Regulatory Capital Rule: Capital Simplification for Qualifying Community Banking Organizations
Final rule.
CFR Part: "12 CFR Parts 1, 3, 5, 6, 23, 24, 32, 34, 160, and 192"; "12 CFR Parts 206, 208, 211, 215, 217, 223, 225, 238, and 251"; "12 CFR Parts 303, 324, 337, 347, 362, 365, and 390"
RIN Number: "RIN 1557-AE59"; "RIN 7100-AF 29"; "RIN 3064-AE91"
Citation: "84 FR 61776"
Document Number: "Docket ID OCC-2018-0040"; "Regulation Q; Docket No. R-1638"
Page Number: "61776"
"Rules and Regulations"
Agency: "
SUMMARY:
DATES:
The final rule is effective on
FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
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
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
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.
F. The Congressional Review Act
I. Introduction
A. Background On
FOOTNOTE 1 84 FR 3062 (
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
FOOTNOTE 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. END FOOTNOTE
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 manner as the generally applicable rule's leverage ratio: Tier 1 capital divided by average total consolidated assets minus amounts deducted from tier 1 capital. As a result, the final rule incorporates and refers to the generally applicable rule's leverage ratio.
FOOTNOTE 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 (
FOOTNOTE 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). END FOOTNOTE
Commenters also raised concerns that the PCA proxy levels included in the proposal caused unnecessary complexity in the community bank leverage ratio framework and requested that the framework include a grace period to transition back to the generally applicable rule if a banking organization's community bank leverage ratio was less than the well-capitalized threshold. The agencies are incorporating this feedback into the final rule by modifying the definition of a "qualifying community banking organization" to include the level of the leverage ratio as a qualifying criterion.
The final rule provides that to be a "qualifying community banking organization," a banking organization must not be an advanced approaches banking organization /5/ and must meet the following qualifying criteria: (i) A leverage ratio of greater than 9 percent; (ii) total consolidated assets of less than
FOOTNOTE 5 An advanced approaches banking organization is generally defined as a firm with at least
Notably, the agencies have retained the proposal's 9 percent calibration for the leverage ratio in the community bank leverage ratio framework. The agencies believe that a 9 percent calibration, in conjunction with the final rule's qualifying criteria, will not result in a reduction in the aggregate level of regulatory capital currently held by electing banking organizations. Further, incorporating into the community bank leverage ratio framework the existing leverage ratio and the two-quarter grace period will facilitate the transition to and from the generally applicable rule. Banking organizations opt into and out of the framework through their Consolidated Reports of Condition and Income (Call Report) or Form FR-Y9C.
If a qualifying community banking organization that has opted into the community bank leverage ratio framework subsequently fails to satisfy one or more of the qualifying criteria but continues to report a leverage ratio of greater than 8 percent, the banking organization could continue to use the community bank leverage ratio framework and be deemed to meet the "well capitalized" capital ratio requirements for a grace period of up to two quarters. /6/ As long as the banking organization is able to return to compliance with all the qualifying criteria within two quarters, it will continue to be deemed to meet the "well capitalized" ratio requirements and be in compliance with the generally applicable rule. A banking organization will be required to comply with the generally applicable rule and file the relevant regulatory reports if the banking organization (i) is unable to restore compliance with all qualifying criteria during the two-quarter grace period (including coming into compliance with the greater than 9 percent leverage ratio requirement), (ii) reports a leverage ratio of 8 percent or less, or (iii) ceases to satisfy the qualifying criteria due to consummation of a merger transaction.
FOOTNOTE 6 As a result of adopting the grace period construct, the final rule does not include the agencies' proposed PCA proxy levels, which would have allowed certain banking organizations that fell to a leverage ratio of 9 percent or lower to remain in the community bank leverage ratio framework indefinitely. END FOOTNOTE
The agencies believe that the final rule provides a simple framework that simultaneously meets safety and soundness goals and responds to the concerns conveyed through comments received on the proposal. Additionally, the final rule meets the policy objectives described in the proposal. First, the community bank leverage ratio framework is available to a meaningful number of well-capitalized banking organizations with less than
FOOTNOTE 7 12 CFR 3.10(a)-(b) (OCC); 12 CFR 217.10(a)-(b) (Board); 12 CFR 324.10(a)-(b) (FDIC). END FOOTNOTE
II. Proposed Rule
A. Proposed Community Bank Leverage Ratio Framework
The agencies proposed the community bank leverage ratio framework as a simple alternative methodology to measure capital adequacy for qualifying community banking organizations, based on the requirements of section 201 of the Act. Under the proposal, a qualifying community banking organization would have been defined as a depository institution or depository institution holding company that was not an advanced approaches banking organization and that met the following criteria (qualifying criteria), each as described further below:
* Total consolidated assets of less than
* Total off-balance sheet exposures (excluding derivatives other than sold credit derivatives and unconditionally cancelable commitments) of 25 percent or less of total consolidated assets;
* Total trading assets plus trading liabilities of 5 percent or less of total consolidated assets;
* MSAs of 25 percent or less of tangible equity (as defined in the proposal); and
* Temporary difference DTAs of 25 percent or less of tangible equity.
Under the proposal, the community bank leverage ratio would have been calculated as the ratio of tangible equity to average total consolidated assets. Tangible equity would have been defined as total bank equity capital or total holding company equity capital, as applicable, prior to including minority interests, and excluding accumulated other comprehensive income (AOCI), deferred tax assets arising from net operating loss and tax credit carry forwards, goodwill, and other intangible assets (other than MSAs), each as of the most recent calendar quarter and calculated in accordance with a qualifying community banking organization's regulatory reports. Average total consolidated assets would have been calculated in a manner similar to the generally applicable rule's leverage ratio denominator in that amounts deducted from the numerator would also have been excluded from the denominator. Under the proposal, a qualifying community banking organization could have elected to use the community bank leverage ratio framework if its community bank leverage ratio was greater than 9 percent.
The proposal would have permitted an electing banking organization to remain in the community bank leverage ratio framework even in cases where such an institution's community bank leverage ratio subsequently fell to 9 percent or less. In this situation, the proposal would have continued to provide for the agencies' supervisory actions under PCA and other applicable statutes and regulations. Specifically, for insured depository institutions, the proposal would have incorporated community bank leverage ratio levels as proxies for the following PCA categories: Adequately capitalized, undercapitalized and significantly undercapitalized. If an electing banking organization had met certain community bank leverage ratio levels, it would have been considered to have met the capital ratio requirements within the applicable corresponding PCA category and been subject to the same restrictions that currently apply to any other insured depository institution in the same PCA category.
After issuing the proposal, the agencies proposed a regulatory capital schedule that would have been simpler than Schedules RC-R of the Call Report and HC-R of Form FR Y-9C for use by electing banking organizations. On this proposed reporting schedule, the community bank leverage ratio calculation would have required a banking organization to report significantly less information than under the generally applicable rule.
B. Summary of Comments
Collectively, the agencies received approximately 50 public comment letters and approximately 500 form letters on the proposal from depository institutions, depository institution holding companies, trade associations, and other interested parties. As further detailed in the more comprehensive discussion of the final rule, commenters generally supported the agencies' efforts to propose a simpler regulatory capital framework but expressed concerns with some aspects of the proposal.
Several commenters expressed concern that calibrating the community bank leverage ratio at 9 percent is unnecessarily punitive and would disqualify too many banking organizations from being able to use the community bank leverage ratio framework. These commenters favored calibrating the community bank leverage ratio at 8 percent. One commenter suggested calibrating the community bank leverage ratio at 10 percent, the highest permitted by statute, because higher leverage ratios may lower the adverse effects of crises on
Many commenters also expressed concern that the proposed PCA proxy levels would have added unnecessary complexity to the community bank leverage ratio framework, and therefore recommended their elimination in the final rule. Some commenters expressed concern that the agencies would not permit an insured depository institution with a community bank leverage ratio at or below 9 percent to demonstrate that it is well capitalized under the generally applicable rule before assigning it a PCA category other than well capitalized. Other commenters indicated that some of the qualifying criteria were unnecessary (such as that for MSAs), overly complex to calculate (such as the off-balance sheet exposures criterion), or did not appropriately reflect the risks of underlying assets.
Multiple commenters suggested that the proposed numerator of the community bank leverage ratio should be based on tier 1 capital, as defined under the generally applicable rule, rather than on a new "tangible equity" measure. Commenters expressed concern that examiners may penalize banking organizations for opting into or out of the framework, and that the community bank leverage ratio could become the de facto minimum capital requirement for all community banking organizations.
III. Final Rule
A. Qualifying Criteria for the Community Bank Leverage Ratio Framework
The agencies received comments requesting that they eliminate or modify certain of the qualifying criteria in the proposal, particularly the MSA and the temporary difference DTA criteria. Many of these commenters also suggested using tier 1 capital, as recently modified by the agencies in a final rule (simplifications rule), /8/ as the numerator of the leverage ratio. Several commenters noted that some of the qualifying criteria, such as the proposed limit for MSAs, could prevent many otherwise qualifying community banking organizations from opting into the community bank leverage ratio framework. Finally, some commenters suggested that the off-balance sheet criterion, as proposed, would be overly burdensome for community banking organizations to calculate and that certain elements included in this criterion should be eliminated as they do not represent material risk to banking organizations.
FOOTNOTE 8 See 84 FR 35243 (
After considering the comments, the agencies have decided to modify the definition of "qualifying community banking organization" by removing the MSA criterion and the temporary difference DTA criterion. Exposures to MSAs and temporary difference DTAs will be addressed through the use of tier 1 capital as the numerator, which requires deduction of such assets to the extent they exceed certain regulatory thresholds, rather than the proposed use of "tangible equity." The use of tier 1 capital as the numerator is discussed in more detail below in this Supplementary Information. Under the final rule, a qualifying banking organization must not be an advanced approaches banking organization and must have:
* A leverage ratio of greater than 9 percent;
* Total consolidated assets of less than
* Total off-balance sheet exposures (excluding derivatives other than sold credit derivatives and unconditionally cancelable commitments) of 25 percent or less of total consolidated assets, and
* Total trading assets plus trading liabilities of 5 percent or less of total consolidated assets. /9/
FOOTNOTE 9 Consistent with the proposal, the agencies have reserved the authority to disallow the use of the community bank leverage ratio framework by a depository institution or depository institution holding company, based on the risk profile of the banking organization. This authority is reserved under the general reservation of authority included in the capital rule, in which the community bank leverage ratio framework would be codified. See 12 CFR 3.1(d) (OCC); 12 CFR 217.1(d) (Board); 12 CFR 324.1(d) (FDIC). In addition, for purposes of the capital rule and section 201 of the Act, the agencies have reserved the authority to take action under other provisions of law, including action to address unsafe or unsound practices or conditions, deficient capital levels, or violations of law or regulation. See 12 CFR 3.1(b) (OCC); 12 CFR 217.1(b) (Board); 12 CFR 324.1(b) (FDIC). END FOOTNOTE
1. Leverage Ratio of
Under the proposal, a banking organization would have been required to have a community bank leverage ratio of greater than 9 percent in order to be eligible to opt into the community bank leverage ratio framework. The final rule adopts the 9 percent calibration of the community bank leverage ratio as proposed. The proposal also would have allowed an electing banking organization to remain in the community bank leverage ratio framework despite having a community bank leverage ratio which subsequently fell to 9 percent or less. As discussed above, the final rule eliminates the PCA proxy levels and, therefore, an electing banking organization will generally be required to maintain a leverage ratio of greater than 9 percent in order to be eligible to use the community bank leverage ratio framework. A two-quarter grace period, as discussed in further detail below, is available for a banking organization that ceases to meet any of the qualifying criteria, including a banking organization whose leverage ratio falls to 9 percent or less, but is greater than 8 percent. During the grace period, a banking organization may continue to be treated as a qualifying community banking organization and is presumed to satisfy the "well capitalized" ratio requirements and be in compliance with the generally applicable rule without having to calculate and report risk-based capital ratios.
