CARES Act Temporary Changes to Community Bank Leverage Ratio
Section 4012 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) directs the federal banking agencies to issue an interim final rule that provides that the community bank leverage ratio will be 8% and that a qualifying community banking organization whose leverage ratio falls below 8% will have a reasonable grace period to satisfy that requirement. The previously established community bank leverage ratio was 9%.
In accordance with section 4012 of the CARES Act, on April 6, 2020, the federal banking agencies issued two interim final rules to modify the community bank leverage ratio. Beginning in the second quarter of 2020 and until the end of 2020, a banking organization that has a leverage ratio of 8% or greater and meets certain other criteria may elect to use the community bank leverage ratio framework. The ratio will increase to 8.5% in 2021 and return to 9% on January 2, 2022.
The interim final rule also establishes a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls below 8%, so long as it maintains a leverage ratio of 7% or more.