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CBLR Proposal Should Use Tier 1 Capital

CSBS this week further explained to the FDIC why the proposed interagency community bank leverage ratio (CBLR) framework rule needs changes to how it measures capital adequacy if it is to be effective.  

Section 201 of the Economic Growth Regulatory Relief and Consumer Protection Act directs the FDIC, OCC and Federal Reserve to develop a CBLR to provide qualifying banks with regulatory relief. The law specifically requires the federal agencies to consult with state regulators in the CBLR implementation. In today’s comment letter, CSBS addressed concerns about the FDIC’s recent proposal to amend the deposit insurance assessment regulations to apply the CBLR Framework to the deposit insurance assessment system. 

CSBS has been concerned that the CBLR, while intended to provide relief to community banks, could actually create more regulatory burdens. In the letter sent today, CSBS explained that relying on the current Tier 1 capital rather than tangible equity would encourage community banks to use the CBLR and avoid the need to reform existing regulator frameworks. The Tier 1 leverage ratio would allow a community bank that falls below the CBLR to more easily begin reporting capital ratios under the current risk-based capital rules. 

The letter bolsters comments CSBS made in February that recommended eliminating the proposed new prompt corrective action framework for banks that use the new CBLR. 

This is the third letter CSBS has provided on the CBLR. Earlier this month, CSBS made additional recommendations to remove potential burdensome requirements in the CBLR.  

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