[Federal Register Volume 84, Number 27 (Friday, February 8, 2019)]
[Proposed Rules]
[Pages 3062-3094]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27002]



[[Page 3061]]

Vol. 84

Friday,

No. 27

February 8, 2019

Part IV





Department of the Treasury





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Office of the Comptroller of the Currency





12 CFR Parts 1, 3, 5, et al.





Federal Reserve System





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12 CFR Parts 206, 208, 211, et al.





Federal Deposit Insurance Corporation





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12 CFR parts 303, 324, 337, et al.





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Regulatory Capital Rule: Capital Simplification for Qualifying 
Community Banking Organizations; Proposed Rule

  Federal Register / Vol. 84 , No. 27 / Friday, February 8, 2019 / 
Proposed Rules  

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 1, 3, 5, 6, 23, 24, 32, 34, 160, and 192

[Docket ID OCC-2018-0040]
RIN 1557-AE59

FEDERAL RESERVE SYSTEM

12 CFR Parts 206, 208, 211, 215, 217, 223, 225, 238, and 251

[Regulation Q; Docket No. R-1638]
RIN 7100-AF29

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303, 324, 337, 347, 362, 365, and 390

RIN 3064-AE91


Regulatory Capital Rule: Capital Simplification for Qualifying 
Community Banking Organizations

AGENCY: Office of the Comptroller of the Currency, Treasury; the Board 
of Governors of the Federal Reserve System; and the Federal Deposit 
Insurance Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), the Board 
of Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) are inviting public comment on a 
notice of proposed rulemaking (proposal) that would provide for a 
simple measure of capital adequacy for certain community banking 
organizations, consistent with section 201 of the Economic Growth, 
Regulatory Relief, and Consumer Protection Act. Under the proposal, 
most depository institutions and depository institution holding 
companies that have less than $10 billion in total consolidated assets, 
that meet risk-based qualifying criteria, and that have a community 
bank leverage ratio (as defined in the proposal) of greater than 9 
percent would be eligible to opt into a community bank leverage ratio 
framework. Such banking organizations that elect to use the community 
bank leverage ratio and that maintain a community bank leverage ratio 
of greater than 9 percent would not be subject to other risk-based and 
leverage capital requirements and would be considered to have met the 
well capitalized ratio requirements for purposes of section 38 of the 
Federal Deposit Insurance Act and regulations implementing that 
section, as applicable, and the generally applicable capital 
requirements under the agencies' capital rule.

DATES: Comments must be received by April 9, 2019.

ADDRESSES: Comments should be directed to:
    OCC: You may submit comments to the OCC by any of the methods set 
forth below. Commenters are encouraged to submit comments through the 
Federal eRulemaking Portal or email, if possible. Please use the title 
``Regulatory Capital Rule: Capital Simplification for Qualifying 
Community Banking Organizations'' to facilitate the organization and 
distribution of the comments. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0040'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2018-0040'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish the comments on 
the Regulations.gov website without change, including any business or 
personal information provided such as name and address information, 
email addresses, or phone numbers. Comments received, including 
attachments and other supporting materials, are part of the public 
record and subject to public disclosure. Do not include any information 
in your comment or supporting materials that you consider confidential 
or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0040'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.
     Viewing Comments Personally: You may personally inspect 
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 649-6700 or, for 
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect comments.
    Board: You may submit comments, identified by Docket No. R-1638, by 
any of the following methods:
     Agency website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. All public comments are available from the 
Board's website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper form in Room 3515, 1801 K Street NW (between 18th and 19th 
Street NW), Washington, DC 20006 between 9:00 a.m. and 5:00 p.m. on 
weekdays.
    FDIC: You may submit comments, identified by RIN 3064-AE91 by any 
of the following methods:
     Agency website: https://www.FDIC.gov/regulations/laws/federal. Follow instructions for submitting comments on the Agency 
website.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal

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ESS, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.
     Hand Delivered/Courier: Comments may be hand-delivered to 
the guard station at the rear of the 550 17th Street NW, building 
(located on F Street) on business days between 7:00 a.m. and 5:00 p.m.
     Email: [email protected]. Include the RIN 3064-AE91 on the 
subject line of the message.
     Public Inspection: All comments received must include the 
agency name and RIN 3064-AE91 for this rulemaking. All comments 
received will be posted without change to https://www.fdic.gov/regulations/laws/federal/, including any personal information provided. 
Paper copies of public comments may be ordered from the FDIC Public 
Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, 
VA 22226 by telephone at (877) 275-3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Christine A. Smith, Risk Analyst; or David Elkes, Risk Expert; 
or JungSup Kim, Risk Specialist, Capital Policy (202-649-6370); or Carl 
Kaminski, Special Counsel; or Daniel Perez, Attorney; or Rima Kundnani, 
Attorney, Chief Counsel's Office, (202) 649-5490, for persons who are 
deaf or hearing impaired, TTY, (202) 649-5597, Office of the 
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
    Board: Constance M. Horsley, Deputy Associate Director, (202) 452-
5239; Juan Climent, Manager, (202) 872-7526; Sviatlana Phelan, Senior 
Supervisory Financial Analyst, (202) 912-4306; Andrew Willis, Senior 
Supervisory Financial Analyst, (202) 912-4323; Division of Supervision 
and Regulation; or Benjamin McDonough, Assistant General Counsel, (202) 
452-2036; Mark Buresh, Counsel, (202) 452-5270; or Andrew Hartlage, 
Counsel, (202) 452-6483; Legal Division, Board of Governors of the 
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. 
For the hearing impaired only, Telecommunication Device for the Deaf 
(TDD), (202) 263-4869.
    FDIC: Benedetto Bosco, Chief, Capital Policy Section, 
[email protected]; Stephanie Lorek, Senior Capital Markets Policy 
Analyst, [email protected]; Dushan Gorechan, Financial Analyst, 
[email protected]; Kyle McCormick, Financial Analyst, 
[email protected]; Capital Markets Branch, Division of Risk 
Management Supervision, (202) 898-6888; or Michael Phillips, Counsel, 
[email protected]; Catherine Wood, Counsel, [email protected]; Alexander 
Bonander, Attorney, [email protected]; Supervision Branch, Legal 
Division, Federal Deposit Insurance Corporation, 550 17th Street NW, 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Summary of the Proposal
    A. Overview of the Community Bank Leverage Ratio Framework
    B. Qualifying Community Banking Organization
    1. Total Consolidated Assets
    2. Total Off-balance Sheet Exposures
    3. Total Trading Assets and Trading Liabilities
    4. Mortgage Servicing Assets
    5. Temporary Difference Deferred Tax Assets
    6. Advanced Approaches Banking Organization
    C. CBLR Tangible Equity
    1. Minority Interests
    2. Accumulated Other Comprehensive Income
    3. Intangible Assets
    4. Deferred Tax Assets
    D. Average Total Consolidated Assets (CBLR Denominator)
    E. Calibration of the Community Bank Leverage Ratio
    F. Election to Use the Community Bank Leverage Ratio Framework
    G. Compliance with the Proposed CBLR Framework
    1. Definition of a qualifying community banking organization
    2. Treatment of a community banking organization that falls 
below the CBLR Requirement
    a. CBLR Levels for Certain PCA Categories
    b. Critically Undercapitalized Capital Category
    c. Effect of CBLR Levels on Other Regulations
    d. Alternative Approach
    H. Other Affected Regulations
    I. Deposit Insurance Assessment Regulations
    J. Illustrative Reporting Form
    K. Consultation with State Bank Supervisors
III. Regulatory Analyses
    A. Paperwork Reduction Act
    B. Regulatory Flexibility Act
    C. Plain Language
    D. OCC Unfunded Mandates Reform Act of 1995
    E. Riegle Community Development and Regulatory Improvement Act 
of 1994

I. Background

    In 2013, the Office of the Comptroller of the Currency (OCC), the 
Board of Governors of the Federal Reserve System (Board), and the 
Federal Deposit Insurance Corporation (FDIC) (collectively, the 
agencies) revised the regulatory capital rule (capital rule) to address 
weaknesses in the capital framework that became apparent in the 
financial crisis of 2007-09.\1\ The capital rule strengthened the 
capital requirements applicable to banking organizations \2\ supervised 
by the agencies by improving both the quality and quantity of 
regulatory capital and increasing risk-sensitivity. For example, the 
capital rule introduced a minimum common equity tier 1 capital 
requirement of 4.5 percent and strengthened the qualifying criteria for 
regulatory capital instruments, which had the effect of making the 
existing capital requirements more stringent.\3\ The capital rule also 
raised the minimum tier 1 risk-based capital requirement from 4 percent 
to 6 percent and, for advanced approaches banking organizations 
only,\4\ established a supplementary leverage ratio of 3 percent.\5\
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    \1\ The Board and OCC issued a joint final rule on October 11, 
2013 (78 FR 62018), and the FDIC issued a substantially identical 
interim final rule on September 10, 2013 (78 FR 55340). On April 14, 
2014 (79 FR 20754), the FDIC adopted the interim final rule as a 
final rule with no substantive changes.
    \2\ Banking organizations subject to the agencies' capital rule 
include national banks, state member banks, insured state nonmember 
banks, savings associations, and top-tier bank holding companies and 
savings and loan holding companies domiciled in the United States 
not subject to the Board's Small Bank Holding Company and Savings 
and Loan Holding Company Policy Statement (12 CFR part 225, appendix 
C), excluding certain savings and loan holding companies that are 
substantially engaged in insurance underwriting or commercial 
activities or that are estate trusts, and bank holding companies and 
savings and loan holding companies that are employee stock ownership 
plans.
    \3\ 12 CFR 3.20 (OCC); 12 CFR 217.20 (Board); 12 CFR 324.20 
(FDIC).
    \4\ A banking organization is an advanced approaches banking 
organization if it has consolidated assets of at least $250 billion 
or if it has consolidated on-balance sheet foreign exposures of at 
least $10 billion, or if it is a subsidiary of a depository 
institution, bank holding company, savings and loan holding company, 
or intermediate holding company that is an advanced approaches 
banking organization. See 12 CFR 3.100 (OCC); 12 CFR 217.100 
(Board); 12 CFR 324.100 (FDIC). The agencies are seeking comment on 
the definition of an advanced approaches banking organization. See 
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20181031a.htm
    \5\ 12 CFR 3.10(a) (OCC); 12 CFR 217.10(a) (Board); 12 CFR 
324.10(a) (FDIC).
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    Since the issuance of the capital rule in 2013, community banking 
organizations have raised concerns regarding the regulatory burden, 
complexity, and costs associated with certain aspects of the capital 
rule. In March 2017, the agencies published the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996 (EGRPRA) Joint Report to 
Congress.\6\ In

