bbosco@fdic.gov;
Stephanie Lorek, Senior Capital Markets
Policy Analyst, slorek@fdic.gov; Dushan
Gorechan, Financial Analyst,
dgorechan@fdic.gov; Kyle McCormick,
Financial Analyst, kmccormick@
fdic.gov; Capital Markets Branch,
Division of Risk Management
Supervision, regulatorycapital@fdic.gov,
(202) 898–6888; or Michael Phillips,
Counsel, mphillips@fdic.gov;
Supervision Branch, Legal Division,
Federal Deposit Insurance Corporation,
550 17th Street NW, Washington, DC
20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
A. Background
B. Summary of the Final Rule
II. Proposed Rule
A. Proposed Community Bank Leverage
Ratio Framework
B. Summary of Comments
III. Final Rule
A. Qualifying Criteria for the Community
Bank Leverage Ratio Framework
1. Leverage Ratio of Greater Than 9 Percent
2. Total Consolidated Assets
3. Total Off-Balance Sheet Exposures
4. Total Trading Assets and Trading
Liabilities
5. Advanced Approaches Banking
Organizations
B. Definition of the Leverage Ratio’s
Numerator and Denominator
1. Numerator
2. Denominator
C. Calibration of the Leverage Ratio in
Order To Qualify for the Community
Bank Leverage Ratio
D. Ability To Opt Into and Out of the
Community Bank Leverage Ratio
Framework
E. Ongoing Compliance With the
Community Bank Leverage Ratio
Framework
1. Meeting the Definition of a Qualifying
Community Banking Organization
2. Treatment of a Community Banking
Organization That Falls Below Certain
Leverage Ratio Levels
F. FDIC Deposit Insurance Assessments
Regulations
G. Other Affected Regulations
H. Effective Date of the Final Rule
IV. Regulatory Analyses
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Plain Language
D. OCC Unfunded Mandates Reform Act of
1995
E. Riegle Community Development and
Regulatory Improvement Act of 1994
F. The Congressional Review Act
I. Introduction
A. Background
On February 8, 2019, the Office of the
Comptroller of the Currency (OCC), the
Board of Governors of the Federal
Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC)
(collectively, the agencies) published a
notice of proposed rulemaking (the
proposed rule or proposal) 1 to
implement section 201 of the Economic
Growth, Regulatory Relief, and
VerDate Sep<11>2014 19:15 Nov 12, 2019 Jkt 250001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\13NOR2.SGM 13NOR2
61777Federal Register / Vol. 84, No. 219 / Wednesday, November 13, 2019 / Rules and Regulations
2 The agencies note that, under existing PCA
requirements applicable to insured depository
institutions, to be considered ‘‘well capitalized’’ a
banking organization must demonstrate that it is not
subject to any written agreement, order, capital
directive, or as applicable, prompt corrective action
directive, to meet and maintain a specific capital
level for any capital measure. See 12 CFR
6.4(b)(1)(iv) (OCC); 12 CFR 208.43(b)(1)(v) (Board);
12 CFR 324.403(b)(1)(v) (FDIC). The same legal
requirements would continue to apply under the
community bank leverage ratio framework.
3 Under the final rule, a qualifying community
banking organization that elects to use the
community bank leverage ratio framework will
calculate its leverage ratio taking into account the
modifications made in relation to the capital
simplifications rule and current expected credit
losses methodology (CECL) transitions final rule.
See 84 FR 35234 (July 22, 2019) and 84 FR 4222
(February 14, 2019), respectively. The agencies
anticipate that the tier 1 capital amount used in the
numerator of the calculation will reflect any future
modifications made to the tier 1 capital definition
applicable to non-advanced approaches banking
organizations. See 84 FR 35234 (July 22, 2019).
4 For purposes of the community bank leverage
ratio framework, an electing banking organization is
not required to calculate tier 2 capital and therefore
would not be required to make any deductions that
would be taken from tier 2 capital or potentially tier
1 capital due to insufficient tier 2 capital. As part
of the final rule the agencies are amending 12 CFR
3.22(f) (OCC); 12 CFR 217.22(f) (Board); 12 CFR
324.22(f) (FDIC).
