Regulators finalize rule changes to help banks weather pandemic
WASHINGTON — Banking regulators finalized three rules Wednesday that have been in place on an interim basis since earlier this year to address the coronavirus pandemic.
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency together approved final rules codifying temporary changes to the community bank leverage ratio, automatic restrictions on capital distributions and a measure delaying a new accounting standard for expected credit losses.
Congress in the $2 trillion Coronavirus Aid, Relief and Economic Security Act temporarily lowered the community bank leverage ratio — a simplified measure that institutions with assets of less than $10 billion can use instead of more complex capital requirements — by 1 percentage point to 8%.
To further lighten the load, the regulatory agencies said that community banks choosing to use the CBLR would only need to raise it to 8.5% in 2021. The 9% minimum would be reinstated the following year starting Jan. 1.
Regulators also finalized an interim rule issued in March that placed automatic restrictions on bank capital distributions, including share repurchases, dividend payments and bonus payments. The rule is intended to make those limitations more gradual. That rule will go into effect Jan. 1.
Martin Gruenberg, an FDIC board member and former chairman of the agency, voted against finalizing that rule, arguing in a statement that it "puts the banking system at greater risk."
"This is a misconceived rulemaking that allows a banking organization to continue to make capital distributions, such as dividends, that would weaken the capital position of the bank during a period of extraordinary economic stress," he said.
The agencies additionally finalized an interim rule from March that will allow financial institutions to push back the implementation of the current expected credit losses, or CECL, accounting standard for two years, followed by a three-year transition period. The final rule will apply to all financial institutions, unlike the interim rule, which only applied to banks that were required to convert to CECL this year.
The CECL delay will take effect once it is published in the Federal Register, the agencies said in a release.