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the EGRPRA report, the agencies stated they are considering 
simplifications to the capital rule with the goal of meaningfully 
reducing regulatory burden on community banking organizations while 
maintaining safety and soundness and the quality and quantity of 
regulatory capital in the banking system. In September 2017, the 
agencies proposed simplifying certain capital requirements for all 
banking organizations, except advanced approaches banking organizations 
(simplifications proposal).\7\ In an effort to provide immediate 
relief, the agencies also extended transition provisions for certain 
regulatory capital requirements that would be affected by the 
simplifications proposal.\8\
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    \6\ See Joint Report to Congress; Economic Growth and Regulatory 
Paperwork Reduction Act (March 2017), https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf. EGRPRA, Public Law 
104-208, 110 Stat. 3009.
    \7\ 82 FR 49984 (October 27, 2017).
    \8\ 83 FR 55309 (November 21, 2017). The agencies continue to 
evaluate comments on the simplifications proposal.
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    On May 24, 2018, the Economic Growth, Regulatory Relief, and 
Consumer Protection Act (the Act) amended provisions in the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) \9\ as 
well as certain other statutes administered by the agencies.\10\ 
Section 201 of the Act, titled ``Capital Simplification for Qualifying 
Community Banks,'' directs the agencies to develop a community bank 
leverage ratio (CBLR) of not less than 8 percent and not more than 10 
percent for qualifying community banks (qualifying community banking 
organizations). The Act defines a qualifying community banking 
organization as a depository institution or depository institution 
holding company with total consolidated assets of less than $10 
billion. A qualifying community banking organization that exceeds the 
CBLR level established by the agencies is considered to have met: (i) 
The generally applicable leverage and risk-based capital requirements 
under the agencies' capital rule; (ii) the capital ratio requirements 
in order to be considered well capitalized under the agencies' prompt 
corrective action (PCA) framework (in the case of insured depository 
institutions); and (iii) any other applicable capital or leverage 
requirements. In addition, the Act directs the agencies to establish 
procedures for the treatment of qualifying community banking 
organizations that fall below the CBLR level established by the 
agencies.\11\
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    \9\ Public Law 111-203, 124 Stat. 1376.
    \10\ See Public Law 115-174, 132 Stat. 1296.
    \11\ The agencies note that under existing legal requirements 
applicable to holding companies and insured depository institutions, 
to be considered well capitalized a banking organization must 
demonstrate that it is not subject to any written agreement, order, 
capital directive, or as applicable, prompt corrective action 
directive, to meet and maintain a specific capital level for any 
capital measure. See, e.g., 12 CFR 225.2. The same legal 
requirements would continue to apply under the CBLR framework.
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    Section 201 of the Act defines the CBLR as the ratio of a 
qualifying community banking organization's CBLR tangible equity to its 
average total consolidated assets, both as reported on the qualifying 
community banking organization's applicable regulatory filing. In 
addition, the Act states that the agencies may determine that a banking 
organization is not a qualifying community banking organization based 
on the banking organization's risk profile. The Act states that such a 
determination shall be based on consideration of off-balance sheet 
exposures, trading assets and liabilities, total notional derivatives 
exposures, and such other factors as the agencies determine 
appropriate. The Act also specifies that the CBLR framework developed 
by the agencies does not limit the authority of the Federal banking 
agencies in effect as of the date of enactment of the Act.
    Finally, the Act directs the agencies to consult with applicable 
state bank supervisors in carrying out section 201 of the Act and to 
notify the applicable state bank supervisor of any qualifying community 
banking organization that exceeds, or does not exceed after previously 
exceeding, the CBLR.

II. Summary of the Proposal

A. Overview of the Community Bank Leverage Ratio Framework

    The proposed CBLR framework, based on the requirements of section 
201 of the Act, is a simple alternative methodology to measure capital 
adequacy for qualifying community banking organizations. The proposal 
together with associated reporting requirement changes that the 
agencies anticipate proposing would simplify regulatory requirements 
and provide material regulatory relief to qualifying community banking 
organizations that opt into the CBLR framework.
    The agencies designed the CBLR framework taking into account 
multiple considerations, seeking to balance the simplicity of the 
framework with safety and soundness goals. First, the CBLR framework is 
intended to be available to a meaningful number of well capitalized 
banking organizations with less than $10 billion in total consolidated 
assets. Second, the CBLR should be calibrated to not reduce the amount 
of capital currently held by qualifying community banking 
organizations. Third, the agencies intend for banking organizations 
with higher risk profiles to remain subject to the generally applicable 
capital requirements \12\ to ensure that such banking organizations 
hold capital commensurate with the risk of their exposures and 
activities. Fourth, consistent with the Act, the agencies would 
maintain the supervisory actions applicable under the PCA framework and 
other statutes and regulations based on the capital ratios and risk 
profile of a banking organization. Finally, the CBLR framework is 
intended to provide meaningful regulatory compliance burden relief and 
be relatively simple for banking organizations to implement.
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    \12\ 12 CFR 3.10(a)-(b) (OCC); 12 CFR 217.10(a)-(b) (Board); 12 
CFR 324.10(a)-(b) (FDIC).
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    Under the proposal, a qualifying community banking organization 
would be defined as a depository institution or depository institution 
holding company with less than $10 billion in total consolidated assets 
with limited amounts of off-balance sheet exposures, trading assets and 
liabilities, mortgage servicing assets (MSAs), and deferred tax assets 
(DTAs) arising from temporary differences that a banking organization 
could not realize through net operating loss carrybacks (temporary 
difference DTAs). In addition, an advanced approaches banking 
organization would not be a qualifying community banking organization.
    The CBLR would be calculated as the ratio of tangible equity 
capital (CBLR tangible equity) divided by average total consolidated 
assets. Under the proposal, CBLR tangible equity would be defined as 
total bank equity capital or total holding company equity capital, as 
applicable, prior to including minority interests, and excluding 
accumulated other comprehensive income (AOCI), DTAs arising from net 
operating loss and tax credit carryforwards, goodwill, and other 
intangible assets (other than MSAs), each as of the most recent 
calendar quarter and calculated in accordance with a qualifying 
community banking organization's regulatory reports. Average total 
consolidated assets would be calculated in a manner similar to the 
current tier 1 leverage ratio denominator in that amounts deducted from 
the CBLR numerator would also be excluded from the CBLR denominator.
    Under the proposal, a qualifying community banking organization may 
elect to use the CBLR framework if its CBLR is greater than 9 percent. 
A CBLR greater than 9 percent, in conjunction with the proposed 
definitions of a qualifying community banking organization and CBLR 
tangible equity,

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should generally maintain the current level of capital held by these 
banking organizations, while supporting the agencies' goals of reducing 
regulatory burden for community banking organizations and retaining 
safety and soundness in the banking system.
    The proposal provides a regulatory capital treatment for a 
qualifying community banking organization that elects to use the CBLR 
framework (CBLR banking organization), but whose CBLR subsequently 
falls to 9 percent or less, and continues to provide for the agencies' 
supervisory actions under PCA and other applicable statutes and 
regulations. Specifically, for insured depository institutions, the 
proposal incorporates CBLR levels as proxies for the following PCA 
categories: Adequately capitalized, undercapitalized and significantly 
undercapitalized. If a CBLR banking organization's CBLR meets the 
corresponding CBLR levels, it would be considered to have met the 
capital ratio requirements within the applicable PCA category and be 
subject to the same restrictions that currently apply to any other 
insured depository institution in the same PCA category. Further, the 
proposal would not limit the agencies' authority to take any 
supervisory actions consistent with their supervisory authority under 
the PCA framework or other statutes or regulations.
    The agencies are not proposing changes to the definition of the 
critically undercapitalized category under their PCA rules. Therefore, 
under the proposal, if an insured depository institution is considered 
significantly undercapitalized, based on its CBLR, the insured 
depository institution would be required to provide promptly to its 
appropriate regulators such information as is necessary to calculate 
the tangible equity ratio as defined under the PCA framework for 
insured depository institutions.
    The CBLR calculation would require significantly less data than are 
used to calculate the generally applicable capital requirements. The 
agencies therefore expect that a CBLR banking organization would report 
its CBLR and other relevant information on a simpler regulatory capital 
schedule, relative to Schedules RC-R of the Consolidated Reports of 
Condition and Income (Call Report) and HC-R of Form FR Y-9C. The 
agencies are including in this Supplementary Information an 
illustrative CBLR reporting schedule. The illustrative schedule 
reflects potential reduced reporting requirements and is intended to 
aid commenters in understanding the proposal. The agencies intend to 
publish a separate information collection proposal in the Federal 
Register to seek comment on revising the reporting schedules and 
instructions for purposes of the CBLR framework.
    The agencies are monitoring the impact of the upcoming 
implementation of the current expected credit losses methodology (CECL) 
on community banking organizations. In May 2018, the agencies issued a 
notice of proposed rulemaking to amend the capital rule in response to 
CECL (CECL transitions NPR).\13\ The CECL transitions NPR proposed an 
optional three-year transition arrangement that would allow a banking 
organization to phase in any adverse day-one regulatory capital effects 
of CECL adoption on retained earnings, DTAs, allowance for credit 
losses, and average total consolidated assets. These day-one regulatory 
capital effects would be phased in over the transition period on a 
straight line basis.
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    \13\ 83 FR 22312 (May 14, 2018).
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    Question 1: The agencies invite comment on the impact to the CBLR 
framework due to the upcoming implementation of CECL. What changes 
should the agencies consider? For example, what are the advantages and 
disadvantages of providing CBLR banking organizations an optional 
transition arrangement to phase in any adverse day-one effects on the 
CBLR due to the implementation of CECL? How could any phase-in be 
included in the CBLR framework without creating undue burden?