2. Total Consolidated Assets
Under the proposal, a qualifying community banking organization would be required to have less than
A commenter indicated that the Act places no limit on the ability of the agencies to apply the community bank leverage ratio framework to institutions with
The agencies have considered the concerns raised with regard to the asset size threshold. The agencies continue to believe that the community bank leverage ratio framework is appropriate for most banking organizations with total consolidated assets of less than
FOOTNOTE 10 See 84 FR 35243 (
FOOTNOTE 11 See 83 FR 66024 (
3. Total Off-Balance Sheet Exposures
Under the proposal, a qualifying community banking organization would have been required to have total off-balance sheet exposures of 25 percent or less of its total consolidated assets, as of the end of the most recent calendar quarter. The agencies included this qualifying criterion in the community bank leverage ratio framework because the proposed community bank leverage ratio included only on-balance sheet assets in its denominator and thus would not have required a qualifying community banking organization to hold capital against its off-balance sheet exposures. This qualifying criterion was intended to reduce the likelihood that a qualifying community banking organization with significant off-balance sheet exposures would hold less capital under the community bank leverage ratio framework than under the generally applicable rule.
Under the proposal, total off-balance sheet exposures would have been calculated as the sum of the notional amounts of certain off-balance sheet items against which banking organizations would hold capital under the generally applicable rule /12/ as of the end of the most recent calendar quarter. Total off-balance sheet exposures would have included:
FOOTNOTE 12 See 12 CFR 324.33 (FDIC); 12 CFR 217.33 (
a. The unused portions of commitments (except for unconditionally cancellable commitments);
b. Self-liquidating, trade-related contingent items that arise from the movement of goods;
c. Transaction-related contingent items (i.e., performance bonds, bid bonds and warranties);
d. Sold credit protection in the form of guarantees and credit derivatives;
e. Credit-enhancing representations and warranties;
f. Off-balance sheet securitization exposures;
g. Letters of credit;
h. Forward agreements that are not derivative contracts; and
i. Securities lending and borrowing transactions.
Total off-balance sheet exposures would have excluded the notional amount for all derivative contracts except credit derivatives for sold credit protection. As stated in the proposal, the agencies believe that the notional amount for derivatives (other than credit derivatives for sold credit protection) is not an appropriate indicator of credit risk and could inadvertently disqualify a banking organization from using the community bank leverage ratio framework if the banking organization is otherwise appropriately using derivatives to hedge its risks. The proposed components of total off-balance sheet exposures would have been generally consistent with off-balance sheet items that are included in risk-weighted assets in the generally applicable rule, except for securities lending and borrowing transactions. Securities lending and borrowing transactions would have been assigned amounts in accordance with the reporting instructions for these items in Schedules RC-L of the Call Report or HC-L of Form FR Y-9C, as applicable. The proposed calculation of total off-balance sheet exposures would have been simpler than under the generally applicable rule, which requires that off-balance sheet exposures be converted to on-balance sheet equivalents for purposes of determining capital requirements.
The agencies received several comments and requests for clarification on the proposed limit for off-balance sheet exposures. One commenter expressed concern that the process for categorizing off-balance sheet exposures, such as off-balance sheet securitizations, was overly complex, and the commenter would prefer that the off-balance sheet filter instead identify specific transactions and products routinely used by community banks that meet the off-balance sheet exposure definition. Another commenter found the wording in the proposed rule unclear and noted that it would be beneficial for the agencies to reference the specific Schedule RC-L line items that would be included in the 25 percent limitation for off-balance sheet line items.
Several commenters expressed concern about the inclusion of residential mortgage-related off-balance sheet items. One commenter wrote that the agencies should not exclude banking organizations from using the community bank leverage ratio framework due to any mortgage origination-related hedging activity. The commenter expressed concern that as proposed the criterion may capture certain exposures related to routine functioning of the mortgage market. Another commenter noted that mortgage sales to certain Federal Home Loan Banks (FHLBs) through the Mortgage Partnership Finance Program could be captured by the off-balance sheet qualifying criteria. A commenter suggested that FHLB advances should be eliminated from the calculation because such advances are typically secured at a significant discount relative to underlying loan collateral. The commenter was concerned that a banking organization may be disqualified from the community bank leverage ratio framework due to its level of unfunded commitments and FHLB lines of credit.
Finally, one commenter requested clarification on whether sales of when-issued mortgage-backed security contracts are included in the 25 percent limitation, stating that these items should be excluded because, in the commenter's view, they are of lower risk.
The agencies considered the commenters' concerns and have decided to finalize the off-balance sheet qualifying criterion as proposed with several clarifications. The agencies are clarifying that the off-balance sheet qualifying criterion incorporates off-balance sheet exposures currently required to be captured and reported by banking organizations in Schedules RC-L and RC-R of the Call Report or HC-L and HC-R of Form FR Y-9C which thereby permits these firms to leverage their existing identification, measurement and reporting infrastructure for these exposures. The agencies also are clarifying that banking organizations are only required to identify off-balance sheet securitizations to the extent that they are not already captured as part of another off-balance sheet exposure category. For example, if a banking organization issues a credit enhancing representation and warranty that also meets the definition of a traditional securitization, the final rule does not require that such an exposure be separately identified as an off-balance sheet securitization exposure because the exposure would already be captured through the requirement to include credit enhancing representations and warranties in the off-balance sheet qualifying criterion.
The agencies also are clarifying that hedging techniques related to mortgage banking activities are generally only captured in the off-balance sheet qualifying criterion to the extent such exposures are treated as off-balance sheet exposures and subject to credit conversion factors under the generally applicable rule. For this reason, typical mortgage banking activities such as forward loan delivery commitments between banking organizations and investors, which typically are derivative contracts, were excluded from the off-balance sheet exposure criterion in the proposal and are excluded under the final rule. Put and call options on mortgage-backed securities are also typically derivatives and excluded from this criterion under the final rule. A contractual obligation for the future purchase of a "to be announced" (i.e., when-issued) mortgage securities contract, that does not meet the definition of a derivative contract under the generally applicable rule, would be captured in the off-balance sheet qualifying criterion as it would be considered a forward agreement under the generally applicable rule. In contrast, a contractual obligation for the future sale (rather than purchase) of a "to be announced" mortgage securities contract, that does not meet the definition of a derivative contract under the generally applicable rule, would not be captured in the off-balance sheet qualifying criterion as it would not be considered a forward agreement under the generally applicable rule.
Banking organizations that sell mortgages to certain FHLBs through the Mortgage Partnership Finance Program may provide a credit enhancement to the FHLB. If these credit enhancements meet the definition of a credit-enhancing representation and warranty or would otherwise be considered an off-balance sheet securitization under the generally applicable rule, then the exposure amount would be included in the off-balance sheet qualifying criterion. Because these are credit risk exposures that would be assigned risk-based capital under the generally applicable rule, inclusion in the off-balance sheet qualifying criterion is appropriate.
The agencies analyzed average off-balance sheet exposures for banking organizations with less than
4. Total Trading Assets and Trading Liabilities
Under the proposal, a qualifying community banking organization would have been required to have total trading assets and trading liabilities of 5 percent or less of its total consolidated assets, each measured as of the end of the most recent calendar quarter. Total trading assets and trading liabilities would have been calculated as the sum of those exposures, in accordance with the reporting instructions for these items on Schedules RC of the Call Report or HC of Form FR-Y-9C, as applicable. A banking organization would divide the sum of its total trading assets and trading liabilities by its total consolidated assets to determine its percentage of total trading assets and trading liabilities.
The agencies recognize the potential elevated levels of risk and complexity that can be associated with certain trading activities. For this reason, banking organizations with significant trading assets and trading liabilities are subject to a market risk capital requirement under the generally applicable rule. /13/ In contrast, electing banking organizations would not be required to calculate additional market risk capital requirements and, as a result, the community bank leverage ratio framework may not appropriately capitalize for material amounts of trading assets and trading liabilities. In addition, elevated levels of trading activity can produce a heightened level of earnings volatility, which has implications for capital adequacy. Therefore, the agencies do not believe it is appropriate to make the community bank leverage ratio framework available to banking organizations with material market risk exposure. However, the agencies do not believe that low levels of trading activity should preclude a banking organization from using the community bank leverage ratio framework.
FOOTNOTE 13 12 CFR part 3, subpart F (OCC); 12 CFR part 217, subpart F (Board); 12 CFR part 324, subpart F (FDIC). END FOOTNOTE
Based on the agencies' analysis, the vast majority of banking organizations with less than
5. Advanced Approaches Banking Organizations
Under the proposal, advanced approaches banking organizations would not have been eligible to use the community bank leverage ratio framework. The agencies received no comment on this requirement and believe that, in general, section 201 of the Act is designed to provide regulatory burden relief for banking organizations with less than
A banking organization with less than
B. Definitions of the Leverage Ratio's Numerator and Denominator
1. Numerator
Under the proposal, the numerator of the community bank leverage ratio would have been tangible equity, calculated as a banking organization's total bank equity capital or total holding company equity capital, as applicable, determined in accordance with the reporting instructions to Schedule RC of the Call Report or Schedule HC of Form FR Y-9C, prior to including minority interests, less: (i) Accumulated other comprehensive income (AOCI), (ii) all intangible assets (other than MSAs), and (iii) DTAs, net of any related valuation allowances, that arise from net operating loss and tax credit carryforwards, each as of the end of the most recent calendar quarter. Tangible equity would not have included minority interests (equity of a consolidated subsidiary that is not owned by the qualifying community banking organization) because minority interests do not have the same loss absorption capacity as other components of tangible equity at the consolidated banking organization level.
The agencies received numerous comments in response to the proposed use of tangible equity as the numerator of the community bank leverage ratio. Many commenters noted that banking organizations are already familiar with the current tier 1 capital calculation, and that tier 1 capital, therefore, should be used to calculate the community bank leverage ratio instead of tangible equity. A commenter also argued that the burden associated with implementing the community bank leverage ratio framework would exceed the reporting relief provided by reduced complexity. Several commenters expressed concerns that it would be too complex for a banking organization to switch between the calculation of tangible equity and tier 1 capital as it either opts into or out of the community bank leverage ratio framework or no longer meets the definition of a qualifying community banking organization. Several commenters recommended the agencies instead use tier 1 capital for the numerator, suggesting that this would not only simplify the calculation when switching between frameworks but would also increase comparability across all banking organizations. Commenters also preferred to use tier 1 capital for the numerator in order to ensure that certain instruments, such as trust preferred securities (TruPS) and common stock issued by bank subsidiaries, would count as regulatory capital under the community bank leverage ratio framework, up to their current limits. Finally, several commenters noted that use of tier 1 capital as the numerator would avoid the need for revisions to state banking laws that reference tier 1 capital, including but not limited to state law lending limits.
Multiple commenters, although not explicitly expressing a preference for using tier 1 capital as the numerator, did request that certain adjustments be made to the proposed definition of tangible equity. A commenter recommended that cumulative preferred stock with a stated final maturity date be included as an eligible component of tangible equity. Several commenters requested that the agencies allow TruPS to count as tangible equity. A commenter recommended that the agencies include common stock minority interest of up to 10 percent of the numerator of the community bank leverage ratio where the subsidiary holds risk-weighted assets of at least the amount of common stock minority interest being included. Finally, some commenters expressed concern that the CECL methodology under
Taking into account the concerns of commenters and seeking to balance burden reduction with safety and soundness, the agencies have decided to replace the proposed tangible equity measure with the current calculation of tier 1 capital as the numerator of the community bank leverage ratio. This change would align the final rule's calculation of the leverage ratio with the generally applicable rule's leverage ratio, a calculation methodology with which banking organizations are already familiar, and therefore would streamline adoption of the community bank leverage ratio framework. In addition, the use of tier 1 capital in the community bank leverage ratio framework will enhance comparability among banking organizations and remove the need for separate qualifying criteria for MSAs and temporary difference DTAs, as discussed previously. Based on the agencies' analysis, for the majority of banking organizations with less than
FOOTNOTE 14 See 84 FR 35234 (
The agencies note that the generally applicable rule requires deductions from tier 2 capital related to investments in capital instruments of unconsolidated financial institutions when such investments exceed certain limits and that such deductions can affect the calculation of tier 1 capital. /15/ This corresponding deduction approach requires a banking organization to make deductions from the same component of capital for which the underlying instrument would qualify if it was issued by the banking organization itself. In addition, if a banking organization does not have a sufficient amount of a specific regulatory capital component against which to effect the deduction, the shortfall must be deducted from the next higher (that is, more subordinated) regulatory capital component. Without any revision to the corresponding deduction approach, an electing banking organization with investments in tier 2 capital instruments of other financial institutions could have been required to apply the corresponding deduction approach potentially resulting in deductions from tier 1 capital. Under the final rule, however, since the community bank leverage ratio framework does not have a total capital requirement, an electing banking organization is neither required to calculate tier 2 capital nor make any deductions that would have been taken from tier 2 capital under the generally applicable rule. Therefore, if an electing banking organization has investments in the capital instruments of an unconsolidated financial institution that would qualify as tier 2 capital of the electing banking organization under the generally applicable rule (tier 2 qualifying investments), and the banking organization's total investments in the capital of unconsolidated financial institutions exceed the threshold for deduction, the banking organization is not required to deduct the tier 2 qualifying investments.
