Simplifying Capital For Community Banks

 Community bankers around the country had something extra to be thankful for this Thanksgiving: a joint notice of proposed rulemaking simplifying capital compliance. Under this proposal, which implements Section 201 of EGRRCPA,¹ banks and their holding companies with total assets of less than $10 billion could generally opt out of the Basel III capital requirements if they have a "community bank leverage ratio" (CBLR) greater than 9 percent. Banks that opt out and maintain a CBLR greater than 9 percent would be considered well capitalized for purposes of Prompt Correction Action (PCA) requirements. Although the regulators have preliminarily set the threshold higher than many banks would have liked, the CBLR is still lower than the 9.95 percent some regulators have suggested at recent banker conferences or the industry average capitalization. We suspect holding companies with between $3 billion and $10 billion in total consolidated assets (and their subsidiary banks)