B. Qualifying Community Banking Organization

    Under the proposal, a qualifying community banking organization 
would be defined as a depository institution or depository institution 
holding company that is not an advanced approaches banking organization 
and that meets the following criteria (qualifying criteria), each as 
described further below:
     Total consolidated assets of less than $10 billion;
     Total off-balance sheet exposures (excluding derivatives 
other than credit derivatives and unconditionally cancelable 
commitments) of 25 percent or less of total consolidated assets;
     Total trading assets and trading liabilities of 5 percent 
or less of total consolidated assets;
     MSAs of 25 percent or less of CBLR tangible equity; and
     Temporary difference DTAs of 25 percent or less of CBLR 
tangible equity.\14\
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    \14\ In addition, the agencies would reserve the authority to 
disallow the use of the CBLR framework by a depository institution 
or depository institution holding company, based on the risk profile 
of the banking organization. This authority would be reserved under 
the general reservation of authority included in the capital rule, 
in which the CBLR framework would be codified. See 12 CFR 3.1(d) 
(OCC); 12 CFR 217.1(d) (Board); 12 CFR 324.1(d) (FDIC). In addition, 
for purposes of the capital rule and section 201 of the Act, the 
agencies would reserve the authority to take action under other 
provisions of law, including action to address unsafe or unsound 
practices or conditions, deficient capital levels, or violations of 
law or regulation. See 12 CFR 3.1(b) (OCC); 12 CFR 217.1(b) (Board); 
12 CFR 324.1(b) (FDIC).
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    The agencies believe that banking organizations that do not meet 
these qualifying criteria should remain subject to the generally 
applicable capital requirements to ensure that such banking 
organizations hold capital commensurate with the risk profile of their 
activities. The agencies would monitor the appropriateness of the 
proposed qualifying criteria over time to ensure that they remain 
effective in excluding banking organizations with complex or 
potentially risky off-balance sheet activities from the CBLR framework. 
As mentioned previously, the agencies developed these qualifying 
criteria in conjunction with the proposed CBLR of greater than 9 
percent and the CBLR tangible equity definition to create a simple 
alternative framework to the generally applicable capital requirements.
    Question 2: The agencies invite comment on the definition of a 
qualifying community banking organization. What are the advantages and 
disadvantages of the qualifying criteria? What is the burden associated 
with determining whether a banking organization meets the proposed 
qualifying criteria? What other criteria, if any, should the agencies 
consider in the proposed definition of a qualifying community banking 
organization? What are commenters' views on the tradeoffs between 
simplicity and having additional risk profile criteria? In specifying 
any alternative qualifying criteria regarding a banking organization's 
risk profile, please provide information on how alternative qualifying 
criteria should be considered in conjunction with the calibration of 
the CBLR level and why the agencies should consider such alternative 
criteria.
1. Total Consolidated Assets
    Under the proposal, a qualifying community banking organization 
would be required to have less than $10 billion in total consolidated 
assets as of the end of the most recent calendar quarter, in accordance 
with the Act. Total consolidated assets would be calculated in 
accordance with the reporting

[[Page 3066]]

instructions to Schedule RC of the Call Report or Schedule HC of Form 
FR Y-9C, as applicable.
2. Total Off-Balance Sheet Exposures
    Under the proposal, a qualifying community banking organization 
would be required to have total off-balance sheet exposures of 25 
percent or less of its total consolidated assets, as of the end of the 
most recent calendar quarter. The agencies are including this 
qualifying criterion in the CBLR framework because the CBLR includes 
only on-balance sheet assets in its denominator and thus would not 
require a qualifying banking organization to hold capital against its 
off-balance sheet exposures. This qualifying criterion is intended to 
reduce the likelihood that a qualifying community banking organization 
with significant off-balance sheet exposures would hold less capital 
under the CBLR framework than under the generally applicable capital 
requirements.
    Under the proposal, total off-balance sheet exposures would be 
calculated as the sum of the notional amounts of certain off-balance 
sheet items as of the end of the most recent calendar quarter. Total 
off-balance sheet exposures would include the unused portions of 
commitments (except for unconditionally cancellable commitments); self-
liquidating, trade-related contingent items that arise from the 
movement of goods; transaction-related contingent items (i.e., 
performance bonds, bid bonds and warranties); sold credit protection in 
the form of guarantees and credit derivatives; credit-enhancing 
representations and warranties; off-balance sheet securitization 
exposures; letters of credit; forward agreements that are not 
derivative contracts; and securities lending and borrowing transactions 
(total off-balance sheet exposures). Total off-balance sheet exposures 
would exclude derivatives that are not credit derivatives, such as 
foreign exchange swaps and interest rate swaps. The agencies believe 
the notional amount for such derivatives is not an appropriate 
indicator of credit risk and could inadvertently disqualify a banking 
organization from using the CBLR framework if the banking organization 
is appropriately hedging its credit risks.
    The proposed components of total off-balance sheet exposures would 
be generally consistent with off-balance sheet items in the generally 
applicable capital requirements, except for securities lending and 
borrowing transactions. Securities lending and borrowing transactions 
would include the sum of off-balance sheet securities lent and borrowed 
measured in accordance with the reporting instructions for these items 
in Schedules RC-L of the Call Report or HC-L of Form FR Y-9C, as 
applicable. The proposed calculation of total off-balance sheet 
exposures is significantly simpler than under the generally applicable 
capital requirements, which require that off-balance sheet exposures be 
converted to on-balance sheet equivalents and assigned the appropriate 
risk weight.
    As mentioned previously, the agencies also intend to ensure that 
the regulatory relief included in the CBLR framework is available to a 
meaningful number of community banking organizations. As a result, the 
agencies do not believe that traditional banking activities, such as 
extending loan commitments to customers, should necessarily preclude a 
banking organization from qualifying to use the CBLR framework. The 
agencies analyzed average off-balance sheet exposures, relative to 
total consolidated assets, for banking organizations with less than $10 
billion in total consolidated assets and observed that the vast 
majority of such banking organizations report off-balance sheet 
exposures totaling less than 25 percent of total consolidated assets. 
Accordingly, the agencies have determined that the proposed 25 percent 
qualifying criterion of total off-balance sheet exposures to total 
consolidated assets would allow a meaningful number of banking 
organizations to use the CBLR framework without unduly restricting 
lending practices. The proposed criterion would help to prevent banking 
organizations from engaging in excessive off-balance sheet exposures 
without a commensurate capital requirement under the CBLR framework.
    Question 3: The agencies invite comment on the proposed off-balance 
sheet qualifying criterion. What aspects of the off-balance sheet 
qualifying criterion, including definitions, require further clarity? 
For example, what aspects, if any, of the generally applicable capital 
requirement's definition of credit enhancing representations and 
warranties or the reporting instructions to Schedules RC-L of the Call 
Report or HC-L of Form FR Y-9C for securities lent and borrowed require 
further clarity? What other alternatives should the agencies consider 
for purposes of defining the proposed qualifying criterion? For 
example, what are the advantages and disadvantages of using off-balance 
sheet items reported on Schedules RC-L of the Call Report or HC-L of 
Form FR Y-9C in place of the off-balance sheet items as currently 
reported on Schedules RC-R of the Call Report or HC-R of Form FR Y-9C? 
What impact would the proposed qualifying criterion have on a banking 
organization's business strategies and lending decisions?
3. Total Trading Assets and Trading Liabilities
    Under the proposal, a qualifying banking organization would be 
required to have total trading assets and liabilities of 5 percent or 
less of its total consolidated assets, each measured as of the end of 
the most recent calendar quarter. Total trading assets and liabilities 
would be calculated as the sum of those exposures, in accordance with 
the reporting instructions for these items on Schedules RC of the Call 
Report or HC of Form FR Y-9C, as applicable. A banking organization 
would divide the sum of its total trading assets and trading 
liabilities by its total consolidated assets to determine its 
percentage of total trading assets and liabilities.
    The agencies recognize the potential elevated levels of risk and 
complexity that can be associated with certain trading activities. For 
this reason, banking organizations with significant trading assets and 
liabilities are subject to a market risk capital requirement under the 
generally applicable risk-based capital requirements.\15\ In contrast, 
CBLR banking organizations would not be required to calculate 
additional market risk capital requirements and, as a result, the CBLR 
framework may not appropriately capitalize for material amounts of 
trading assets and trading liabilities. In addition, elevated levels of 
trading activity can produce a heightened level of earnings volatility, 
which has implications for capital adequacy. Therefore, the agencies 
have concerns about making the CBLR framework available to banking 
organizations with material market risk exposure. At the same time, the 
agencies do not believe that low levels of trading activity should 
preclude a banking organization from using the CBLR framework.
---------------------------------------------------------------------------

    \15\ 12 CFR part 3, subpart F (OCC); 12 CFR part 217, subpart F 
(Board); 12 CFR part 324, subpart F (FDIC).
---------------------------------------------------------------------------

    Based on the agencies' analysis, the vast majority of banking 
organizations with less than $10 billion in total consolidated assets 
have total trading assets and liabilities well below 5 percent of their 
total consolidated assets. The agencies believe that the

