Capital Calculations for Community Banks Will Get Easier

Good news for community banks: federal regulators have finalized a rule to simplify their capital requirements. The new rule allows these banks to adopt a simple leverage ratio to measure capital adequacy, instead of having to calculate and report risk-based capital ratios.

Regulators estimate that about 85 percent of community banks will qualify for this simpler calculation. To qualify, a bank must have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9 percent. The leverage ratio is equal to the bank’s Tier 1 capital divided by its average total consolidated assets.

Banks can begin using the new framework in their March 31, 2020, Call Report or Form FR Y-9C. They can opt into or out of the framework in later call reports or forms.

The OCC, FDIC and Federal Reserve have prepared a compliance guide to accompany this new rule. For more information, contact us and we can assist you with any questions you may have regarding this calculation or any other bank compliance issue.