FOOTNOTE 15 See 12 CFR 3.22(c)(2) (OCC); 12 CFR 217.22(c)(2) (Board); 12 CFR 324.22(c)(2) (FDIC). END FOOTNOTE
An electing banking organization is only required to make a deduction from its common equity tier 1 capital or tier 1 capital if the sum of its investments in the capital of an unconsolidated financial institution is in a form that would qualify as common equity tier 1 capital or tier 1 capital instruments of the electing banking organization and exceeds the threshold for deduction. The agencies do not believe this is a common occurrence and observed that as of
With respect to a banking organization that has not elected the community bank leverage ratio framework but invests in an instrument (e.g., subordinated debt instrument) issued by an electing banking organization that would qualify as tier 2 capital under the generally applicable rule, the investing banking organization would continue to treat the instrument as tier 2 capital notwithstanding the electing banking organization's capital treatment of the instrument.
The agencies believe adoption of tier 1 capital, including the adjustments described above, also addresses commenters' concerns about the inclusion of TruPS, /16/ certain other preferred stock instruments, and minority interests includable in the numerator of the leverage ratio calculation by maintaining the same treatment that currently applies under the generally applicable rule's calculation for tier 1 capital for non-advanced approaches banking organizations.
FOOTNOTE 16 Banking organizations that are currently grandfathered and eligible to include TruPS in tier 1 capital can continue to include TruPS in tier 1 capital under the community bank leverage ratio framework, subject to existing limits. See 12 CFR 3.20(c)(3) (OCC); 12 CFR 217.20(c)(3) (Board); 12 CFR 324.20(c)(3) (FDIC). See 12 CFR 3.22(c)(2)(iii)(A) (OCC); 12 CFR 217.22(c)(2)(iii)(A) (Board); 12 CFR 324.22(c)(2)(iii)(A) (FDIC). See 12 CFR 217.300(c) (Board). END FOOTNOTE
2. Denominator
Under the proposal and consistent with the Act, the community bank leverage ratio denominator would have been based on a banking organization's average total consolidated assets. Specifically, average total consolidated assets for purposes of the denominator would have been calculated in accordance with the reporting instructions to Schedules RC-K on the Call Report or HC-K on Form FR Y-9C, as applicable, less the items deducted from the numerator, other than AOCI. The proposed denominator therefore would have been similar, but not identical, to the denominator of the generally applicable rule's leverage ratio.
The agencies received a limited number of comments on the proposed denominator for the community bank leverage ratio. A commenter suggested the agencies consider seasonality in total assets and allow for the use of four-quarter average total consolidated assets for the denominator. The agencies note that the denominator as proposed would be average total consolidated assets as described above, which would have substantially maintained consistency with the current regulatory capital calculation for average total consolidated assets. Another commenter asked that the agencies consider allowing a deduction from the denominator for pass-through reserve balances held with the
The agencies note that the leverage ratio in the generally applicable rule is designed to be a simple, non-risk-based on-balance sheet measure. Adjusting the leverage ratio denominator as commenters suggested would add unnecessary complexity to the measure. Therefore, the agencies are finalizing the leverage ratio denominator as proposed, except that items deducted from the denominator will align with the deductions from tier 1 capital as the numerator rather than from the proposed tangible equity measure as the numerator.
C. Calibration of the Leverage Ratio in Order To Qualify for the Community Bank Leverage Ratio
The agencies proposed to permit a qualifying community banking organization to elect to use the community bank leverage ratio framework if the organization's community bank leverage ratio was greater than 9 percent at the time of election. A qualifying community banking organization with a community bank leverage ratio greater than 9 percent would have been considered to have met: (i) The requirements of the generally applicable rule; (ii) the well-capitalized capital ratio thresholds under the agencies' PCA framework for insured depository institutions or the well-capitalized standards under the Board's regulations for holding companies, as applicable; and (iii) any other capital or leverage requirements to which the banking organization is subject. Such qualifying community banking organizations would not have been required to calculate capital ratios under the generally applicable rule. Additionally, to have been considered well capitalized under the proposed community bank leverage ratio framework, and consistent with the agencies' PCA framework, a qualifying community banking organization must not have been subject to any written agreement, order, capital directive, or PCA directive to meet and maintain a specific capital level for any capital measure.
In general, commenters stated that the community bank leverage ratio requirement should be lowered to 8 percent, citing the lower end of the range of the requirement under section 201 of the Act. Commenters indicated that such a calibration would more closely track the current well capitalized thresholds under PCA and would allow more banking organizations to be eligible to use the community bank leverage ratio framework. Several commenters wrote that the proposed community bank leverage ratio requirement and qualifying criteria were excessively conservative, particularly combined with the assumption that the adoption of CECL would, in the commenters' view, reduce firms' regulatory capital levels. A commenter suggested a banking organization should have the option to phase in the impact of the day-one CECL adjustment recorded in retained earnings over a five year period when it elects to use the community bank leverage ratio framework to calculate regulatory capital. A few commenters indicated that the proposed community bank leverage ratio calibration would not factor in the adjusted allowance for credit loss for up to 1.25 percent of risk-weighted assets, which would be permitted under the generally applicable rule for purposes of the total capital ratio, but would not be relevant under the community bank leverage ratio. Finally, a commenter recommended a dynamic calibration that would vary depending on the business cycle to accommodate recovery and encourage lending in a stressed environment.
After considering the comments received on calibration, the agencies have decided to adopt a 9 percent leverage ratio as a qualifying criterion for the community bank leverage ratio framework. The agencies believe that a 9 percent calibration, with complementary qualifying criteria for asset size, off-balance sheet assets, and trading assets and trading liabilities, generally maintains the current level of regulatory capital held by electing banking organizations and supports the agencies' goals of reducing regulatory burden for as many community banking organizations as possible. For example, even though an 8 percent leverage ratio would have allowed more banking organizations to opt into the community bank leverage ratio framework, the reduced calibration could create an inappropriate incentive for some qualifying community banking organizations to hold less regulatory capital than they do today. Rather than lowering the minimum community bank leverage ratio from 9 percent to 8 percent, the agencies determined that it would be more appropriate to alleviate the potential burden associated with switching regulatory capital frameworks as capital levels fall by permitting an electing banking organization to have its ratio drop below 9 percent temporarily (i.e., the two-quarter grace period). This grace period will provide an electing banking organization time to either comply with the qualifying criteria or to prepare to comply with the generally applicable rule and file the appropriate regulatory reports.
The agencies estimate that, as of the first quarter of 2019, the vast majority of banking organizations with under
FOOTNOTE 17 As of
In February of 2019, the agencies issued a final rule to amend the generally applicable rule in response to CECL (CECL transitions final rule). /18/ The CECL transitions final rule provides for an optional three-year transition arrangement that will allow a banking organization to phase in any adverse day-one regulatory capital effects of CECL adoption on retained earnings, deferred tax assets, allowance for credit losses, and average total consolidated assets. These day-one regulatory capital effects will be phased in over the transition period on a straight line basis. Under this final rule, the leverage ratio under the community bank leverage ratio framework is generally calculated in the same manner as the generally applicable rule's leverage ratio. Accordingly, an electing banking organization is also eligible to phase-in any adverse day-one regulatory capital effects of CECL adoption on retained earnings, DTAs, allowance for credit losses, and average total consolidated assets. Banking organizations will retain their three-year transition period without reset (i.e., the transition period cannot be extended) upon passage in or out of the community bank leverage ratio framework.
FOOTNOTE 18 84 FR 4222 (
D. Ability To Opt Into and Out of the Community Bank Leverage Ratio Framework
Under the proposal, a qualifying community banking organization with a community bank leverage ratio greater than 9 percent could have elected to use the community bank leverage ratio framework at any time. Such a banking organization would have indicated its election by completing a community bank leverage ratio reporting schedule in its Call Report or Form FR Y-9C, as applicable. Also, under the proposal, an electing banking organization would have been able to opt out of the community bank leverage ratio framework and become subject to the generally applicable rule by completing the associated reporting requirements on Schedules RC-R of the Call Report or HC-R of Form FR Y-9C, as applicable. Additionally, the agencies noted in the proposal that an electing banking organization would have been able to opt out of the community bank leverage ratio framework between reporting periods by providing the capital ratios under the generally applicable rule to its appropriate regulators at the time of opting out. A banking organization that opted out of the community bank leverage ratio framework would have been required to meet the qualifying criteria included in the definition of a qualifying community banking organization and have a community bank leverage ratio of greater than 9 percent to be able to opt back into the community bank leverage ratio framework.
Several commenters suggested that the optionality aspect should be further emphasized to both bankers and agency examiners. These commenters expressed concern that banking organizations that do not opt in could be seen as outliers and could be pressured to raise capital and opt into the community bank leverage ratio framework, or that procedural issues would make it too difficult in practice for banking organizations to opt out.
The agencies have considered the comments and are finalizing the election to use the community bank leverage ratio framework as proposed. Due to the adoption of tier 1 capital and the leverage ratio into the community bank leverage ratio framework, the agencies will update accordingly the proposed reporting changes to the Call Report and Form FR Y-9C. The agencies are further clarifying that the community bank leverage ratio framework is an optional framework, based on section 201 of the Act, which serves the purpose of removing the burden of calculating and reporting risk-based capital ratios for banking organizations that meet certain criteria. The agencies are also clarifying that a banking organization can opt out of the community bank leverage ratio framework at any time, without restriction, by reverting to the generally applicable rule and providing the capital ratios under the generally applicable rule to its appropriate regulators at the time of opting out.
One commenter requested that the rule require that banking agencies notify state bank regulators when a state-chartered electing banking organization opts out of the framework between reporting periods. Under the final rule, a qualifying community banking organization may opt into or out of the community bank leverage ratio framework at any time and for any reason. The agencies, therefore, are not including a mandatory notification requirement in the final rule, as this could discourage banking organizations from electing to apply and report under the generally applicable rule. The agencies note that the Call Report and Form FR Y-9C are available to the public and therefore additional notice is not necessary.
As described above, a banking organization generally opts into and out of the community bank leverage ratio framework through its Call Report or Form FR Y-9C. As a result, a banking organization's compliance with the community bank leverage ratio framework or the generally applicable rule will be determined based upon the capital framework it has elected in its last filed Call Report or Form FR Y-9C. /19/
FOOTNOTE 19 See section I in this Supplementary Information for a discussion on the interaction between the effective date of the final rule and when a banking organization elects to use the community bank leverage ratio framework. END FOOTNOTE
E. Ongoing Compliance With the Community Bank Leverage Ratio Framework
1. Meeting the Definition of a
Under the proposal, an electing banking organization that no longer met the proposed qualifying criteria would have been required, within two consecutive calendar quarters, either to meet the qualifying criteria again or to demonstrate compliance with the generally applicable rule. During the proposed grace period, the banking organization could have continued to be treated as a qualifying community banking organization and could have, therefore, continued calculating and reporting a community bank leverage ratio to determine its compliance with other statutes and regulations.