[[Page 3067]]

proposed 5 percent threshold would help to ensure that banking 
organizations under the CBLR framework would not engage in significant 
trading activity. Further, this criterion is generally consistent with 
section 203 of the Act, which excludes a community banking organization 
from proprietary trading restrictions if its trading assets and 
liabilities are 5 percent or less of its total consolidated assets.
    The agencies considered adopting an additional qualifying criterion 
in the CBLR framework based on a banking organization's total notional 
derivatives exposures. However, as described above, the agencies are 
concerned that such additional criterion may inadvertently disqualify a 
banking organization from using the CBLR framework if the banking 
organization engages in prudent risk management by appropriately 
hedging its risks associated with traditional banking activities. The 
agencies reviewed the notional derivative exposures reported by banking 
organizations with less than $10 billion in total consolidated assets 
and determined that a significant majority of such banking 
organizations currently either do not report any derivative exposure or 
report notional derivative amounts of less than $500 million, which 
would require relatively low amounts of regulatory capital under the 
generally applicable capital requirements. Therefore, except for the 
notional amount of sold credit protection in the form of a credit 
derivative, the agencies have not incorporated total notional 
derivatives exposure as a qualifying criterion under the proposed CBLR 
framework.
    Question 4: The agencies invite comment on the proposed trading 
activity criterion. What other alternatives to limiting trading 
activity should the agencies consider for purposes of defining a 
qualifying community banking organization and why?
    Question 5: What are the advantages and disadvantages of using 
total notional derivatives exposures or another measure as the basis 
for the qualifying criterion? If such a criterion were included in the 
CBLR framework, how should it be measured and why? At what level should 
any such qualifying criterion be set?
4. Mortgage Servicing Assets
    Under the proposal, a qualifying community banking organization 
would be required to have MSAs of 25 percent or less of its CBLR 
tangible equity. This qualifying criterion would be calculated as MSAs, 
calculated in accordance with the reporting instructions to Schedules 
RC-M of the Call Report or HC-M of Form FR Y-9C, as applicable, divided 
by CBLR tangible equity, each measured as of the end of the most recent 
calendar quarter.
    High concentrations in MSAs are subject to stringent capital 
requirements through a deduction approach under the generally 
applicable capital requirements.\16\ The stringent capital requirements 
are designed to protect banking organizations from sudden fluctuations 
in the value of MSAs and from the potential inability of banking 
organizations to divest themselves of MSAs quickly at their full 
estimated value during periods of financial stress. The 25 percent 
threshold for holdings of MSAs in the CBLR framework would help to 
ensure that banking organizations with high concentrations of MSAs 
would remain subject to the generally applicable capital requirements. 
The proposed MSA qualifying criterion is aligned with the proposed 
threshold for MSAs in the simplifications proposal discussed above.\17\
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    \16\ 12 CFR 3.22(d) (OCC); 12 CFR 217.22(d) (Board); 12 CFR 
324.22(d) (FDIC).
    \17\ 82 FR 49984 (October 27, 2017).
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    As an alternative to the proposed qualifying criterion for MSAs, 
the agencies considered an approach that would instead require a 
qualifying community banking organization to deduct from its CBLR 
tangible equity MSAs in excess of 25 percent of CBLR tangible equity. 
However, the agencies are concerned that such an approach would unduly 
complicate the CBLR framework.
    Question 6: The agencies invite comment on the proposed qualifying 
criterion for MSAs. What are commenters' views on the inclusion of such 
a qualifying criterion as opposed to an alternative deduction approach 
from CBLR tangible equity for purposes of the CBLR?
5. Temporary Difference Deferred Tax Assets
    Under the proposal, a qualifying community banking organization 
would have temporary difference DTAs, net of any related valuation 
allowances, of 25 percent or less of CBLR tangible equity. This 
criterion would be calculated as temporary difference DTAs, as 
described in the capital rule,\18\ divided by CBLR tangible equity, 
each measured as of the end of the most recent calendar quarter. 
Temporary difference DTAs, net of any related valuation allowances, are 
assets that banking organizations may not be able to fully realize, 
especially under adverse financial conditions, because a banking 
organization's ability to realize its temporary difference DTAs is 
dependent on future taxable income.\19\ This concern is particularly 
acute when banking organizations are experiencing financial difficulty.
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    \18\ 12 CFR 3.22(d)(1)(i) (OCC); 12 CFR 217.22(d)(1)(i) (Board); 
12 CFR 324.22(d)(1)(i) (FDIC). As described further below, this 
proposal would not include the option for netting deferred tax 
liabilities to maintain a simple calculation of CBLR tangible 
equity.
    \19\ Temporary differences arise when financial events or 
transactions are recognized in one period for financial reporting 
purposes and in another period, or periods, for tax purposes.
---------------------------------------------------------------------------

    Question 7: The agencies invite comment on the treatment of 
temporary difference DTAs for purposes of the definition of a 
qualifying community banking organization. What are the advantages and 
disadvantages of the proposed qualifying criterion for temporary 
difference DTAs? What alternatives should the agencies consider in 
limiting exposures to DTAs and how would such alternatives affect the 
proposed calibration of the CBLR framework?
6. Advanced Approaches Banking Organizations
    Under the proposal, only non-advanced approaches banking 
organizations would be eligible to use the CBLR framework. Advanced 
approaches banking organizations are generally banking organizations 
with $250 billion or more in total consolidated assets or $10 billion 
or more in on-balance sheet foreign exposure, or subsidiaries of such 
banking organizations.\20\ As such, a depository institution with less 
than $10 billion in total consolidated assets may be an advanced 
approaches banking organization.
---------------------------------------------------------------------------

    \20\ See footnote 4.
---------------------------------------------------------------------------

    The agencies believe that, in general, the Act is designed to 
provide regulatory relief for banking organizations with less than $10 
billion in total consolidated assets and that have a limited risk 
profile. While an advanced approaches banking organization with less 
than $10 billion in total consolidated assets is a relatively small 
banking organization, it is nonetheless part of a more complex banking 
organization. Consequently, such a banking organization would not be 
eligible to use the CBLR framework under this proposal.
    Question 8: The agencies invite comment on the exclusion of 
advanced approaches banking organizations from the CBLR framework. What 
other alternatives should the agencies consider with respect to a 
banking

[[Page 3068]]

organization's affiliation with larger, more complex banking 
organizations?

C. CBLR Tangible Equity

    Under the proposal, the numerator of the CBLR would be CBLR 
tangible equity. CBLR tangible equity would be calculated as a banking 
organization's total bank equity capital or total holding company 
equity capital, as applicable, determined in accordance with the 
reporting instructions to Schedule RC of the Call Report or Schedule HC 
of Form FR Y-9C, prior to including minority interests, less: (i) 
Accumulated other comprehensive income (AOCI), (ii) all intangible 
assets (other than MSAs), and (iii) DTAs, net of any related valuation 
allowances, that arise from net operating loss and tax credit 
carryforwards, each as of the end of the most recent calendar 
quarter.\21\ CBLR tangible equity would not include minority interests 
(equity of a consolidated subsidiary that is not owned by the 
qualifying community banking organization) because minority interests 
do not have the same loss absorption capacity as other components of 
CBLR tangible equity at the consolidated banking organization level. 
The proposed definition is intended as a prudent, simple measure of 
CBLR tangible equity, which CBLR banking organizations can calculate 
using amounts reported on regulatory reports. The agencies believe that 
this simpler measure of capital is consistent with the goal of 
providing meaningful burden relief for qualifying community banking 
organizations.
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    \21\ Solely for purposes of the FDIC's proposed definition of 
CBLR tangible equity, FDIC-supervised institutions that are CBLR 
banking organizations must deduct identified losses (to the extent 
that CBLR tangible equity would have been reduced if the appropriate 
accounting entries to reflect the identified losses had been 
recorded on the banking organization's books).
---------------------------------------------------------------------------

    The agencies' generally applicable capital requirements have long 
included restrictions on the types of capital instruments that can be 
included in tier 1 capital. Prior to 2013, the agencies' capital rule 
required that voting common stock holders' equity be the dominant form 
of tier 1 capital and that banking organizations should avoid undue 
reliance on nonvoting equity and preferred stock. Furthermore, 
cumulative perpetual preferred securities are generally not included in 
tier 1 capital. The definition of tier 1 capital under the generally 
applicable capital requirements excludes cumulative perpetual preferred 
securities as such instruments allow for the accumulation of interest 
payable and are not likely to absorb losses to the degree appropriate 
for inclusion in tier 1 capital. However, consistent with the intention 
to maintain a simple definition of CBLR tangible equity, the proposal 
does not include such restrictions and thus provides more flexibility 
with respect to the types of capital instruments that could qualify for 
CBLR tangible equity. The agencies believe providing such flexibility 
is consistent with safety and soundness when considering the overall 
proposed calibration of the CBLR framework for qualifying community 
banking organizations.
    Question 9: The agencies invite comment on the proposed definition 
of CBLR tangible equity. What changes, if any, would commenters suggest 
to the proposed definition of CBLR tangible equity? What are the 
advantages and disadvantages of a CBLR that closely aligns with the 
applicable reporting instructions to Schedules RC of the Call Report 
and HC of Form FR Y-9C measure of equity? What are the advantages and 
disadvantages of introducing additional adjustments and deductions from 
equity capital when defining CBLR tangible equity?
    Question 10: What are the advantages and disadvantages of not 
imposing specific eligibility criteria for capital instruments under 
the CBLR framework? If the agencies exclude certain types of capital 
instruments from CBLR tangible equity, how should the agencies 
incorporate such criteria in a simple manner? For example, what are the 
advantages and disadvantages of the agencies requiring that voting 
common equity be the dominant form of CBLR tangible equity?
    Question 11: What other alternative definitions of CBLR tangible 
equity should the agencies consider with respect to the CBLR, and how 
should such alternatives be considered in conjunction with the proposed 
9 percent CBLR calibration? Would defining CBLR tangible equity to 
equal a measure of capital under the generally applicable capital 
requirements (e.g., tier 1 capital) be more appropriate, and if so, 
why?
1. Minority Interests
    Under the proposal, the definition of CBLR tangible equity would 
not include minority interests in consolidated subsidiaries because, 
while such minority interests are available to absorb losses at the 
subsidiary, they are not always available to absorb losses at the 
banking organization's consolidated level. To address this concern, the 
generally applicable capital requirements limit the amount of minority 
interests that a banking organization may include in its regulatory 
capital through a relatively complex calculation.
    To balance the agencies' concern regarding the capacity of minority 
interests to absorb losses at the consolidated banking organization and 
to preserve the simplicity of the CBLR framework, the proposed 
definition of CBLR tangible equity would not include minority interests 
in consolidated subsidiaries. The agencies reviewed data regarding 
minority interests that banking organizations with less than $10 
billion in total consolidated assets report in regulatory capital and 
found that only a small number of such banking organizations currently 
report any minority interests. Therefore, the exclusion of minority 
interests is not expected to have a material impact on the amount of 
CBLR tangible equity for the vast majority of banking organizations.
    Question 12: The agencies invite comment on the proposed exclusion 
of minority interests from the definition of CBLR tangible equity. What 
are the advantages and disadvantages of this approach? If minority 
interests were to be included, how should the agencies limit the amount 
of minority interests that could count toward a banking organization's 
CBLR tangible equity without creating undue complexity?
2. Accumulated Other Comprehensive Income
    Under the proposal, the definition of CBLR tangible equity would 
exclude all components of AOCI, measured in accordance with the 
reporting instructions to Schedule RC of the Call Report or Schedule HC 
of Form FR Y-9C, as applicable. Under the generally applicable capital 
requirements, banking organizations, other than advanced approaches 
banking organizations, may exclude most components of AOCI from common 
equity tier 1 capital. AOCI generally includes accumulated unrealized 
gains and losses on certain assets and liabilities that are not 
included in net income, yet are included in equity under U.S. GAAP (for 
example, unrealized gains and losses on securities designated as 
available-for-sale). When the agencies revised the capital rule in 
2013, they noted that smaller or relatively less complex banking 
organizations may not have sophisticated risk management techniques to 
hedge interest rate risk and that including AOCI in regulatory capital 
could introduce significant volatility in the capital ratios due to 
fluctuations in benchmark interest rates. The agencies therefore 
included an option for non-advanced approaches

