Community Bank Leverage Ratio Proposal Issued
I am not much of a gambler but even I would have bet on where this newly, proposed ratio was going to land. On Tuesday, as part of the Economic Growth, Regulatory Relief and Consumer Protection Act (S.2155), a proposal was issued that establishes a 9% leverage ratio for a “qualifying community banking organization” to remain well capitalized. The range established by S.2155 was between 8-10%. Like I said, I would have placed this bet and won.
There are certainly positives such as the simplification of call report preparation related to Basel and risk-based capital ratios. Organizations that choose to report (not required) under this proposed ratio will go “back to the future” in regulatory capital reporting and requirements. When I started in banking in the early 80s we worried about one ratio and it was this one, leverage. The proposal provides for a grace period to reestablish capital if a bank falls below the 9%.
The piece of this proposal that is troublesome is the 9%. Current Prompt Corrective Act rules establish a 5% leverage ratio to be well-capitalized and also 7%, which includes the conservation buffer. Even though we knew 8% was the lowest end of the range on it still feels like some capital was left “on the table” in this proposal.
There is a 60 day comment period on this proposal and I encourage you to contact your banking associations and/or comment directly.
Neil is a principal in our banking practice. He has more than 25 years of experience in the banking industry, which includes nine years in the private sector. His private industry experiences range from cashier to chief financial officer; however, his strengths are in both the operations and lending areas of community banks. Neil has led some of the firm’s largest bank external and internal audit and FDICIA engagements. Neil also assists clients with other projects such as merger and acquisition transactions and capital planning.
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