The agencies did not receive specific comments relating to the mechanics of the proposed grace period. One commenter argued that a six-month transition period would be too short for banking organizations to sell MSAs, if necessary, or prepare for the different treatment in the generally applicable rule. Other commenters noted that the use of tier 1 capital would ease any transition back to the risk-based capital requirements. The agencies continue to believe that this limited grace period is appropriate to mitigate potential volatility in capital and associated regulatory reporting requirements based on temporary changes in a banking organization's risk profile from quarter to quarter, while capturing more permanent changes in risk profile, and are therefore finalizing the two-quarter grace period largely as proposed. Under the final rule, the grace period begins as of the end of the calendar quarter in which the electing banking organization ceases to satisfy any of the qualifying criteria and will end after two consecutive calendar quarters. For example, if the electing banking organization no longer meets one of the qualifying criteria as of
Under the proposal, an electing banking organization that ceased to meet the qualifying criteria as a result of a business combination would have received no grace period and immediately would have been required to revert to the generally applicable rule. The agencies continue to believe this approach is appropriate, as banking organizations would need to consider the regulatory capital implications of a planned business combination and be prepared to comply with the applicable requirements. An electing banking organization that expects that it would not meet the qualifying criteria as a result of a business combination would need to provide its pro forma capital ratios under the generally applicable rule to its appropriate regulator as part of its merger application, if applicable, and fully comply with the generally applicable rule for the regulatory reporting period during which the transaction is completed.
2. Treatment of a Community Banking Organization That Falls Below Certain Leverage Ratio Levels
Under the proposal, an electing banking organization that had a community bank leverage ratio greater than 9 percent would have been considered well capitalized. In addition, an electing banking organization would have been considered to have met the minimum capital requirements under the generally applicable rule if its community bank leverage ratio was 7.5 percent or greater. /20/ Under the proposal, an electing banking organization could have chosen to stop using the community bank leverage ratio framework and instead become subject to the generally applicable rule. The proposal also provided an electing banking organization with a declining community bank leverage ratio (e.g., below 9 percent) with the option to remain in the community bank leverage ratio framework indefinitely, rather than requiring the firm to revert to the generally applicable rule. Under the proposal, an electing banking organization that was an insured depository institution and no longer exceeded the 9 percent community bank leverage ratio would have been subject to community bank leverage ratio levels that would serve as proxies for the adequately capitalized, undercapitalized, and significantly undercapitalized PCA capital categories. /21/
FOOTNOTE 20 Under the proposal, an electing banking organization that is a depository institution holding company would no longer be considered well capitalized if the holding company had a community bank leverage ratio of 9 percent or less. END FOOTNOTE
FOOTNOTE 21 See, e.g., 12 U.S.C. 5371 (establishing a capital floor for insured depository institutions and depository institution holding companies); section 201 of the Act (requiring development of a community bank leverage ratio for which a depository institution exceeding that ratio would be considered to meet the requirements to be treated as well capitalized under PCA); 12 U.S.C. 1831o (PCA). END FOOTNOTE
The agencies received comments and requests for clarification regarding both the proposed PCA proxy levels and the grace period for a banking organization that has a community bank leverage ratio at or below 9 percent. One commenter requested that the agencies clarify when PCA consequences begin to apply. Another commenter indicated that the framework should require a banking organization that falls below the well-capitalized level to immediately begin reporting capital ratios under the generally applicable rule. Another commenter proposed that, instead of instituting the PCA proxy levels, the agencies should give qualifying banking organizations with a community bank leverage ratio between 8 percent and 9 percent a two-quarter grace period after which they would either need to restore their community bank leverage ratio to greater than 9 percent or revert to the generally applicable rule.
The agencies also received comments in response to the proposal's incorporation of community bank leverage ratio levels as proxies for the adequately capitalized, undercapitalized, and significantly undercapitalized PCA categories. In general, commenters noted that the establishment of a new, separate PCA framework within the community bank leverage ratio framework is not necessary or required under section 201 of the Act, expressing concern that the community bank leverage ratio framework could, in the future, function as the new, de facto minimum capital requirement, particularly if it is difficult for a banking organization to switch back to the generally applicable rule. Commenters also noted community banking organizations' sensitivity to several restrictions that could arise if the community banking organization is determined to be less than well capitalized, including restrictions on funding sources such as limits on brokered deposits, and the inability to open branches or make acquisitions. Some commenters suggested alternative calibration levels for the PCA proxy levels.
In response to commenter concerns regarding the proposed PCA proxy levels for electing banking organizations that no longer exceed a 9 percent leverage ratio, the agencies decided not to incorporate the proposed PCA proxy levels in the final rule. Therefore, under the final rule, banking organizations that are insured depository institutions and that have a leverage ratio of greater than 9 percent are deemed to have met the well capitalized capital ratio requirements for PCA purposes. Further, the agencies included the requirement to have a leverage ratio greater than 9 percent as a qualifying criterion in the definition of a qualifying community banking organization. Consequently, the two-quarter grace period described above also applies depending on the level of an electing banking organization's leverage ratio. Under the final rule, an electing banking organization that has a leverage ratio that is greater than 8 percent and equal to or less than 9 percent is allowed a two-quarter grace period after which it must either (i) again meet all qualifying criteria or (ii) apply and report the generally applicable rule. During this two-quarter period, a banking organization that is an insured depository institution and that has a leverage ratio that is greater than 8 percent would be considered to have met the well-capitalized capital ratio requirements for PCA purposes. An electing banking organization with a leverage ratio of 8 percent or less is not eligible for the grace period and must comply with the generally applicable rule, i.e., for the quarter in which the banking organization reports a leverage ratio of 8 percent or less. An electing banking organization experiencing or anticipating such an event would be expected to notify its primary federal supervisory agency, which would respond as appropriate to the circumstances of the banking organization.
A commenter asked that the proposed rule be revised to provide expressly that for an otherwise qualifying community bank that is state chartered to be disqualified from using the community bank leverage ratio framework based on criteria other than the enumerated qualifying criteria, such a determination must be made jointly by (1) the bank's primary federal banking supervisory agency (either the
Finally, a commenter requested clarification that a bank that is a qualifying community bank may elect to use the community banking organization leverage ratio framework even if its parent holding company is not a qualifying community banking organization, or vice versa. Consistent with the proposal, a non-advanced approaches subsidiary insured depository institution may opt into the community bank leverage ratio framework even if its parent holding company is not a qualifying banking organization, and vice versa. The agencies do not have safety and soundness concerns with these scenarios and the agencies intended to allow such elections in the proposal.
F. FDIC Deposit Insurance Assessments Regulations
The
G. Other Affected Regulations
Under the final rule, the community bank leverage ratio framework incorporates tier 1 capital. Therefore, Federal banking regulations outside of the regulatory capital rule (non-capital rules) can continue to reference tier 1 capital. The final rule amends standards referencing total capital so that an electing banking organization uses tier 1 capital instead of total capital. The final rule amends standards referencing risk-weighted assets so that an electing banking organization uses average total consolidated assets (i.e., the denominator of the leverage ratio) instead of risk-weighted assets.
In addition, certain of the agencies' non-capital rules refer to "capital stock and surplus" (or similar items) which is generally defined as tier 1 capital and tier 2 capital plus the amount of allowances for loan and lease losses not included in tier 2 capital. The final rule amends standards referencing "capital stock and surplus" (or similar items) so that an electing banking organization uses tier 1 capital plus allowances for loan and lease losses (or adjusted allowance for credit losses, as applicable). Thus, for example, for purposes of compliance with section 23A of the Federal Reserve Act, the Board's Regulation W should provide that for an electing banking organization "capital stock and surplus" means tier 1 capital plus allowances for loan and lease losses (or adjusted allowance for credit losses, as applicable).
H. Effective Date of the Final Rule
The final rule will be effective as of
IV. Regulatory Analyses
A. Paperwork Reduction Act
The agencies' capital rule contains "collections of information" within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the agencies may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently-valid
FOOTNOTE 22 The OCC and
The final rule will also require changes to the Consolidated Reports of Condition and Income (Call Reports) (
B. Regulatory Flexibility Act
OCC: The Regulatory Flexibility Act (RFA), 5 U.S.C.
FOOTNOTE 23 U.S. SBA, Table of Small Business Size Standards Matched to North American Industry Classification System Codes, available at https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf. END FOOTNOTE
FOOTNOTE 24 See 13 CFR 121.201. END FOOTNOTE
Pursuant to the RFA, the OCC specifically considers (a) whether the final rule is likely to impact a substantial number of small entities; and (b) whether the economic impact on a substantial number of small entities is significant. To measure whether a rule would have a "significant economic impact," the OCC focuses on the potential costs of the rule on OCC-supervised small entities, consistent with guidance on the RFA published by the
FOOTNOTE 25 See "A Guide for Government Agencies; How to Comply with the Regulatory Flexibility Act," pp. 18-20 (
FOOTNOTE 26 The OCC bases its estimate of the number of small entities on the SBA's size thresholds for commercial banks and savings institutions, and trust companies, which are
Although the minimum required capital under the community bank leverage ratio framework will, in most cases, be greater than that required for the generally applicable risk-based and leverage capital requirements, banks are not required to opt into the community bank leverage ratio framework. In addition, banks that do elect to use the community bank leverage ratio framework may, at any time, stop using the community bank leverage ratio framework. Accordingly, the final rule does not represent a regulatory increase in minimum regulatory capital requirements, and the primary cost to institutions for implementing the final rule will be administrative costs associated with required updates to their capital reporting procedures and reports. /27/
FOOTNOTE 27 The agencies intend to separately seek comment on the proposed changes to regulatory filings for qualifying community banking organizations that elect to use the community bank leverage ratio framework. END FOOTNOTE
Banks that elect to use the community bank leverage ratio framework will have to make updates to their capital reporting procedures and reports. Banks will also have to make updates to existing policies and procedures to ensure compliance with regulations that will be affected by the final rule (e.g., lending limits). The total impact associated with the final rule is the estimated annual tax benefit minus the compliance costs of modifying policies and procedures. The OCC estimates that each institution will spend no more than 160 hours to modify their policies and procedures. To estimate costs, the OCC uses a compensation rate of
FOOTNOTE 28 To estimate wages, the OCC reviewed May 2018 data for wages (by industry and occupation) from the
In general, the OCC classifies the economic impact of expected cost (to comply with a rule) on an individual bank as significant if the total estimated monetized costs in one year are greater than (1) 5 percent of the bank's total annual salaries and benefits or (2) 2.5 percent of the bank's total annual non-interest expense. Based on the above criteria, the estimated cost of the rule could impose a significant economic impact at 19 of the 898 small entities if they all elected to opt into the community bank leverage ratio framework. The OCC uses 5 percent to determine a substantial number of small entities. Approximately 2 percent (19/898 = 2.1%) of small entities could be significantly impacted by the rule, which is not a substantial number of small entities.
Therefore, the OCC certifies that the final rule will not have a significant economic impact on a substantial number of OCC-supervised small entities.
Board: An initial regulatory flexibility analysis (IRFA) was included in the proposal in accordance with section 3(a) of the Regulatory Flexibility Act (RFA), 5 U.S.C.
Under regulations issued by the
FOOTNOTE 29 See 13 CFR 121.201. Effective
As discussed, the Board is issuing this final rule to provide a simple measure of capital adequacy for certain community banking organizations. Under the final rule, depository institutions and depository institution holding companies that have less than
FOOTNOTE 30 In general, the Board's capital rule only applies to bank holding companies and savings and loan holding companies that are not subject to the Board's
Although the final rule would provide some direct reduction in compliance burden associated with the capital rule, much of that reduction of compliance burden would be achieved through a separate notice to amend the regulatory reports associated with the capital rule. The Board does not expect that the final rule will result in a material change in the level of capital maintained by small banking organizations because (i) the framework is optional and (ii) a substantial majority of small banking organizations maintain capital in excess of both the generally applicable capital rule and the threshold established under the final rule. A small number of firms may face reduced capital requirements due to electing to use the community bank leverage ratio framework rather than the existing risk-based and leverage capital ratio framework. For example, the Board estimates that 454 small state member banks would be eligible for the community bank leverage ratio framework and that 4 of these small state member may face less stringent capital requirements as a result. The Board does not expect the rule to have a significant economic impact on a substantial number of small entities.
FOOTNOTE 31 5 U.S.C.