Consumer Protection Act (Act), and
proposed to establish a community bank
leverage ratio for qualifying community
banking organizations as a simple
alternative methodology to measure
capital adequacy. The proposal was
intended to simplify regulatory capital
requirements and provide material
regulatory compliance burden relief to
qualifying community banking
organizations that opt into the
community bank leverage ratio
framework.
Section 201 of the Act directs the
agencies to develop a community bank
leverage ratio for qualifying community
banking organizations of not less than 8
percent and not more than 10 percent.
The Act provides that a qualifying
community banking organization is a
depository institution or depository
institution holding company with total
consolidated assets of less than $10
billion that satisfies such other factors,
based on its risk profile, that the
agencies determine are appropriate.
Pursuant to section 201, a qualifying
community banking organization that
exceeds the community bank leverage
ratio level established by the agencies
shall be considered to have met: (i) The
generally applicable risk-based and
leverage capital requirements in the
agencies’ capital rules (generally
applicable rule); (ii) the capital ratio
requirements in order to be considered
well capitalized under the agencies’
prompt corrective action (PCA)
framework (in the case of insured
depository institutions); and (iii) any
other applicable capital or leverage
requirements. In addition, the Act
directs the agencies to establish
procedures for the treatment of
qualifying community banking
organizations that fall below the
community bank leverage ratio level
established by the agencies.2
Section 201 of the Act defines the
community bank leverage ratio as the
ratio of a qualifying community banking
organization’s tangible equity capital to
its average total consolidated assets,
both as reported on the qualifying
community banking organization’s
applicable regulatory filing. In addition,
the Act states that the agencies may
determine that a banking organization is
not a qualifying community banking
organization based on the banking
organization’s risk profile. This
determination shall be based on
consideration of off-balance sheet
exposures, trading assets and liabilities,
total notional derivatives exposures, and
such other factors as the agencies
determine appropriate. The Act also
specifies that the community bank
leverage ratio framework does not limit
the agencies’ authority in effect as of the
date of enactment of the Act.
The Act directs the agencies to
consult with applicable state bank
supervisors in carrying out section 201
of the Act and to notify the applicable
state bank supervisor of any qualifying
community banking organization that
exceeds, or does not exceed after
previously exceeding, the community
bank leverage ratio. As part of this
consultation process, the agencies had a
series of discussions with state bank
supervisors, before and after publication
of the proposal, that helped shape key
elements of the community bank
leverage ratio framework in the final
rule.
In response to the proposal, the
agencies received approximately 50
public comment letters and
approximately 500 form letters from
depository institutions, depository
institution holding companies, trade
associations, and other interested
parties. Commenters generally
supported the agencies’ efforts to
simplify the regulatory capital
requirements. However, as discussed in
greater detail below, many commenters
indicated that certain aspects of the
proposal were burdensome or
unnecessarily complex, and some
commenters expressed concern that
banking supervisors would make the
proposed community bank leverage
ratio the de facto minimum capital
requirement for community banking
organizations, irrespective of whether
they have opted into the community
bank leverage ratio framework.
Commenters generally favored greater
simplicity in the community bank
leverage ratio framework, and
recommended the removal of the
proposal’s separate PCA proxy levels.
After reviewing the comments, the
agencies are making several
modifications to address commenters’
concerns and further simplify the
community bank leverage ratio
framework while retaining the quality
and quantity of regulatory capital in the
banking system.