[[Page 3069]]

banking organizations to neutralize the impact of AOCI on their 
regulatory capital calculations and the vast majority of banking 
organizations have made that election.
    Consistent with the generally applicable capital requirements' 
treatment of AOCI for banking organizations other than advanced 
approaches banking organizations, the proposal would exclude all 
components of AOCI from CBLR tangible equity. The proposed adjustment 
for AOCI would be simpler than under the generally applicable capital 
requirements which allow certain banking organizations to neutralize 
some but not all AOCI, and thus should alleviate regulatory burden for 
banking organizations that qualify for and elect to use the CBLR, 
without meaningfully affecting the amount of the AOCI adjustment.
    Question 13: The agencies invite comment on the proposed treatment 
of AOCI for purposes of the CBLR. What are the advantages and 
disadvantages of making adjustments to CBLR tangible equity for all 
components of AOCI? What alternatives, if any, to the proposed 
treatment of AOCI should the agencies consider for purposes of the CBLR 
and why?
3. Intangible Assets
    Under the proposal, the definition of CBLR tangible equity would 
require deduction of goodwill and all other intangible assets (other 
than MSAs), which is consistent with long-standing requirements in the 
generally applicable capital requirements. This deduction would be 
calculated as goodwill and all other intangible assets (other than 
MSAs), measured in accordance with the reporting instructions to 
Schedules RC-M of the Call Report or HC-M of Form FR Y-9C, as 
applicable. All other intangible assets generally include, for example, 
core deposit intangibles, favorable leasehold rights, purchased credit 
card relationships, and non-mortgage servicing assets. During times of 
stress, it may be difficult to sell, or to calculate reliable values 
for, intangible assets. Fully deducting goodwill and all other 
intangible assets would help to retain the quality of CBLR tangible 
equity and would be consistent with safety and soundness and with the 
generally applicable capital requirements. Deducting these items is 
also consistent with section 201 of the Act, which requires the 
agencies to develop a CBLR using tangible equity capital.
    The proposed deduction for intangible assets is gross of associated 
deferred tax liabilities. The generally applicable capital requirements 
contain an option for netting of deferred tax liabilities from the 
items subject to deduction, which may result in a complex calculation 
for banking organizations with limited deferred tax liabilities. The 
agencies propose to not include the same option for netting deferred 
tax liabilities to maintain a simple calculation of CBLR tangible 
equity. The agencies also analyzed the effect of netting deferred tax 
liabilities from intangible assets subject to deduction and observed 
that permitting netting of deferred tax liabilities would not 
meaningfully change the CBLR for qualifying banking organizations.
    Question 14: The agencies invite comment on the treatment of 
intangible assets in the proposed definition of CBLR tangible equity 
for purposes of the CBLR. What are the advantages and disadvantages of 
the proposed approach? What are commenters' views on retaining the 
option to net deferred tax liabilities from items subject to deduction, 
as permitted under the generally applicable capital requirements? What 
alternatives, if any, to the proposed treatment of intangible assets 
should the agencies consider and why?
4. Deferred Tax Assets
    Under the proposal, DTAs that arise from net operating loss and tax 
credit carryforwards, net of any related valuation allowances, would be 
deducted from CBLR tangible equity. This deduction would supplement the 
qualifying criterion that requires a qualifying community banking 
organization to have temporary difference DTAs of 25 percent or less of 
its CBLR tangible equity.
    Under the proposal, DTAs that arise from net operating loss and tax 
credit carryforwards would be measured consistently with the generally 
applicable capital requirements,\22\ except that a banking organization 
would not have the option to reduce the amount of the deduction by 
deferred tax liabilities. The proposed approach for DTAs is similar to, 
but simpler than, the treatment of DTAs in the generally applicable 
capital requirements, which requires deduction from common equity tier 
1 capital of the entire amount of DTAs that arise from net operating 
loss and tax credit carryforwards and requires the deduction of 
temporary difference DTAs above certain thresholds. The proposed 
approach for DTAs is intended to address the concern that DTAs that are 
generally dependent upon future taxable income may not be realizable. 
This concern is particularly acute when banking organizations are 
experiencing financial difficulty or when broad economic conditions 
change.
---------------------------------------------------------------------------

    \22\ 12 CFR 3.22(a)(3) (OCC); 12 CFR 217.22(a)(3) (Board); 12 
CFR 324.22(a)(3) (FDIC).
---------------------------------------------------------------------------

    In developing the proposal, the agencies considered alternative 
treatments of DTAs that arise from net operating loss and tax credit 
carryforwards and temporary difference DTAs that would have varying 
degrees of conservatism and complexity. One alternative for calculating 
CBLR tangible equity would be to deduct DTAs that arise from net 
operating loss and tax credit carryforwards from a banking 
organization's total equity capital, and then to deduct temporary 
difference DTAs that exceed 25 percent of a threshold amount equal to a 
banking organization's total equity capital less all other adjustments 
and deductions for CBLR tangible equity. The agencies decided against 
this alternative because such a threshold deduction would result in an 
unduly complex CBLR tangible equity calculation. Another alternative 
would be to deduct all net DTAs (i.e., DTAs that arise from net 
operating loss and tax credit carryforwards and temporary difference 
DTAs), net of any valuation allowances, measured in accordance with the 
reporting instructions to Schedule RC-F of the Call Report or Schedule 
HC-F of Form FR Y-9C, as applicable, from a banking organization's 
total equity capital, which would be a more conservative treatment than 
under the generally applicable capital requirements. The agencies have 
not proposed this approach based on a concern that a deduction for all 
temporary difference DTAs could be unduly punitive.
    Question 15: The agencies invite comment on the treatment of DTAs 
that arise from net operating loss and tax credit carryforwards in the 
proposed definition of CBLR tangible equity. What are the advantages 
and disadvantages of not permitting the netting of deferred tax 
liabilities? What are commenters' views on the complexity of netting 
deferred tax liabilities as compared to the simplicity of a gross 
deduction? What alternatives, if any, should the agencies consider and 
why?
    Question 16: The agencies invite comment on whether it would be 
more appropriate to deduct all net DTAs from CBLR tangible equity. What 
are the advantages and disadvantages of deducting all net DTAs from 
CBLR tangible equity? What are commenters' views on the tradeoffs of 
simply deducting all net DTAs as compared to separate treatments for 
DTAs that arise from net operating loss and tax credit carryforwards 
and temporary difference

[[Page 3070]]

DTAs? What alternatives, if any, should the agencies consider and why?

D. Average Total Consolidated Assets (CBLR Denominator)

    Consistent with the Act, the proposed CBLR denominator would be 
based on a banking organization's average total consolidated assets. 
Specifically, average total consolidated assets for purposes of the 
CBLR denominator would be calculated in accordance with the reporting 
instructions to Schedules RC-K on the Call Report or HC-K on Form FR Y-
9C, as applicable, less the items deducted from the CBLR numerator, 
except AOCI. The proposed calculation is similar to that used in 
determining the denominator of the tier 1 leverage ratio.
    Question 17: The agencies invite comment on the proposed definition 
of average total consolidated assets. What, if any, alternative 
definitions of average total consolidated assets should the agencies 
consider for purposes of the CBLR and why?