FOOTNOTE 32 The SBA defines a small banking organization as having
For the reasons described below, the
1. The Need for, and Objectives of, the Rule
The policy objective of the proposed rule is to conform the
FOOTNOTE 33 Public Law 111-203, 124 Stat. 1376. END FOOTNOTE
FOOTNOTE 34 Public Law 115-174, 132 Stat. 1296. END FOOTNOTE
2. The Significant Issues Raised by the Public Comments in Response to the Initial Regulatory Flexibility Analysis
No significant issues were raised by the public comments in response to the initial regulatory flexibility analysis.
3. Response of the Agency to Any Comments Filed by the Chief Counsel for Advocacy of the
No comments were filed by the Chief Counsel for Advocacy of the
4. A Description of and an Estimate of the Number of Small Entities to Which the Rule Will Apply or an Explanation of Why No Such Estimate Is Available
As of
FOOTNOTE 35 Consolidated Reports of Condition and Income for the quarter ending
Adoption of the community bank leverage ratio framework is voluntary so it is uncertain how many small,
5. A Description of the Projected Reporting, Recordkeeping and Other Compliance Requirements of the Rule
This analysis considers benefits and costs relative to a pre-statutory baseline in which qualifying institutions must maintain a tier 1 leverage ratio of five percent, a tier 1 risk-based capital ratio of eight percent, a common equity tier 1 ratio of 6.5 percent and a total capital ratio of 10 percent in order to be deemed well capitalized for purposes of Prompt Corrective Action. Pursuant to the capital conservation buffer that is part of the Basel III rule, institutions must also maintain an additional 0.5 percentage points of risk-weighted assets above the risk-based well-capitalized thresholds to avoid potential limitations on dividends and other capital distributions. /36/ Under the final rule, in contrast, qualifying institutions would have the option to operate under a 9 percent community bank leverage ratio framework and not be subject to risk-based capital requirements.
FOOTNOTE 36 With the additional capital conservation buffer requirements, the pre-statute baseline risk-based capital thresholds are 7 percent for common equity tier 1 capital, 8.5 percent for tier 1 capital, and 10.5 percent for total capital. END FOOTNOTE
As previously discussed, 241 (9 percent of) small,
No bank will be compelled to raise capital under the community bank leverage ratio framework since the framework is optional. Moreover, as of
It is possible that the elimination of risk-based capital requirements by banks that choose to adopt the rule would increase their incentives to hold higher-weighted assets, such as loans. To provide a high-end estimate of the economic effect for RFA purposes, this analysis will assume that every adopting bank responds to the rule by permanently increasing its loan balances by 1 percent.
The analysis estimates the annual economic effect of a 1 percent permanent increase in loan balances at adopting banks by multiplying the increase by the net interest margin currently being earned by each bank. /37/
FOOTNOTE 37 Defined as the annualized net interest income as a percent of average earning assets, as reported on schedule RI. For reference, the average net interest margin was 3.9 percent for small,
For each of the 237 banks that would experience a reduction in capital requirements under the community bank leverage ratio framework, this analysis calculates the expected economic effect to each bank by multiplying 1 percent of the bank's loan balances by its net interest margin. Under these assumptions, as of
As an estimate of the maximum potential effects of the rule, the analysis alternately assumes that all of the 2,297 qualifying small
Although the preceding assumptions and analysis indicate that the rule is unlikely to have significant economic effects on a substantial number of small,
There are other non-quantified economic effects resulting from the adoption of the community bank leverage ratio framework, such as simplicity benefits and compliance cost-savings from not having to comply with risk-based capital requirements going forward. Utilizing the community bank leverage ratio framework is expected to reduce reporting costs for small entities. Opting into the community bank leverage ratio framework would enable institutions to eliminate the reporting of many line items in schedule RC-R of their Call Reports, resulting in a reduction in reporting costs for institutions. Depository institutions also may benefit from reduced reporting costs because by being able to employ those resources in ways the institution believes is more beneficial. The
The quantified economic effects are expected to be significant for less than half of a percent of small,
6. A Description of the Steps the Agency Has Taken To Minimize the Significant Economic Impact on Small Entities
As described above, the
The agencies considered alternative calibrations, such as 8 percent. As discussed in Section III.C however, the agencies believe that a 9 percent calibration, with complementary qualifying criteria for asset size, off-balance sheet assets, and trading assets and liabilities, should generally maintain the current level of regulatory capital held by electing banking organizations while maintaining the quality and quantity of regulatory capital in the banking system consistent with the agencies' safety-and-soundness goals, while also supporting the agencies' goals of reducing regulatory burden for as many community banking organizations as possible. For example, even though an 8 percent leverage ratio would allow more banking organizations to opt into the community bank leverage ratio framework it could incentivize a large number of qualifying community banking organizations to hold less regulatory capital than they do today.
C. Plain Language
Section 722 of the Gramm-Leach-Bliley Act /38/ requires the Federal banking agencies to use plain language in all proposed and final rules published after
FOOTNOTE 38 Public Law 106-102, section 722, 113 Stat. 1338, 1471 (1999). END FOOTNOTE
D. OCC Unfunded Mandates Reform Act of 1995
The OCC analyzed the final rule under the factors set forth in the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this analysis, the OCC considered whether the proposed rule includes a Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of
E.
Pursuant to section 302(a) of the
FOOTNOTE 39 12 U.S.C. 4802(a). END FOOTNOTE
FOOTNOTE 40 12 U.S.C. 4802. END FOOTNOTE
The Federal banking agencies considered the administrative burdens and benefits of the rule and its elective framework in determining its effective date and administrative compliance requirements. As such, the final rule will be effective on
F. The Congressional Review Act
For purposes of Congressional Review Act, the OMB makes a determination as to whether a final rule constitutes a "major" rule. /41/ If a rule is deemed a "major rule" by the
FOOTNOTE 41 5 U.S.C.
FOOTNOTE 42 5 U.S.C. 801(a)(3). END FOOTNOTE
The Congressional Review Act defines a "major rule" as any rule that the Administrator of the
FOOTNOTE 43 5 U.S.C. 804(2). END FOOTNOTE
List of Subjects
12 CFR Part 1
Banks, Banking, National banks, Reporting and recordkeeping requirements, Securities.
12 CFR Part 3
Administrative practice and procedure,
12 CFR Part 5
Administrative practice and procedure, National banks, Reporting and recordkeeping requirements, Securities.
12 CFR Part 6
12 CFR Part 23
National banks.
12 CFR Part 24
Community development, Credit, Investments, Low and moderate income housing, National banks, Reporting and recordkeeping requirements, Rural areas, Small businesses.
12 CFR Part 32
National banks, Reporting and recordkeeping requirements.
12 CFR Part 34
Mortgages, National banks, Reporting and recordkeeping requirements.
12 CFR Part 160
Consumer protection, Investments, Manufactured homes, Mortgages, Reporting and recordkeeping requirements, Savings associations, Securities.
12 CFR Part 192
Reporting and recordkeeping requirements, Savings associations, Securities.
12 CFR Part 206
Banks, Banking,
12 CFR Part 208
Confidential business information, Crime, Currency,
12 CFR Part 211
Exports,
12 CFR Part 215
Credit, Penalties, Reporting and recordkeeping requirements.
12 CFR Part 217
Administrative practice and procedure, Banks, Banking, Holding companies, Reporting and recordkeeping requirements, Securities.
12 CFR Part 223
Banks, Banking,
12 CFR Part 225
Administrative practice and procedure, Banks, Banking,
12 CFR Part 238
Savings and loan holding companies (Regulation LL).
12 CFR Part 251
Administrative practice and procedure, Banks, Banking, Concentration limit,
12 CFR Part 303
Administrative practice and procedure, Bank deposit insurance, Banks, Banking, Reporting and recordkeeping requirements, State non-member banks, Savings associations.
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital adequacy, Reporting and recordkeeping requirements, State non-member banks, Savings associations.
12 CFR Part 337
Banks, Banking, Reporting and recordkeeping requirements, Securities.
12 CFR Part 347
Authority delegations (Government agencies), Bank deposit insurance, Banks, Banking, Credit, Foreign banking, Investments, Reporting and recordkeeping requirements,
12 CFR Part 362
Administrative practice and procedure, Authority delegations (Government agencies), Bank deposit insurance, Banks, Banking, Investments, Reporting and recordkeeping requirements.
12 CFR Part 365
Banks, Banking, Mortgages.
12 CFR Part 390
Administrative practice and procedure, Advertising, Aged, Civil rights, Conflict of interests, Credit, Crime, Equal employment opportunity, Fair housing, Government employees, Individuals with disabilities, Reporting and recordkeeping requirements, Savings associations.
DEPARTMENT OF THE
12 CFR Chapter I
Authority and Issuance For the reasons stated in the joint preamble, chapter I of title 12 of the Code of Federal Regulations is amended as follows:
PART 1--INVESTMENT SECURITIES
1. The authority citation for part 1 continues to read as follows:
Authority:12 U.S.C. 1 et seq., 24 (Seventh), and 93a.
2. Section 1.2 is amended by revising paragraph (a) to read as follows:
(a) Capital and surplus means:
(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as used under
(ii) A qualifying community banking organization's allowances for loan and lease losses as reported in the bank's Consolidated Report of Condition and Income (Call Report); or
(2) For all other banks:
(i) A bank's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable (or comparable capital guidelines of the appropriate Federal banking agency), as reported in the bank's Call Report; plus
(ii) The balance of a bank's allowances for loan and lease losses not included in the bank's tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (a)(2)(i) of this section, as reported in the bank's Call Report.
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PART 3--CAPITAL ADEQUACY STANDARDS
3. The authority citation for part 3 continues to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).
4. Section 3.2 is amended by removing the first definition of "Non-significant investment in the capital of an unconsolidated financial institution".
5. Section 3.10 is amended by revising paragraph (a) to read as follows:
(a) Minimum capital requirements. (1) A national bank or Federal savings association must maintain the following minimum capital ratios:
(i) A common equity tier 1 capital ratio of 4.5 percent.
(ii) A tier 1 capital ratio of 6 percent.
(iii) A total capital ratio of 8 percent.
(iv) A leverage ratio of 4 percent.
(v) For advanced approaches national banks or Federal savings associations or, for Category III OCC-regulated institutions, a supplementary leverage ratio of 3 percent.
(vi) For Federal savings associations, a tangible capital ratio of 1.5 percent.
(2) A qualifying community banking organization (as defined in
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6. Add section 3.12 to read as follows:
(a) Community bank leverage ratio framework. (1) Notwithstanding any other provision in this part, a qualifying community banking organization that has made an election to use the community bank leverage ratio framework under paragraph (a)(3) of this section shall be considered to have met the minimum capital requirements under
(2) For purposes of this section, a qualifying community banking organization means a national bank or Federal savings association that is not an advanced approaches national bank or Federal savings association and that satisfies all of the following criteria:
(i) Has a leverage ratio of greater than 9 percent;
(ii) Has total consolidated assets of less than
(iii) Has off-balance sheet exposures of 25 percent or less of its total consolidated assets as of the end of the most recent calendar quarter, calculated as the sum of the notional amounts of the exposures listed in paragraphs (a)(2)(iii)(A) through (I) of this section, divided by total consolidated assets, each as of the end of the most recent calendar quarter:
(A) The unused portion of commitments (except for unconditionally cancellable commitments);
(B) Self-liquidating, trade-related contingent items that arise from the movement of goods;
(C) Transaction-related contingent items, including performance bonds, bid bonds, warranties, and performance standby letters of credit;
(D) Sold credit protection through
(1) Guarantees; and
(2) Credit derivatives;
(E) Credit-enhancing representations and warranties;
(F) Securities lent and borrowed, calculated in accordance with the reporting instructions to the Call Report;
(G) Financial standby letters of credit;
(H) Forward agreements that are not derivative contracts; and
(I) Off-balance sheet securitization exposures; and
(iv) Has total trading assets plus trading liabilities, calculated in accordance with the reporting instructions to the Call Report of 5 percent or less of the national bank's or Federal savings association's total consolidated assets, each as of the end of the most recent calendar quarter.