B. Summary of the Final Rule
In response to comments received on
the proposal, the agencies are making a
number of changes in this final rule. In
addition, the final rule clarifies other
important aspects of the community
bank leverage ratio framework. The key
changes being made to the final rule
include the following:
• Adoption of tier 1 capital, and
therefore the existing leverage ratio, into
the community bank leverage ratio
framework;
• Removal of the qualifying criteria
for mortgage servicing assets and
deferred tax assets arising from
temporary differences;
• Removal of the PCA proxy levels;
and
• Allowing a banking organization
that elects to use the community bank
leverage ratio framework to be
considered well-capitalized during the
two-quarter grace period if its leverage
ratio is 9 percent or less and greater than
8 percent.
Under the final rule, the numerator of
the community bank leverage ratio is
the existing measure of tier 1 capital
used by non-advanced approaches
banking organizations.3 4 Numerous
commenters described complexities that
would be created with the proposed
introduction of a new measure of
capital, tangible equity, in the
community bank leverage ratio
framework and, therefore, the agencies
have adopted the commenters’
recommendation to use tier 1 capital.
The use of tier 1 capital also has the
benefit of including the existing
threshold deduction approaches for
mortgage servicing assets (MSAs) and
deferred tax assets arising from
temporary differences (temporary
difference DTAs) which enabled the
agencies to remove the qualifying
criteria related to these exposures from
the community bank leverage ratio
framework. Due to the adoption of tier
1 capital, the community bank leverage
ratio is generally calculated in the same
VerDate Sep<11>2014 19:15 Nov 12, 2019 Jkt 250001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\13NOR2.SGM 13NOR2
2 The agencies note that, under existing PCA
requirements applicable to insured depository
institutions, to be considered ‘‘well capitalized’’ a
banking organization must demonstrate that it is not
subject to any written agreement, order, capital
directive, or as applicable, prompt corrective action
directive, to meet and maintain a specific capital
level for any capital measure. See 12 CFR
6.4(b)(1)(iv) (OCC); 12 CFR 208.43(b)(1)(v) (Board);
12 CFR 324.403(b)(1)(v) (FDIC). The same legal
requirements would continue to apply under the
community bank leverage ratio framework.
3 Under the final rule, a qualifying community
banking organization that elects to use the
community bank leverage ratio framework will
calculate its leverage ratio taking into account the
modifications made in relation to the capital
simplifications rule and current expected credit
losses methodology (CECL) transitions final rule.
See 84 FR 35234 (July 22, 2019) and 84 FR 4222
(February 14, 2019), respectively. The agencies
anticipate that the tier 1 capital amount used in the
numerator of the calculation will reflect any future
modifications made to the tier 1 capital definition
applicable to non-advanced approaches banking
organizations. See 84 FR 35234 (July 22, 2019).
4 For purposes of the community bank leverage
ratio framework, an electing banking organization is
not required to calculate tier 2 capital and therefore
would not be required to make any deductions that
would be taken from tier 2 capital or potentially tier
1 capital due to insufficient tier 2 capital. As part
of the final rule the agencies are amending 12 CFR
3.22(f) (OCC); 12 CFR 217.22(f) (Board); 12 CFR
324.22(f) (FDIC).
Consumer Protection Act (Act), and
proposed to establish a community bank
leverage ratio for qualifying community
banking organizations as a simple
alternative methodology to measure
capital adequacy. The proposal was
intended to simplify regulatory capital
requirements and provide material
regulatory compliance burden relief to
qualifying community banking
organizations that opt into the
community bank leverage ratio
framework.
Section 201 of the Act directs the
agencies to develop a community bank
leverage ratio for qualifying community
banking organizations of not less than 8
percent and not more than 10 percent.
The Act provides that a qualifying
community banking organization is a
depository institution or depository
institution holding company with total
consolidated assets of less than $10
billion that satisfies such other factors,
based on its risk profile, that the
agencies determine are appropriate.