E. Calibration of the Community Bank Leverage Ratio

    The agencies propose that a qualifying community banking 
organization may elect to use the CBLR framework if the CBLR of the 
banking organization is greater than 9 percent at the time of election. 
A qualifying community banking organization with a CBLR greater than 9 
percent would be considered to have met: (i) The generally applicable 
capital requirements; (ii) the well capitalized capital ratio 
requirements under the agencies' PCA framework for insured depository 
institutions or the well capitalized standards under the Board's 
regulations for holding companies, as applicable; and (iii) any other 
capital or leverage requirements to which the banking organization is 
subject. Such banking organizations would not be required to calculate 
capital ratios under the generally applicable capital requirements. 
Additionally, to be considered well capitalized under the CBLR 
framework, and consistent with the agencies' PCA framework, a 
qualifying community banking organization must not be subject to any 
written agreement, order, capital directive, or PCA directive to meet 
and maintain a specific capital level for any capital measure.
    The proposed calibration of the CBLR, in conjunction with the 
qualifying community banking organization and CBLR tangible equity 
definitions, seek to strike a balance among the following objectives: 
Maintaining strong capital levels in the banking system, ensuring 
safety and soundness, and providing appropriate regulatory burden 
relief to as many banking organizations as possible. For example, an 8 
percent CBLR would allow more banking organizations to opt into the 
CBLR framework but could incentivize a large number of CBLR banking 
organizations to hold less regulatory capital than they do today. 
Conversely, a significant number of banking organizations would not 
meet a 10 percent CBLR, which could preclude the use of the CBLR 
framework by banking organizations that are operating in a safe and 
sound manner with prudent levels of capital.
    The agencies estimate that as of the second quarter of 2018, the 
vast majority of banking organizations under $10 billion in total 
consolidated assets would meet the definition of a qualifying community 
banking organization and have a CBLR above 9 percent. Based on reported 
data as of June 30, 2018, there are 5,408 insured depository 
institutions with less than $10 billion in total consolidated assets 
and 151 depository institution holding companies with more than $3 
billion and less than $10 billion in total consolidated assets.\23\ 
Approximately 83 percent of such insured depository institutions and 56 
percent of such depository institution holding companies would qualify 
to use the CBLR framework under the proposed 9 percent calibration and 
qualifying criteria. The agencies believe the CBLR framework, including 
its proposed calibration, meets the objectives described above.
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    \23\ As of June 30, 2018, there are 4,261 depository institution 
holding companies with less than $10 billion in total consolidated 
assets. More than 95 percent of such holding companies are not 
subject to the capital rule because they have less than $3 billion 
in total consolidated assets and meet certain additional criteria to 
qualify for the Board's small bank holding company policy statement. 
See 12 CFR 217.1(c)(1)(ii) and (iii); 12 CFR part 225, appendix C; 
12 CFR 238.9.
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    Question 18: The agencies invite comment on the proposed CBLR 
calibration. What other factors should the agencies consider in 
calibrating the CBLR and why? The agencies request that commenters 
include discussion of how the proposed CBLR level should be affected by 
potential changes to other aspects of the proposed CBLR framework, such 
as the definition of CBLR tangible equity and the definition of a 
qualifying community banking organization.

F. Election To Use the Community Bank Leverage Ratio Framework

    Under the proposal, a qualifying community banking organization 
with a CBLR greater than 9 percent may elect to use the CBLR framework 
at any time. Such a banking organization would indicate its election by 
completing a CBLR reporting schedule in its Call Report or Form FR Y-
9C, as applicable, which will be proposed at a later date, as discussed 
below in this Supplementary Information.
    Under the proposal, a CBLR banking organization may opt out of the 
CBLR framework and use the generally applicable capital requirements by 
completing the associated reporting requirements on Schedules RC-R of 
the Call Report or HC-R of Form FR Y-9C, as applicable. While the 
agencies would not place restrictions on the ability of qualifying 
community banking organizations to switch in and out of the CBLR 
framework, the agencies anticipate such changes to be rare and 
typically driven by significant changes in the banking organization's 
business activities. The agencies believe that some flexibility to 
reverse the election to use the CBLR framework is warranted to ensure 
that banking organizations can adjust their business strategies and 
activities over time. The agencies would expect a CBLR banking 
organization to be able to provide a rationale for opting out of the 
CBLR framework to its appropriate regulators, if requested.
    Additionally, the agencies note that a CBLR banking organization 
may opt out of the CBLR framework between reporting periods by 
producing the capital ratios under the generally applicable capital 
requirements to its appropriate regulators at the time of opting out. 
This requirement is intended to remove any ambiguity relating to 
capital adequacy for either the banking organization or the appropriate 
regulators.
    A banking organization that has opted out of the CBLR framework 
would need to meet the qualifying criteria included in the definition 
of a qualifying community banking organization and have a CBLR of 
greater than 9 percent to be able to opt back into the CBLR framework. 
This proposed approach is intended to balance the need for flexibility 
in applying capital requirements tailored to banking organizations' 
different and potentially shifting business models with the goal of 
discouraging arbitrage between capital frameworks.
    Question 19: The agencies invite comment on the proposed procedure 
a banking organization would use to opt into and out of the CBLR 
framework. What are commenters' views on the frequency with which a 
qualifying community banking organizations may opt in and out of the 
CBLR framework? What other alternatives should the

[[Page 3071]]

agencies consider for purposes of qualifying community banking 
organizations' election to use and report the CBLR and why? Do 
qualifying community banking organizations anticipate frequent 
switching between the CBLR framework and the generally applicable 
capital requirements, and if so, why? What are the operational or other 
challenges associated with frequent switching between frameworks? What 
are commenters' views on the loss of comparability in capital ratios 
over time that may result from frequent switching between frameworks? 
How would the changes proposed in the simplifications proposal 
influence whether a banking organization elects to use the CBLR 
framework?

G. Compliance With the Proposed CBLR Framework

1. Definition of a Qualifying Community Banking Organization
    Under the proposal, a CBLR banking organization that no longer 
meets the proposed qualifying criteria would be required, within a 
limited grace period of two consecutive calendar quarters, either to 
once again meet the qualifying criteria or demonstrate compliance with 
the generally applicable capital requirements. The grace period would 
begin as of the end of the calendar quarter in which the CBLR banking 
organization ceases to satisfy the criteria to be a qualifying 
community banking organization and end after two consecutive calendar 
quarters. During the grace period, the banking organization could 
continue to be treated as a qualifying community banking organization 
and could, therefore, continue calculating and reporting a CBLR to 
determine its PCA category, in the case of an insured depository 
institution, and compliance with other statutes and regulations.
    A banking organization that grows to $10 billion or larger in total 
consolidated assets or no longer meets one or more of the other 
qualifying criteria (e.g., increased concentrations in MSAs) could use 
the grace period to again meet the qualifying criteria or revert to the 
generally applicable capital requirements. For example, if the CBLR 
banking organization exceeded one of the qualifying criteria as of 
February 15, the grace period for such a banking organization would 
begin as of the end of the quarter ending March 31. The banking 
organization could continue to use the CBLR framework as of June 30, 
but would need to fully comply with the generally applicable capital 
requirements (including the associated reporting requirements) as of 
September 30, unless at that time the banking organization once again 
met the qualifying criteria of the CBLR framework. The agencies believe 
that this limited grace period is appropriate to mitigate potential 
volatility in capital and associated regulatory reporting requirements 
based on temporary changes in a banking organization's risk profile 
from quarter to quarter, while capturing more permanent changes in risk 
profile.
    A CBLR banking organization that ceases to meet the criteria to be 
a qualifying community banking organization as a result of a business 
combination would receive no grace period, however, and immediately 
would no longer be a qualifying community banking organization. The 
agencies believe this approach is appropriate as banking organizations 
would need to consider the regulatory capital implications of a planned 
business combination and be prepared to comply with the applicable 
requirements. A CBLR banking organization that expects that it would 
not meet the qualifying criteria as a result of a planned business 
combination would need to provide its pro-forma capital ratios under 
the generally applicable capital requirements to its appropriate 
regulator as part of its merger application, if applicable, and fully 
comply with the generally applicable capital requirements as of the 
completion of the transaction.
    Question 20: The agencies invite comment on the proposed treatment 
for a banking organization that no longer meets the definition of a 
qualifying community banking organization after making an election to 
use the CBLR framework. Specifically, what are the advantages and 
disadvantages of the proposed period of time a banking organization 
that no longer meets the qualifying criteria would be provided to 
transition to the generally applicable capital requirements? What other 
alternatives should the agencies consider with respect to a banking 
organization that no longer meets the definition of a qualifying 
community banking organization and why?
2. Treatment of a Community Banking Organization That Falls Below the 
CBLR Requirement
    Under the proposal, a CBLR banking organization that has a CBLR 
greater than 9 percent would be considered well capitalized. In 
addition, a CBLR banking organization would be considered to have met 
the minimum capital requirements under the agencies' capital rule if 
its CBLR is 7.5 percent or greater.\24\
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    \24\ A CBLR banking organization that is a depository 
institution holding company would no longer be considered well 
capitalized if the holding company had a CBLR of 9 percent or less.
---------------------------------------------------------------------------

    The Act requires that the agencies establish procedures for the 
treatment of a CBLR banking organization that experiences a decline in 
its CBLR below the percentage set by the agencies after exceeding such 
percentage. A CBLR banking organization's CBLR may deteriorate due to a 
decline in its level of CBLR tangible equity, growth in its average 
total consolidated assets, or a combination of both. As described 
above, a CBLR banking organization may choose to stop using the CBLR 
framework and instead become subject to the generally applicable 
capital requirements. However, the agencies recognize that some banking 
organizations may find it unduly burdensome to begin complying with the 
more complex risk-based capital reporting requirements at the same time 
that the organization is experiencing a decline in its CBLR. 
Accordingly, in the case of CBLR banking organizations that are insured 
depository institutions and that no longer exceed the 9 percent CBLR, 
the agencies are proposing to establish the following CBLR levels to 
serve as proxies for the adequately capitalized, undercapitalized, and 
significantly undercapitalized PCA capital categories and be deemed to 
satisfy statutory capital requirements: \25\
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    \25\ See, for example, 12 U.S.C. 5371 (establishing a capital 
floor for insured depository institutions and depository institution 
holding companies); section 201 of the Act (requiring development of 
a community bank leverage ratio for which a depository institution 
exceeding that ratio would be considered to meet the requirements to 
be treated as well capitalized under PCA); and 12 U.S.C. 1831o 
(PCA).
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     Adequately capitalized--CBLR of 7.5 percent or greater;
     Undercapitalized--CBLR of less than 7.5 percent; and
     Significantly undercapitalized--CBLR of less than 6 
percent.
    The definition of critically undercapitalized would remain the same 
as under the PCA framework and the generally applicable capital 
requirements. The agencies are not proposing a proxy CBLR level for the 
critically undercapitalized category, which would continue to be 
calculated as the ratio of tangible equity to total assets (as defined 
under the PCA framework) of 2 percent or below. As discussed above, the 
agencies are proposing a CBLR level of greater than 9 percent for the 
well capitalized capital category pursuant to section 201 of the Act.