(3)(i) A qualifying community banking organization may elect to use the community bank leverage ratio framework if it makes an opt-in election under this paragraph (a)(3).
(ii) For purposes of this paragraph (a)(3), a qualifying community banking organization makes an election to use the community bank leverage ratio framework by completing the applicable reporting requirements of its Call Report.
(iii)(A) A qualifying community banking organization that has elected to use the community bank leverage ratio framework may opt out of the community bank leverage ratio framework by completing the applicable risk-based and leverage ratio reporting requirements necessary to demonstrate compliance with
(B) A qualifying community banking organization that opts out of the community bank leverage ratio framework pursuant to paragraph (a)(3)(iii)(A) of this section must comply with
(b) Calculation of the leverage ratio. A qualifying community banking organization's leverage ratio is calculated in accordance with
(1) Make adjustments and deductions from tier 2 capital for purposes of
(2) Calculate and deduct from tier 1 capital an amount resulting from insufficient tier 2 capital under
(c) Treatment when ceasing to meet the qualifying community banking organization requirements. (1) Except as provided in paragraphs (c)(5) and (6) of this section, if a national bank or Federal savings association ceases to meet the definition of a qualifying community banking organization, the national bank or Federal savings association has two reporting periods under its Call Report (grace period) to either satisfy the requirements to be a qualifying community banking organization or to comply with
(2) The grace period begins as of the end of the calendar quarter in which the national bank or Federal savings association ceases to satisfy the criteria to be a qualifying community banking organization provided in paragraph (a)(2) of this section. The grace period ends on the last day of the second consecutive calendar quarter following the beginning of the grace period.
(3) During the grace period, the national bank or Federal savings association continues to be treated as a qualifying community banking organization for the purpose of this part and must continue calculating and reporting its leverage ratio under this section unless the national bank or Federal savings association has opted out of using the community bank leverage ratio framework under paragraph (a)(3) of this section.
(4) During the grace period, the qualifying community banking organization continues to be considered to have met the minimum capital requirements under
(5) Notwithstanding paragraphs (c)(1) through (4) of this section, a national bank or Federal savings association that no longer meets the definition of a qualifying community banking organization as a result of a merger or acquisition has no grace period and immediately ceases to be a qualifying community banking organization. Such a national bank or Federal savings association must comply with the minimum capital requirements under
(6) Notwithstanding paragraphs (c)(1) through (4) of this section, a national bank or Federal savings association that has a leverage ratio of 8 percent or less does not have a grace period and must comply with the minimum capital requirements under
7. Section 3.22 is amended by revising paragraph (f) to read as follows:
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(f) Insufficient amounts of a specific regulatory capital component to effect deductions. Under the corresponding deduction approach, if a national bank or Federal savings association does not have a sufficient amount of a specific component of capital to effect the required deduction after completing the deductions required under paragraph (d) of this section, the national bank or Federal savings association must deduct the shortfall from the next higher (that is, more subordinated) component of regulatory capital. Notwithstanding any other provision of this section, a qualifying community banking organization (as defined in
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PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES
8. The authority citation for part 5 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24a, 93a, 215a-2, 215a-3, 481, 1462a, 1463, 1464,
9. Section 5.3 is amended by revising paragraph (e) to read as follows:
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(e) Capital and surplus means:
(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as used under
(ii) A qualifying community banking organization's allowances for loan and lease losses or allowance for credit losses, as applicable, as reported in the national bank's or Federal savings association's Consolidated Report of Condition and Income (Call Report); or
(2) For all other national banks and Federal savings associations:
(i) A national bank's or Federal savings association's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable, as reported in the bank's or savings association's Consolidated Reports of Condition and Income (Call Reports) filed under 12 U.S.C. 161 or 12 U.S.C. 1464(v), respectively; plus
(ii) The balance of the national bank's or Federal savings association's allowances for loan and lease losses not included in the institution's tier 2 capital, for purposes of the calculation of risk-based capital reported in the institution's Call Reports, described in paragraph (e)(2)(i) of this section.
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10. Section 5.37 is amended by revising paragraph (c)(3) to read as follows:
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(c) * * *
(3) Capital and surplus means:
(i) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(A) A qualifying community banking organization's tier 1 capital, as used under
(B) A qualifying community banking organization's allowances for loan and lease losses or allowance for credit losses, as applicable, as reported in the national bank's or Federal savings association's Call Report; or
(ii) For all other national banks and Federal savings associations:
(A) A national bank's or Federal savings association's tier 1 and tier 2 capital calculated under part 3 of this chapter, as applicable, as reported in the national bank's or Federal savings association's Consolidated Reports of Condition and Income (Call Reports) filed under 12 U.S.C. 161 or 12 U.S.C. 1464(v), respectively; plus
(B) The balance of a national bank's or Federal savings association's allowances for loan and lease losses not included in the bank's or savings association's tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (c)(3)(ii)(A) of this section, as reported in the national bank's or Federal savings association's Call Reports filed under 12 U.S.C. 161 or 1464(v), respectively.
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11. Section 5.58 is amended by revising paragraph (h)(2) to read as follows:
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(h) * * *
(2) The Federal savings association is not investing more than 10 percent of its total capital (or, in the case of a Federal savings association that is a qualifying community banking organization that has elected to use the community bank leverage ratio framework, 10 percent of its tier 1 capital, as used under
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PART 6--PROMPT CORRECTIVE ACTION
12. The authority citation for part 6 continues to read as follows:
Authority: 12 U.S.C. 93a, 1831o, 5412(b)(2)(B).
13. Section 6.4 is amended by:
a. Revising the section heading;
b. Removing paragraph (b);
c. Redesignating paragraph (c) as paragraph (b);
d. Revising newly designated paragraph (b) introductory text and paragraph (b)(1); and
e. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d), respectively.
The revisions read as set forth below.
(a) Capital measures. (1) For purposes of section 38 of the FDI Act and this part, the relevant capital measures shall be:
(i) Total Risk-Based Capital Measure: the total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: the tier 1 risk-based capital ratio;
(iii) Common Equity Tier 1 Capital Measure: The common equity tier 1 risk-based capital ratio;
(iv) The Leverage Measure:
(A) The leverage ratio; and
(B) With respect to an advanced approaches national bank or advanced approaches Federal savings association, on
(2) For a qualifying community banking organization (as defined in
(b) Capital categories. For purposes of section 38 of the FDI Act and this part, a national bank or Federal savings association shall be deemed to be:
(1)(i) Well capitalized if:
(A) Total Risk-Based Capital Measure: The national bank or Federal savings association has a total risk-based capital ratio of 10.0 percent or greater;
(B) Tier 1 Risk-Based Capital Measure: The national bank or Federal savings association has a tier 1 risk-based capital ratio of 8.0 percent or greater;
(C) Common Equity Tier 1 Capital Measure: The national bank or Federal savings association has a common equity tier 1 risk-based capital ratio of 6.5 percent or greater;
(D) Leverage Measure:
(1) The national bank or Federal savings association has a leverage ratio of 5.0 percent or greater; and
(2) With respect to a national bank or Federal savings association that is a subsidiary of a
(E) The national bank or Federal savings association is not subject to any written agreement, order or capital directive, or prompt corrective action directive issued by the OCC pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(ii) Qualifying community banking organization: A qualifying community banking organization, as defined under
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PART 23--LEASING
14. The authority citation for part 23 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 24(Seventh), 24(Tenth), and 93a.
15. Section 23.2 is amended by revising paragraph (b) to read as follows:
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(b) Capital and surplus means:
(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as used under
(ii) A qualifying community banking organization's allowances for loan and lease losses or allowance for credit losses, as applicable, as reported in the national bank's Call Report; or
(2) For all other national banks:
(i) A bank's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable, as reported in the bank's Consolidated Reports of Condition and Income (Call Report) filed under 12 U.S.C. 161; plus
(ii) The balance of a bank's allowances for loan and lease losses not included in the bank's Tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (b)(2)(i) of this section, as reported in the bank's Consolidated Report of Condition and Income filed under 12 U.S.C. 161.
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PART 24--COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS
16. The authority citation for part 24 continues to read as follows:
Authority: 12 U.S.C. 24(Eleventh), 93a, 481 and 1818.
17. Section 24.2 is amended by revising paragraph (b) to read as follows:
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(b) Capital and surplus means:
(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as used under
(ii) A qualifying community banking organization's allowances for loan and lease losses or allowance for credit losses, as applicable, as reported in the national bank's Call Report; or
(2) For all other national banks:
(i) A bank's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable, as reported in the bank's Consolidated Reports of Condition and Income (Call Report) as filed under 12 U.S.C. 161; plus
(ii) The balance of a bank's allowances for loan and lease losses not included in the bank's tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (b)(2)(i) of this section, as reported in the bank's Call Report as filed under 12 U.S.C. 161.
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PART 32--LENDING LIMITS
18. The authority citation for part 32 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 12 U.S.C. 84, 93a, 1462a, 1463, 1464(u), 5412(b)(2)(B), and 15 U.S.C. 1639h.
19. Section 32.2 is amended by revising paragraph (c) to read as follows:
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(c) Capital and surplus means--
(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as used under
(ii) A qualifying community banking organization's allowances for loan and lease losses or allowance for credit losses, as applicable, as reported in the national bank's or Federal savings association's Call Report; or
(2) For all other national banks and Federal savings associations:
(i) A national bank's or savings association's tier 1 and tier 2 capital calculated under the risk-based capital standards applicable to the institution as reported in the bank's or savings association's Consolidated Reports of Condition and Income (Call Report); plus
(ii) The balance of a national bank's or Federal savings association's allowances for loan and lease losses not included in the bank's or savings association's tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (c)(2)(i) of this section, as reported in the national bank's or savings association's Call Report.
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PART 34--REAL ESTATE LENDING AND APPRAISALS
20. The authority citation for part 34 continues to read as follows:
Authority: 12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1462a, 1463, 1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B) and 15 U.S.C. 1639h.
21. Section 34.81 is amended by adding a definition for "Capital and surplus" in alphabetical order to read as follows:
Capital and surplus means:
(1) For qualifying community banking organizations that have elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter:
(i) A qualifying community banking organization's tier 1 capital, as used under
(ii) A qualifying community banking organization's allowances for loan and lease losses, or allowance for credit losses, as applicable, as reported in the national bank's Call Report; or
(2) For all other national banks:
(i) A bank's tier 1 and tier 2 capital calculated under the OCC's risk-based capital standards set forth in part 3 of this chapter, as applicable, as reported in the bank's Call Report; plus
(ii) The balance of a bank's allowances for loan and lease losses, or allowance for credit losses, as applicable, not included in the bank's tier 2 capital, for purposes of the calculation of risk-based capital described in paragraph (a)(2)(i) of this section, as reported in the bank's Call Report.
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PART 160--LENDING AND INVESTMENT
22. The authority citation for part 160 continues to read as follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1701j-3, 1828, 3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.
23. Section 160.3 is amended by adding a definition for "total capital" in alphabetical order to read as follows:
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Total capital means:
(1) For a qualifying community banking organization that has elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter, total capital refers to the qualifying community banking organization's tier 1 capital, as used under
(2) For all other Federal savings associations, total capital means the sum of tier 1 capital and tier 2 capital, as calculated under part 3 of this chapter.
PART 192--CONVERSIONS FROM MUTUAL TO STOCK FORM
24. The authority citation for part 192 continues to read as follows:
Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 2901, 5412(b)(2)(B); 15 U.S.C. 78c, 78l, 78m, 78n, 78w.
25. Section 192.500 is amended by adding (a)(3)(iii)to read as follows:
(a) * * *
(3) * * *
(iii) For a qualifying community banking organization that has elected to use the community bank leverage ratio framework, as set forth under the OCC's Capital Adequacy Standards at part 3 of this chapter, the term tangible capital, as it is used in this paragraph (a)(3), refers to the qualifying community banking organization's tier 1 capital, as used under
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FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, chapter II of title 12 of the Code of Federal Regulations is amended as set forth below:
PART 206--LIMITATIONS ON INTERBANK LIABILITIES (REGULATION F)
26. The authority citation for part 206 continues to read as follows:
Authority: 12 U.S.C. 371b-2.
