On August 26, the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Federal Reserve), and FDIC issued three final rules that are identical or substantially similar to interim final rules issued earlier this year in response to the effects of the COVID-19 pandemic to enhance banking organizations’ flexibility and encourage lending. One final rule, effective as of October 1, 2020, temporarily lowers the community bank leverage ratio threshold to 8% for the rest of 2020, to 8.5% for 2021, and restores it to 9% for 2022. Another final rule, effective January 1, 2021, revises the definition of “eligible retained income” under the agencies’ capital rule in order to make automatic limitations on capital distributions more gradual if a banking organization’s capital levels decline below certain levels. The last final rule, effective immediately upon publication in the Federal Register, allows eligible banking organizations to mitigate the effects in their regulatory capital of the “current expected credit loss” (CECL) accounting standard for two years, followed by a three-year transition period. In a change from the relevant interim rule, this last final rule expands the pool of eligible institutions to include any institution adopting CECL in 2020.
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