ICBA, state groups support proposal to recalibrate CBLR

ICBA and 45 state banking associations said they strongly report the federal banking agencies’ proposal to recalibrate the Community Bank Leverage Ratio and adjust the grace period.

Details: In letters to the OCC, FDIC, and Federal Reserve, ICBA and the state associations urged the agencies to act quickly to finalize the rulemaking and said:

• Setting the CBLR requirement at 8% will provide additional room on the balance sheets of community banks that opt into the framework, allowing them to expand lending capacity and power America’s Main Street economies.

• These changes will also allow more community banks the opportunity to opt into the framework and benefit from the regulatory relief of appropriately tailored reporting requirements.

Mortgage-servicing Cap: ICBA also suggested eliminating the mortgage servicing asset cap for community banking organizations that opt into the CBLR framework, which would provide meaningful regulatory relief for community banks with strong and well-managed mortgage servicing platforms.

Proposal: The federal banking regulators in November issued a proposed rule to reduce the CBLR from 9% to 8%, as long advocated by ICBA. The proposal would also extend the length of time that covered institutions can remain in the CBLR framework while not meeting all of the framework’s qualifying criteria from two quarters to four quarters, subject to a limit of eight quarters in any five-year period.

Background: The CBLR simplifies regulatory capital requirements for community banks that choose to adopt it, replacing risk-based capital ratios with a relatively simple leverage ratio. The CBLR is available for eligible banks with assets below $10 billion, and approximately 40% of qualifying banks have opted in to the CBLR framework.

ICBA View: ICBA has advocated setting the CBLR at 8% since the ratio was proposed and adopted in 2019, and it sought an extension of pandemic-era CBLR relief that expired at the end of 2021. ICBA also supports Rep. Young Kim’s (R-Calif.) House Financial Services Committee-passed Community Bank LIFT Act (H.R. 5276), which would lower the CBLR to a range of 6%-8% and authorize its use by banks with up to $15 billion in assets.

ICBA Advocacy:

• In a national news release, ICBA in November said reducing the CBLR will provide community banks additional room on their balance sheets to meet the credit needs of local communities.

• ICBA last year advocated lowering the CBLR to 8% in letters to the federal banking regulators and Federal Reserve.