27. Section 206.2 is amended by revising paragraph (g) to read as follows:
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(g) Total capital means the total of a bank's Tier 1 and Tier 2 capital under the risk-based capital guidelines provided by the bank's primary federal supervisor. For a qualifying community banking organization (as defined in
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28. Section 206.5 is amended by adding paragraph (a)(4) to read as follows:
(a) * * *
(4) Notwithstanding paragraphs (a)(1) through (3) of this section, a qualifying community banking organization (as defined in
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PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)
29. The authority citation for part 208 is revised to read as follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1817(a)(3), 1817(a)(12), 1818, 1820(d)(9), 1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, 5371, and 5371 note; 15 U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
30. Section 208.2 is amended by adding paragraph (d)(3) to read as follows:
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(d) * * *
(3) For a qualifying community banking organization (as defined in
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31. Section 208.43 is amended by revising paragraphs (a) and (b) to read as follows:
(a) Capital measures. (1) For purposes of section 38 of the FDI Act and this subpart, the relevant capital measures are:
(i) Total Risk-Based Capital Measure: The total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based capital ratio;
(iii) Common Equity Tier 1 Capital Measure: The common equity tier 1 risk-based capital ratio; and
(iv) Leverage Measure:
(A) The leverage ratio; and
(B) With respect to an advanced approaches bank, on
(C) With respect to any bank that is a subsidiary (as defined in
(2) For a qualifying community banking organization (as defined in
(b) Capital categories. For purposes of section 38 of the FDI Act and this subpart, a member bank is deemed to be:
(1)(i) "Well capitalized" if:
(A) Total Risk-Based Capital Measure: The bank has a total risk-based capital ratio of 10.0 percent or greater; and
(B) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-based capital ratio of 8.0 percent or greater; and
(C) Common Equity Tier 1 Capital Measure: The bank has a common equity tier 1 risk-based capital ratio of 6.5 percent or greater; and
(D) Leverage Measure:
(1) The bank has a leverage ratio of 5.0 percent or greater; and
(2) Beginning on
(E) The bank is not subject to any written agreement, order, capital directive, or prompt corrective action directive issued by the Board pursuant to section 8 of the FDI Act, the International Lending Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, or any regulation thereunder, to meet and maintain a specific capital level for any capital measure.
(ii) A qualifying community banking organization, as defined in
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PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
32. The authority citation for part 211 continues to read as follows:
Authority:12 U.S.C.
33. In part 211, remove the words "Capital Adequacy Guidelines" wherever they appear and add in their place the words "capital rule".
34. Section 211.2 is amended by revising paragraphs (b), (c), and (x) to read as follows:
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(b) Capital and surplus means, unless otherwise provided in this part:
(1) For organizations subject to the capital rule:
(i) Tier 1 and tier 2 capital included in an organization's risk-based capital (under the capital rule); and
(ii) The balance of allowance for loan and lease losses or adjusted allowance for credit losses, as applicable, not included in an organization's tier 2 capital for calculation of risk-based capital, based on the organization's most recent consolidated Report of Condition and Income.
(iii) For qualifying community banking organizations (as defined in
(2) For all other organizations, paid-in and unimpaired capital and surplus, and includes undivided profits but does not include the proceeds of capital notes or debentures.
(c) Capital rule means part 217 of this chapter.
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(x) Tier 1 capital has the same meaning as provided in
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35. Section 211.9 is amended by redesignating footnote 5 to paragraph (a) as footnote 1 to paragraph (a).
PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS OF MEMBER BANKS (REGULATION O)
36. The authority citation for part 215 continues to read as follows:
Authority: 12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468, 1817(k), 5412; and Pub. L. 102-242, 105 Stat. 2236 (1991).
37. Section 215.2 is amended by adding paragraph (i)(3) to read as follows:
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(i) * * *
(3) Notwithstanding paragraphs (i)(1) and (2) of this section, for a member bank that is a qualifying community banking organization (as defined in
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PART 217--CAPITAL ADEQUACY OF BANKING HOLDING COMPANIES, SAVINGS AND LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
38. The authority citation for part 217 is revised to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371, and 5371 note.
39. Section 217.10 is amended by revising paragraph (a) to read as follows:
(a) Minimum capital requirements. (1) A Board-regulated institution must maintain the following minimum capital ratios:
(i) A common equity tier 1 capital ratio of 4.5 percent.
(ii) A tier 1 capital ratio of 6 percent.
(iii) A total capital ratio of 8 percent.
(iv) A leverage ratio of 4 percent.
(v) For advanced approaches Board-regulated institutions or, for Category III Board-regulated institutions, a supplementary leverage ratio of 3 percent.
(2) A qualifying community banking organization (as defined in
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40. Section 217.12 is added as to read as follows:
(a) Community bank leverage ratio framework. (1) Notwithstanding any other provision in this part, a qualifying community banking organization that has made an election to use the community bank leverage ratio framework under paragraph (a)(3) of this section shall be considered to have met the minimum capital requirements under
(2) For purposes of this section, a qualifying community banking organization means a Board-regulated institution that is not an advanced approaches Board-regulated institution and that satisfies all of the following criteria:
(i) Has a leverage ratio of greater than 9 percent;
(ii) Has total consolidated assets of less than
(iii) Has off-balance sheet exposures of 25 percent or less of its total consolidated assets as of the end of the most recent calendar quarter, calculated as the sum of the notional amounts of the exposures listed in paragraphs (a)(2)(iii)(A) through (I) of this section, divided by total consolidated assets, each as of the end of the most recent calendar quarter:
(A) The unused portion of commitments (except for unconditionally cancellable commitments);
(B) Self-liquidating, trade-related contingent items that arise from the movement of goods;
(C) Transaction-related contingent items, including performance bonds, bid bonds, warranties, and performance standby letters of credit;
(D) Sold credit protection through guarantees and credit derivatives;
(E) Credit-enhancing representations and warranties;
(F) Securities lent and borrowed, calculated in accordance with the reporting instructions to the Call Report or to Form FR Y-9C, as applicable;
(G) Financial standby letters of credit;
(H) Forward agreements that are not derivative contracts; and
(I) Off-balance sheet securitization exposures; and
(iv) Has total trading assets and trading liabilities, calculated in accordance with the reporting instructions to the Call Report or to Form FR Y-9C, as applicable, of 5 percent or less of the Board-regulated institution's total consolidated assets, each as of the end of the most recent calendar quarter.
(3)(i) A qualifying community banking organization may elect to use the community bank leverage ratio framework if it makes an opt-in election under this paragraph (a)(3).
(ii) For purposes of this paragraph (a)(3), a qualifying community banking organization makes an election to use the community bank leverage ratio framework by completing the applicable reporting requirements of its Call Report or of its Form FR Y-9C, as applicable.
(iii)(A) A qualifying community banking organization that has elected to use the community bank leverage ratio framework may opt out of the community bank leverage ratio framework by completing the applicable risk-based and leverage ratio reporting requirements necessary to demonstrate compliance with
(B) A qualifying community banking organization that opts out of the community bank leverage ratio framework pursuant to paragraph (a)(3)(iii)(A) of this section must comply with
(b) Calculation of the leverage ratio. A qualifying community banking organization's leverage ratio is calculated in accordance with
(1) Make adjustments and deductions from tier 2 capital for purposes of
(2) Calculate and deduct from tier 1 capital an amount resulting from insufficient tier 2 capital under
(c) Treatment when ceasing to meet the qualifying community banking organization requirements. (1) Except as provided in paragraphs (c)(5) and (6) of this section, if an Board-regulated institution ceases to meet the definition of a qualifying community banking organization, the Board-regulated institution has two reporting periods under its Call Report or Form FR Y-9C, as applicable (grace period) either to satisfy the requirements to be a qualifying community banking organization or to comply with
(2) The grace period begins as of the end of the calendar quarter in which the Board-regulated institution ceases to satisfy the criteria to be a qualifying community banking organization provided in paragraph (a)(2) of this section. The grace period ends on the last day of the second consecutive calendar quarter following the beginning of the grace period.
(3) During the grace period, the Board-regulated institution continues to be treated as a qualifying community banking organization for the purpose of this part and must continue calculating and reporting its leverage ratio under this section unless the Board-regulated institution has opted out of using the community bank leverage ratio framework under paragraph (a)(3) of this section.
(4) During the grace period, the qualifying community banking organization continues to be considered to have met the minimum capital requirements under
(5) Notwithstanding paragraphs (c)(1) through (4) of this section, a Board-regulated institution that no longer meets the definition of a qualifying community banking organization as a result of a merger or acquisition has no grace period and immediately ceases to be a qualifying community banking organization. Such a Board-regulated institution must comply with the minimum capital requirements under
(6) Notwithstanding paragraphs (c)(1) through (4) of this section, a Board-regulated institution that has a leverage ratio of 8 percent or less does not have a grace period and must comply with the minimum capital requirements under
41. Section 217.22 is amended by revising paragraph (f) to read as follows:
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(f) Insufficient amounts of a specific regulatory capital component to effect deductions. Under the corresponding deduction approach, if a Board-regulated institution does not have a sufficient amount of a specific component of capital to effect the required deduction after completing the deductions required under paragraph (d) of this section, the Board-regulated institution must deduct the shortfall from the next higher (that is, more subordinated) component of regulatory capital. Notwithstanding any other provision of this section, a qualifying community banking organization (as defined in
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PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES (REGULATION W)
42. The authority citation for part 223 continues to read as follows:
Authority: 12 U.S.C. 371c(b)(1)(E), (b)(2)(A), and (f), 371c-1(e), 1828(j), 1468(a), and section 312(b)(2)(A) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5412).
43. Section 223.3 is amended by adding paragraph (d)(4) to read as follows:
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(d) * * *
(4) Notwithstanding paragraphs (d)(1) through (3) of this section, for a qualifying community banking organization (as defined in
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PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y)
44. The authority citation for part 225 continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
45. Section 225.2 is amended by revising paragraph (h), redesignating footnote 2 to paragraph (r)(1) as footnote 1 to paragraph (r)(1), and adding paragraph (r)(4).
The revision and addition read as follows:
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(h) Lead insured depository institution means the largest insured depository institution controlled by the bank holding company as of the quarter ending immediately prior to the proposed filing, based on a comparison of the average total risk-weighted assets controlled during the previous 12-month period be each insured depository institution subsidiary of the holding company. For purposes of this paragraph (h), for a qualifying community banking organization (as defined in
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(r) * * *
(4) Notwithstanding paragraphs (r)(1) through (3) of this section:
(i) A bank holding company that is a qualifying community banking organization (as defined in
(ii) A depository institution that is a qualifying community banking organization (as defined in
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46. Section 225.14 is amended by:
a. Redesignating footnote 3 to paragraph (a)(1)(ii) as footnote 1 to paragraph (a)(1)(ii);
b. Revising paragraphs (a)(1)(v)(A), (a)(1)(vii), and (c)(6)(i)(A) and (B); and
c. Adding paragraphs (c)(6)(iii) and (f).
The revisions and additions read as follows:
(a) * * *
(1) * * *
(v)(A) If the bank holding company is not a qualifying community banking organization (as defined in
(1) If the bank holding company has consolidated assets of
(2) If the bank holding company has consolidated assets of less than
(B) If the bank holding company is a qualifying community banking organization (as defined in
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(vii)(A) For each insured depository institution (that is not a qualifying community banking organization (as defined in
(B) For each insured depository institution that is a qualifying community banking organization (as defined in
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(c) * * *
(6) * * *
(i) * * *
(A) Limited growth. Except as provided in paragraphs (c)(6)(ii) and (iii) of this section, the sum of the aggregate risk-weighted assets to be acquired in the proposal and the aggregate risk-weighted assets acquired by the acquiring bank holding company in all other qualifying transactions does not exceed 35 percent of the consolidated risk-weighted assets of the acquiring bank holding company. For purposes paragraph (c)(6) of this section, other qualifying transactions means any transaction approved under this section or
(B) Individual size limitation. Except as provided in paragraph (c)(6)(iii) of this section, the total risk-weighted assets to be acquired do not exceed
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(iii) Qualifying community banking organizations. Paragraphs (c)(6)(i)(A) and (B) of this section shall not apply if:
(A) The acquiring bank holding company is a qualifying community banking organization (as defined in
(B) The sum of the total assets to be acquired in the proposal and the total assets acquired by the acquiring bank holding company in all other qualifying transactions does not exceed 35 percent of the average total consolidated assets (as used in
(C) The total assets to be acquired do not exceed
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(f) Qualifying community banking organizations. For purposes of this section, a qualifying community banking organization (as defined in
47. Section 225.22 is amended by adding paragraph (d)(8)(vi) to read as follows:
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(d) * * *
(8) * * *
(vi) Qualifying community banking organizations. For purposes of paragraph (d)(8)(ii) of this section, a lending company or industrial bank that is a qualifying community banking organization (as defined in
(A) Its average total consolidated assets (as used in
(B) Its total assets, if the company or industrial bank does not report such average total consolidated assets.