Pursuant to section 201, a qualifying
community banking organization that
exceeds the community bank leverage
ratio level established by the agencies
shall be considered to have met: (i) The
generally applicable risk-based and
leverage capital requirements in the
agencies’ capital rules (generally
applicable rule); (ii) the capital ratio
requirements in order to be considered
well capitalized under the agencies’
prompt corrective action (PCA)
framework (in the case of insured
depository institutions); and (iii) any
other applicable capital or leverage
requirements. In addition, the Act
directs the agencies to establish
procedures for the treatment of
qualifying community banking
organizations that fall below the
community bank leverage ratio level
established by the agencies.2
Section 201 of the Act defines the
community bank leverage ratio as the
ratio of a qualifying community banking
organization’s tangible equity capital to
its average total consolidated assets,
both as reported on the qualifying
community banking organization’s
applicable regulatory filing. In addition,
the Act states that the agencies may
determine that a banking organization is
not a qualifying community banking
organization based on the banking
organization’s risk profile. This
determination shall be based on
consideration of off-balance sheet
exposures, trading assets and liabilities,
total notional derivatives exposures, and
such other factors as the agencies
determine appropriate. The Act also
specifies that the community bank
leverage ratio framework does not limit
the agencies’ authority in effect as of the
date of enactment of the Act.
The Act directs the agencies to
consult with applicable state bank
supervisors in carrying out section 201
of the Act and to notify the applicable
state bank supervisor of any qualifying
community banking organization that
exceeds, or does not exceed after
previously exceeding, the community
bank leverage ratio. As part of this
consultation process, the agencies had a
series of discussions with state bank
supervisors, before and after publication
of the proposal, that helped shape key
elements of the community bank
leverage ratio framework in the final
rule.
In response to the proposal, the
agencies received approximately 50
public comment letters and
approximately 500 form letters from
depository institutions, depository
institution holding companies, trade
associations, and other interested
parties. Commenters generally
supported the agencies’ efforts to
simplify the regulatory capital
requirements. However, as discussed in
greater detail below, many commenters
indicated that certain aspects of the
proposal were burdensome or
unnecessarily complex, and some
commenters expressed concern that
banking supervisors would make the
proposed community bank leverage
ratio the de facto minimum capital
requirement for community banking
organizations, irrespective of whether
they have opted into the community
bank leverage ratio framework.
Commenters generally favored greater
simplicity in the community bank
leverage ratio framework, and
recommended the removal of the
proposal’s separate PCA proxy levels.
After reviewing the comments, the
agencies are making several
modifications to address commenters’
concerns and further simplify the
community bank leverage ratio
framework while retaining the quality
and quantity of regulatory capital in the
banking system.
B. Summary of the Final Rule
In response to comments received on
the proposal, the agencies are making a
number of changes in this final rule. In
addition, the final rule clarifies other
important aspects of the community
bank leverage ratio framework. The key
changes being made to the final rule
include the following:
• Adoption of tier 1 capital, and
therefore the existing leverage ratio, into
the community bank leverage ratio
framework;
• Removal of the qualifying criteria
for mortgage servicing assets and
deferred tax assets arising from
temporary differences;
• Removal of the PCA proxy levels;
and
• Allowing a banking organization
that elects to use the community bank
leverage ratio framework to be
considered well-capitalized during the
two-quarter grace period if its leverage
ratio is 9 percent or less and greater than
8 percent.
Under the final rule, the numerator of
the community bank leverage ratio is
the existing measure of tier 1 capital
used by non-advanced approaches
banking organizations.3 4 Numerous
commenters described complexities that
would be created with the proposed
introduction of a new measure of
capital, tangible equity, in the
community bank leverage ratio
framework and, therefore, the agencies
have adopted the commenters’
recommendation to use tier 1 capital.
The use of tier 1 capital also has the
benefit of including the existing
threshold deduction approaches for
mortgage servicing assets (MSAs) and
deferred tax assets arising from
temporary differences (temporary
difference DTAs) which enabled the
agencies to remove the qualifying
criteria related to these exposures from
the community bank leverage ratio
framework. Due to the adoption of tier
1 capital, the community bank leverage
ratio is generally calculated in the same
VerDate Sep<11>2014 19:15 Nov 12, 2019 Jkt 250001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\13NOR2.SGM 13NOR2