[[Page 3072]]

a. CBLR Levels for Certain PCA Categories
    Under the proposal, the CBLR levels for the adequately capitalized, 
undercapitalized, and significantly undercapitalized PCA capital 
categories would serve as proxies for the existing risk-based and 
leverage capital ratios that currently define these PCA capital 
categories. In setting the proposed proxy levels, the agencies sought 
to provide sufficient separation across categories such that a banking 
organization would not face frequent changes to its PCA category 
without a corresponding significant change in its CBLR. For reference, 
the agencies note that under the current PCA rules, there is a 2 
percentage point difference between the risk-based capital ratios for 
the corresponding PCA capital categories and a 1 percentage point 
difference between the tier 1 leverage ratios for the corresponding PCA 
capital categories.
    The agencies performed data analysis on 5,408 insured depository 
institutions under $10 billion in total consolidated assets as of June 
30, 2018, to calibrate the CBLR levels for the adequately capitalized, 
undercapitalized, and significantly undercapitalized PCA capital 
categories, of which 4,469 insured depository institutions meet all the 
proposed qualifying criteria (eligible IDIs).
    The agencies' data analysis has demonstrated that at the proposed 
PCA adequately capitalized requirement of 7.5 percent, about 0.5 
percent of eligible IDIs would require less capital--in order to be 
deemed adequately capitalized--under the CBLR framework than under the 
generally applicable capital requirements. Thus, the data analysis by 
the agencies supports a conclusion that 7.5 percent results in an 
appropriate balance between the two considerations of (1) serving as an 
appropriate proxy for the adequately capitalized PCA ratio in the risk-
based and leverage capital rules, and (2) providing sufficient 
separation between the adequately capitalized PCA ratio and the well 
capitalized and the undercapitalized PCA ratios.
    Similarly, at the proposed PCA significantly undercapitalized 
requirement of 6 percent, about 0.4 percent of eligible IDIs would 
require less capital--in order to be considered undercapitalized--under 
the CBLR framework than under the generally applicable capital 
requirements. Therefore, the agencies believe that the proposed 6 
percent level would represent an appropriate balance between (1) 
serving as an appropriate proxy for the significantly undercapitalized 
PCA ratio in the risk-based and leverage capital rules, and (2) 
providing sufficient separation between the significantly 
undercapitalized and the undercapitalized and critically 
undercapitalized PCA ratios.
    Under the proposal, a CBLR banking organization that maintains a 
CBLR of 7.5 percent or greater but less than or equal to 9 percent 
would be deemed to have met the minimum capital requirements and all of 
the capital ratio requirements for the adequately capitalized capital 
category under the PCA framework and therefore, treated as adequately 
capitalized. A CBLR banking organization whose CBLR falls below 7.5 
percent but is greater than or equal to 6 percent would be deemed to 
have met all of the capital ratio requirements for the undercapitalized 
capital category under the PCA framework and therefore, treated as 
undercapitalized. A CBLR banking organization whose CBLR falls below 6 
percent and tangible equity ratio is above 2 percent would be deemed to 
have met all of the capital ratio requirements for the significantly 
undercapitalized capital category under the PCA framework and 
therefore, considered and treated as significantly undercapitalized. 
The definition of critically undercapitalized would remain the same as 
under the PCA framework and the generally applicable capital 
requirements. Specifically, the critically undercapitalized category 
would continue to include banking organizations with a ratio of 
tangible equity to total assets (as defined under the PCA framework) of 
2 percent or below.
b. Critically Undercapitalized Capital Category
    Section 38 of the Federal Deposit Insurance Act \26\ specifies that 
the critically undercapitalized capital category must be set at no less 
than 2 percent of the tangible equity ratio. Therefore, a CBLR 
depository institution with a ratio of tangible equity to total assets 
(as provided for under the agencies PCA framework) of 2 percent or 
below would be classified as critically undercapitalized. Because the 
information necessary to calculate the PCA tangible equity ratio under 
the current capital rule may not be readily available to a CBLR banking 
organization, a CBLR banking organization with a CBLR of less than 6 
percent would be required to provide promptly to its appropriate 
regulators such information as is necessary to calculate the PCA 
tangible equity ratio so that the regulators may calculate and monitor 
the banking organization's tangible equity ratio in the event that its 
condition deteriorates. Such deterioration can occur quickly depending 
on the particular circumstances and economic environment. Under the 
proposal and consistent with the current authorities, the appropriate 
regulators also may request the information necessary to determine the 
tangible equity ratio at any time, and the CBLR banking organization 
must provide it.
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 1831o.
---------------------------------------------------------------------------

    The agencies considered proposing a CBLR level for the critically 
undercapitalized capital category. However, allowing two definitions 
for the critically undercapitalized capital category would create 
potential arbitrage between the generally applicable capital 
requirements and CBLR framework and legal uncertainty as to when a bank 
is critically undercapitalized for purposes of the FDIC being appointed 
as a conservator or receiver for a failing banking organization.
c. Effect of CBLR Levels on Other Regulations
    The agencies would use the proxies described in the previous 
section to apply the regulatory, supervisory, and enforcement 
authorities under PCA and other statutes to CBLR banking 
organizations.\27\ A CBLR banking organization would be subject to all 
of the requirements and restrictions, including any capital restoration 
plan requirement and mandatory and discretionary supervisory actions, 
applicable to a banking organization in its PCA category. Similarly, 
agencies expect to continue applying the current supervisory standards 
for examining banking organizations for capital adequacy.
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    \27\ See section 201(c)(2) of the Act.
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    For example, if a CBLR banking organization becomes less than well 
capitalized, it would become subject to applicable regulatory 
restrictions. For a CBLR banking organization that is a depository 
institution, these restrictions would include the brokered deposit and 
interest rate restrictions.\28\ For a CBLR banking organization that is 
a depository institution holding company, these restrictions would 
include limitations on financial activities under the Bank Holding 
Company Act and Regulation Y. A CBLR banking organization's capital 
category can also affect various applications' standards, procedures, 
and processing in the same way as a banking organization's current PCA 
category based on the generally

[[Page 3073]]

applicable capital requirements. These include the ability to conduct 
interstate mergers and to establish interstate branches, as well as 
eligibility for expedited applications processing.
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    \28\ 12 U.S.C 1831f; 12 CFR 337.6.
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d. Alternative Approach
    Consistent with the treatment of a CBLR banking organization that 
no longer meets the definition of a qualifying community banking 
organization, the agencies considered proposing to require CBLR banking 
organizations to report capital ratios under the generally applicable 
capital requirements if their CBLR fell to 9 percent or below, subject 
to a transition period. On the one hand, this approach is 
straightforward, avoids any potential ambiguity with respect to a 
banking organization's capital category when it is less than well 
capitalized, and is consistent with the CBLR framework being available 
for highly capitalized community banking organizations. On the other 
hand, this approach is relatively inflexible compared to the proposal. 
The agencies believe that some additional flexibility in the 
implementation of the CBLR framework is not inconsistent with the Act's 
purpose of relieving qualifying community banking organizations.
    Question 21: The agencies invite comment on the proposed treatment 
for a CBLR banking organization that no longer exceeds the 9 percent 
CBLR level. Specifically, what are commenters' views on the proposed 
CBLR levels for all other PCA capital categories except for the 
critically undercapitalized capital category? What are the advantages 
and disadvantages of establishing proxies for the identified PCA 
capital categories?
    Question 22: The agencies invite comment on the proposal to require 
a CBLR banking organization to provide the information necessary for 
its regulators to calculate the banking organization's tangible equity 
once the banking organization's CBLR falls below 6 percent. What, if 
any, would be the burden of gathering and providing such information 
and how long would it take to generate such information?
    Question 23: What alternative procedures should the agencies 
consider with respect to the treatment of a CBLR banking organization 
whose CBLR has fallen to 9 percent or less and why?
    Question 24: The agencies invite comment on the proposed 
implementation of section 201 of the Act. How does the proposed 
definition of CBLR tangible equity interact with the risk profile 
criteria and the proposed CBLR ratio requirement?

H. Other Affected Federal Regulations

    Under the proposal, a CBLR banking organization would no longer be 
required to calculate or report the components of capital used in the 
calculation of risk-based capital ratios or the tier 1 leverage ratio, 
such as tier 1 capital, total capital, or risk-weighted assets. Various 
Federal banking regulations outside of the regulatory capital rule 
(non-capital rules) contain references to these regulatory capital 
terms and therefore would need to be updated to reflect the components 
of capital and related capital measures under the CBLR framework. To 
ensure that these non-capital rules continue to operate as intended, 
the agencies propose that standards using tier 1 capital or total 
capital be amended so that a CBLR banking organization would use CBLR 
tangible equity instead of tier 1 capital or total capital. The 
agencies propose that where applicable, standards referencing risk-
weighted assets be amended so that a CBLR banking organization would 
use average total consolidated assets (i.e., the CBLR denominator) 
instead of risk-weighted assets.
    In addition, certain of the agencies' non-capital rules refer to 
``capital stock and surplus'' (or similar items), which is generally 
defined as tier 1 and tier 2 capital plus the amount of allowances for 
loan and lease losses not included in tier 2 capital.\29\ The agencies 
propose that a CBLR banking organization would calculate capital stock 
and surplus as CBLR tangible equity plus allowances for loan and lease 
losses. Thus, for example, for purposes of compliance with section 23A 
of the Federal Reserve Act, the proposal would amend the Board's 
Regulation W to provide that, for a CBLR banking organization, 
``capital stock and surplus'' would mean CBLR tangible equity plus 
allowances for loan and lease losses.\30\
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    \29\ See e.g., 12 CFR 223.3(d).
    \30\ The agencies issued a proposal in May 2018 to address 
pending changes to U.S. GAAP related to accounting for allowances 
under the agencies' rules. See 83 FR 22312 (May 14, 2018). For 
purposes of any final rule, the agencies expect to match the 
treatment and terminology related to allowances under the agencies' 
rules under this proposal and the May 2018 proposal.
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    At this time, the agencies are not proposing changes to their 
supervisory guidance which uses these capital terms. The agencies will 
consider how best to address affected supervisory guidance in 
conjunction with comments received on this proposal.
    Question 25: The agencies invite comment on the proposed amendments 
to their affected non-capital rules that would apply to CBLR banking 
organizations under the CBLR framework. What are commenters' views or 
concerns with the proposed amendments, including with regard to any 
unintended consequences? What are the advantages and disadvantages of 
retaining the current tier 1 capital measure for purposes of the other 
regulations that would be revised under this proposal or within the 
CBLR framework itself? What other approaches should the agencies 
consider in amending the affected regulations? Which other additional 
non-capital rules should the agencies consider and amend as a result of 
the CBLR framework and why?