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48. Section 225.23 is amended by:
a. Redesignating footnote 2 to paragraph (a)(1) as footnote 1 to paragraph (a)(1);
b. Revising paragraphs (a)(1)(iii) and (c)(5)(i); and
c. Adding paragraphs (c)(5)(iii) and (e).
The revisions and additions read as follows:
(a) * * *
(1) * * *
(iii) If the proposal involves an acquisition of a going concern:
(A) If the acquiring bank holding company is not a qualifying community banking organization (as defined in
(1) If the bank holding company has consolidated assets of
(2) If the bank holding company has consolidated assets of less than
(B) If the acquiring bank holding company is a qualifying community banking organization (as defined in
(C) For each insured depository institution (that is not a qualifying community banking organization (as defined in
(D) For each insured depository institution that is a qualifying community banking organization (as defined in
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(c) * * *
(5) * * *
(i) In general--(A) Limited growth. Except as provided in paragraphs (c)(5)(ii) and (iii) of this section, the sum of aggregate risk-weighted assets to be acquired in the proposal and the aggregate risk-weighted assets acquired by the acquiring bank holding company in all other qualifying transactions does not exceed 35 percent of the consolidated risk-weighted assets of the acquiring bank holding company. For purposes of paragraph (c)(5) of this section, "other qualifying transactions" means any transaction approved under this section or
(B) Consideration paid. Except as provided in paragraph (c)(5)(iii) of this section, the gross consideration to be paid by the acquiring bank holding company in the proposal does not exceed 15 percent of the consolidated Tier 1 capital of the acquiring bank holding company; and
(C) Individual size limitation. Except as provided in paragraph (c)(5)(iii) of this section, the total risk-weighted assets to be acquired do not exceed
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(iii) Qualifying community banking organizations. Paragraphs (c)(5)(i)(A) through (C) of this section shall not apply if:
(A) The acquiring bank holding company is a qualifying community banking organization (as defined in
(B) The sum of the total assets to be acquired in the proposal and the total assets acquired by the acquiring bank holding company in all other qualifying transactions does not exceed 35 percent of the average total consolidated assets (as used in
(C) The gross consideration to be paid by the acquiring bank holding company in the proposal does not exceed 15 percent of the Tier 1 capital (as defined in
(D) The total assets to be acquired do not exceed
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(e) Qualifying community banking organizations. For purposes of this section, a qualifying community banking organization (as defined in
49. Section 225.24 is amended by revising paragraphs (a)(2)(iv)(B) and (a)(2)(vi) to read as follows:
(a) * * *
(2) * * *
(iv) * * *
(B) Consolidated pro forma risk-based capital and leverage ratio calculations for the acquiring bank holding company as of the most recent quarter (or, in the case of a qualifying community banking organization (as defined in
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(vi)(A) For each insured depository institution (that is not a qualifying community banking organization (as defined in
(B) For each insured depository institution that is a qualifying community banking organization (as defined in
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50. Section 225.87 is amended by adding paragraph (b)(4)(iv) to read as follows:
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(b) * * *
(4) * * *
(iv) For purposes of this paragraph (b)(4), a financial holding company that is a qualifying community banking organization (as defined in
51. Section 225.174 is amended by adding paragraph (d) to read as follows:
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(d) Qualifying community banking organizations. For purposes of this section, a financial holding company that is a qualifying community banking organization (as defined in
52. Section 225.175 is amended by adding paragraph (c)(3) to read as follows:
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(c) * * *
(3) Qualifying community banking organizations. For purposes of this paragraph (c), a financial holding company that is a qualifying community banking organization (as defined in
PART 238--SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)
53. The authority citation for part 238 continues to read as follows:
Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972; 15 U.S.C. 78l.
54. Section 238.53 is amended by revising paragraphs (c)(2)(iii)(B) and (c)(2)(v) to read as follows:
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(c) * * *
(2) * * *
(iii) * * *
(B) Consolidated pro forma risk-based capital and leverage ratio calculations for the acquiring savings and loan holding company as of the most recent quarter (or, in the case of a qualifying community banking organization (as defined in
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(v)(A) For each insured depository institution (that is not a qualifying community banking organization (as defined in
(B) For each insured depository institution that is a qualifying community banking organization (as defined in
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PART 251--CONCENTRATION LIMIT (REGULATION XX)
55. The authority citation for part 251 continues to read as follows:
Authority:12 U.S.C. 1818, 1844(b), 1852, 3101 et seq.
56. Section 251.3 is amended by revising paragraph (c)(2) and adding paragraph (c)(3) to read as follows:
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(c) * * *
(2)
(3) Qualifying community banking organizations. For a
(i) Average total consolidated assets (as used in
(ii) The company's tier 1 capital (as defined in
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12 CFR Chapter III
Authority and Issuance
For the reasons stated in the preamble, the
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
57. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233, 105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242, 105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160, 2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386, as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note); Pub. L. 115-174
58. Section 324.10 is amended by revising paragraph (a) to read as follows:
(a) Minimum capital requirements. (1) An FDIC-supervised institution must maintain the following minimum capital ratios:
(i) A common equity tier 1 capital ratio of 4.5 percent.
(ii) A tier 1 capital ratio of 6 percent.
(iii) A total capital ratio of 8 percent.
(iv) A leverage ratio of 4 percent.
(v) For advanced approaches
(vi) For state savings associations, a tangible capital ratio of 1.5 percent.
(2) A qualifying community banking organization (as defined in
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59. Section 324.12 is added to read as follows:
(a) Community bank leverage ratio framework. (1) Notwithstanding any other provision in this part, a qualifying community banking organization that has made an election to use the community bank leverage ratio framework under paragraph (a)(3) of this section shall be considered to have met the minimum capital requirements under
(2) For purposes of this section, a qualifying community banking organization means an
(i) Has a leverage ratio of greater than 9 percent;
(ii) Has total consolidated assets of less than
(iii) Has off-balance sheet exposures of 25 percent or less of its total consolidated assets as of the end of the most recent calendar quarter, calculated as the sum of the notional amounts of the exposures listed in paragraphs (a)(2)(iii)(A) through (I) of this section, divided by total consolidated assets, each as of the end of the most recent calendar quarter:
(A) The unused portion of commitments (except for unconditionally cancellable commitments);
(B) Self-liquidating, trade-related contingent items that arise from the movement of goods;
(C) Transaction-related contingent items, including performance bonds, bid bonds, warranties, and performance standby letters of credit;
(D) Sold credit protection through guarantees and credit derivatives;
(E) Credit-enhancing representations and warranties;
(F) Securities lent and borrowed, calculated in accordance with the reporting instructions to the Call Report;
(G) Financial standby letters of credit;
(H) Forward agreements that are not derivative contracts; and
(I) Off-balance sheet securitization exposures; and
(iv) Has total trading assets and trading liabilities, calculated in accordance with the reporting instructions to the Call Report of 5 percent or less of the
(3)(i) A qualifying community banking organization may elect to use the community bank leverage ratio framework if it makes an opt-in election under this paragraph (a)(3).
(ii) For purposes of this paragraph (a)(3), a qualifying community banking organization makes an election to use the community bank leverage ratio framework by completing the applicable reporting requirements of its Call Report.
(iii)(A) A qualifying community banking organization that has elected to use the community bank leverage ratio framework may opt out of the community bank leverage ratio framework by completing the applicable risk-based and leverage ratio reporting requirements necessary to demonstrate compliance with
(B) A qualifying community banking organization that opts out of the community bank leverage ratio framework pursuant to paragraph (a)(3)(iii)(A) of this section must comply with
(b) Calculation of the leverage ratio. A qualifying community banking organization's leverage ratio is calculated in accordance to
(1) Make adjustments and deductions from tier 2 capital for purposes of
(2) Calculate and deduct from tier 1 capital an amount resulting from insufficient tier 2 capital under
(c) Treatment when ceasing to meet the qualifying community banking organization requirements. (1) Except as provided in paragraphs (c)(5) and (6) of this section, if an
(2) The grace period begins as of the end of the calendar quarter in which the
(3) During the grace period, the
(4) During the grace period, the qualifying community banking organization continues to be considered to have met the minimum capital requirements under
(5) Notwithstanding paragraphs (c)(1) through (4) of this section, an
(6) Notwithstanding paragraphs (c)(1) through (4) of this section, an
60. Section 324.22 is amended by revising paragraph (f) to read as follows:
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(f) Insufficient amounts of a specific regulatory capital component to effect deductions. Under the corresponding deduction approach, if an
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61. Section 324.403 is amended by revising paragraphs (a) and (b) to read as follows:
(a) Capital measures. (1) For purposes of section 38 of the FDI Act and this subpart H, the relevant capital measures are:
(i) Total Risk-Based Capital Measure: The total risk-based capital ratio;
(ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based capital ratio;
(iii) Common Equity Tier 1 Capital Measure: The common equity tier 1 risk-based capital ratio; and
(iv) Leverage Measure:
(A) The leverage ratio; and
(B) With respect to an advanced approaches
(2) For a qualifying community banking organization (as defined under
(b) Capital categories. For purposes of section 38 of the FDI Act and this subpart, an
(1)(i) "Well capitalized" if:
(A) Total Risk-Based Capital Measure: The
(B) Tier 1 Risk-Based Capital Measure: The
(C) Common Equity Tier 1 Capital Measure: The
(D) The
(E) The
(ii) Beginning on
(iii) A qualifying community banking organization, as defined under
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PART 337--UNSAFE AND UNSOUND BANKING PRACTICES
62. The authority citation for part 337 continues to read as follows:
Authority: 12 U.S.C. 375a(4), 375b, 1463(a)(1), 1816, 1818(a), 1818(b), 1819, 1820(d), 1828(j)(2), 1831, 1831f, 5412.
63. Section 337.3 is amended by redesignating footnote 3 to paragraph (b) as footnote 1 and revising it to read as follows:
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(b) * * *
1 For the purposes of
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PART 365--REAL ESTATE LENDING STANDARDS
64. The authority citation for part 365 continues to read as follows:
Authority: 12 U.S.C. 1828(o) and 5101 et seq.
65. Appendix A to subpart A of part 365 is amended:
a. In the first paragraph of the appendix, redesignating footnote 5 as footnote 1;
b. Following the heading "Supervisory Loan-to-Value-Limits" in the table, by redesignating footnotes 1 and 2 as footnotes 2 and 3; and
c. Following the heading "Loans in Excess of the Supervisory Loan-to-Value-Limits," redesignating the footnote 2 as footnote 4 and revising it.
The revision reads as follows:
Appendix A to Subpart A of Part 365--Interagency Guidelines for Real Estate Lending Policies
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Loans in Excess of the Supervisory Loan-to-Value-Limits
4 For state non-member banks and state savings associations, "total capital" refers to that term described in
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PART 390--REGULATIONS TRANSFERRED FROM THE
66. The authority citation for part 390 continues to read as follows:
Authority:12 U.S.C. 1819.
67. Section 390.344 is amended by revising the definition of "Capital" to read as follows:
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Capital means total capital, as computed under part 324 of this chapter. For a qualifying community banking organization (as defined in
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Dated:
Comptroller of the Currency.
By order of the
Deputy Secretary of the Board.
By order of the Board of Directors.
Dated at
Executive Secretary.
[FR Doc. 2019-23472 Filed 11-12-19;
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