I. Deposit Insurance Assessments Regulations

    FDIC assessments regulations also would be affected by the proposed 
CBLR framework. For example, CBLR banking organizations would no longer 
be required to report tier 1 capital or the tier 1 leverage ratio. The 
FDIC, however, uses these measures as part of its deposit insurance 
assessment system. For established small institutions, the tier 1 
leverage ratio is one of eight measures used to determine an 
institution's assessment rate.\31\ For all institutions, tier 1 capital 
is used to determine an institution's assessment base.\32\
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    \31\ For assessments purposes, an established small bank is 
generally defined as one that has been federally insured for at 
least five years and has less than $10 billion in assets. 12 CFR 
327.8(v). A bank no longer qualifies as a small bank once it reports 
assets of $10 billion of more in its quarterly reports of condition 
for four consecutive quarters.
    \32\ The Dodd-Frank Act required the FDIC to amend its 
regulations to generally define an institution's assessment base as 
average consolidated total assets of the institution minus average 
tangible equity during the assessment period. The FDIC chose to use 
tier 1 capital in lieu of tangible equity when implementing this 
requirement in part because it required no additional reporting. See 
12 CFR 327.5(a)(2); 76 FR 10673, 10678 (Feb. 25, 2011).
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    The FDIC plans to publish a separate notice of proposed rulemaking 
to address the application of the CBLR framework as it relates to the 
deposit insurance assessment system. The rulemaking would address, 
among other things, how the CBLR framework can be applied in lieu of 
the tier 1 leverage ratio and in lieu of tier 1 capital when 
calculating a bank's assessment. The FDIC plans to consider and discuss 
in the rulemaking reasonable and possible options that address the 
application of the CBLR framework in the assessment system. The FDIC 
does not expect that any changes to its deposit insurance assessment 
system would have a material impact on aggregate assessment

[[Page 3074]]

revenue or on rates paid by individual institutions.

J. Illustrative Reporting Form

    The agencies intend to separately seek comment on the proposed 
changes to regulatory reports for qualifying community banking 
organizations that elect to use the CBLR framework. To provide an 
indication of the potential reporting format and potential reporting 
burden relief relative to the regulatory reporting requirements under 
the generally applicable capital requirements for those banking 
organizations that elect to use the proposed CBLR framework, the 
agencies include an illustrative reporting form below, using the Call 
Report as an example.
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P
[GRAPHIC] [TIFF OMITTED] TP08FE19.006

BILLING CODE 4810-33-C, 6210-01-C, 6714-01-C

K. Consultation With State Bank Supervisors

    The agencies have had discussions with state bank supervisors and 
staff of the Conference of State Bank Supervisors, during which the 
agencies received helpful input in connection with this proposal. The 
agencies expect to continue engaging with the state bank supervisors 
during the rulemaking process, in accordance with section 201 of the 
Act.
    Section 201 also requires that the agencies notify the applicable 
state bank supervisor if a qualifying community banking organization 
exceeds the CBLR established by the agencies or ceases to exceed the 
CBLR after having previously exceeded it. The agencies plan to 
incorporate the CBLR into the Call Report and Form FR Y-9C so that 
qualifying community banking organizations report their CBLR levels on 
a quarterly basis. These reports are, and would continue to be, 
released to the public. The agencies believe that this public release 
of the CBLR would provide an operable means of notifying the applicable 
state bank supervisor of the relevant information about a CBLR banking 
organization's CBLR.
    Question 26: What other considerations should the agencies 
contemplate to help ensure that the

[[Page 3075]]

applicable state bank supervisor is notified when supervised qualifying 
community banking organizations exceed or cease to exceed the CBLR and 
why?

III. Regulatory Analyses

A. Paperwork Reduction Act

    Certain provisions of the proposed rule contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with 
the requirements of the PRA, the agencies may not conduct or sponsor, 
and the respondent is not required to respond to, an information 
collection unless it displays a currently-valid Office of Management 
and Budget (OMB) control number. The OMB control number for the OCC is 
1557-0318, Board is 7100-0313, and FDIC is 3064-0153. The OCC and the 
FDIC may need to request new control numbers if submissions are pending 
under their current respective control numbers at the time of this 
submission. These information collections will be extended for three 
years, with revision. The information collection requirements contained 
in this proposed rulemaking have been submitted by the OCC and FDIC to 
OMB for review and approval under section 3507(d) of the PRA (44 U.S.C. 
3507(d)) and section 1320.11 of the OMB's implementing regulations (5 
CFR 1320). The Board reviewed the proposed rule under the authority 
delegated to the Board by OMB.
    Comments are invited on:
    a. Whether the collections of information are necessary for the 
proper performance of the agencies' functions, including whether the 
information has practical utility;
    b. The accuracy or the estimate of the burden of the information 
collections, including the validity of the methodology and assumptions 
used;
    c. Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    d. Ways to minimize the burden of the information collections on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    e. Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments on 
aspects of this notice that may affect reporting, recordkeeping, or 
disclosure requirements and burden estimates should be sent to the 
addresses listed in the ADDRESSES section of this document. A copy of 
the comments may also be submitted to the OMB desk officer by mail to 
U.S. Office of Management and Budget, 725 17th Street NW, #10235, 
Washington, DC 20503; facsimile to (202) 395-6974; or email to 
[email protected], Attention, Federal Banking Agency Desk 
Officer.
Proposed Information Collection
    Title of Information Collection: Recordkeeping and Disclosure 
Requirements Associated with Capital Adequacy.
    Frequency: Quarterly, annual.
    Affected Public: Businesses or other for-profit.
Respondents
    OCC: National banks, state member banks, state nonmember banks, and 
state and federal savings associations.
    Board: State member banks (SMBs), bank holding companies (BHCs), 
U.S. intermediate holding companies (IHCs), savings and loan holding 
companies (SLHCs), and global systemically important bank holding 
companies (GSIBs).
    FDIC: State nonmember banks, state savings associations, and 
certain subsidiaries of those entities.
    Current Actions: The proposal would revise sections _.2 and _.10 of 
the capital rule, add a new section _.12 to the capital rule, and 
revise the agencies' PCA rules, to implement the community bank 
leverage ratio in accordance with the Act. These changes will not, 
however, result in changes to the burden. Nevertheless, in order to be 
consistent across the agencies, the agencies are applying a conforming 
methodology for calculating the burden estimates. The agencies are also 
updating the number of respondents based on the current number of 
supervised entities even though this proposal only affects a limited 
number of entities. The agencies believe that any changes to the 
information collections associated with the proposed rule are the 
result of the conforming methodology and updates to the respondent 
count and not the result of the proposed rule changes.
PRA Burden Estimates
OCC
    OMB control number: 1557-0318.
    Estimated number of respondents: 1,365 (of which 18 are advanced 
approaches institutions).
    Estimated average hours per response:
Minimum Capital Ratios (1,365 Institutions Affected)
    Recordkeeping (Ongoing)--16.
Standardized Approach (1,365 Institutions Affected)
    Recordkeeping (Initial setup)--122.
    Recordkeeping (Ongoing)--20.
    Disclosure (Initial setup)--226.25.
    Disclosure (Ongoing quarterly)--131.25.
Advanced Approach (18 Institutions Affected)
    Recordkeeping (Initial setup)--460.
    Recordkeeping (Ongoing)--540.77.
    Recordkeeping (Ongoing quarterly)--20.
    Disclosure (Initial setup)--280.
    Disclosure (Ongoing)--5.78.
    Disclosure (Ongoing quarterly)--35.
    Estimated annual burden hours: 1,088 hours initial setup, 64,929 
hours for ongoing.
Board
    Agency form number: FR Q.
    OMB control number: 7100-0313.
    Estimated number of respondents: 1,431 (of which 17 are advanced 
approaches institutions).
    Estimated average hours per response:
Minimum Capital Ratios (1,431 Institutions Affected)
    Recordkeeping (Ongoing)--16.
Standardized Approach (1,431 Institutions Affected)
    Recordkeeping (Initial setup)--122.
    Recordkeeping (Ongoing)--20.
    Disclosure (Initial setup)--226.25.
    Disclosure (Ongoing quarterly)--131.25.
Advanced Approach (17 Institutions Affected)
    Recordkeeping (Initial setup)--460.
    Recordkeeping (Ongoing)--540.77.
    Recordkeeping (Ongoing quarterly)--20.
    Disclosure (Initial setup)--280.
    Disclosure (Ongoing)--5.78.
    Disclosure (Ongoing quarterly)--35.
    Disclosure (Table 13 quarterly)--5.
Risk-Based Capital Surcharge for GSIBs (21 Institutions Affected)
    Recordkeeping (Ongoing)--0.5.
    Estimated annual burden hours: 1,088 hours initial setup, 78,183 
hours for ongoing.
FDIC
    OMB control number: 3064-0153.
    Estimated number of respondents: 3,575 (of which 2 are advanced 
approaches institutions).
    Estimated average hours per response:
Minimum Capital Ratios (3,575 Institutions Affected)
    Recordkeeping (Ongoing)--16.

[[Page 3076]]

Standardized Approach (3,575 Institutions Affected)
    Recordkeeping (Initial setup)--122.
    Recordkeeping (Ongoing)--20.
    Disclosure (Initial setup)--226.25.
    Disclosure (Ongoing quarterly)--131.25.
Advanced Approach (2 Institutions Affected)
    Recordkeeping (Initial setup)--460.
    Recordkeeping (Ongoing)--540.77.
    Recordkeeping (Ongoing quarterly)--20.
    Disclosure (Initial setup)--280.
    Disclosure (Ongoing)--5.78.
    Disclosure (Ongoing quarterly)--35.
    Estimated annual burden hours: 1,088 hours initial setup, 130,758 
hours for ongoing.
    The proposed rule will also require changes to the Consolidated 
Reports of Condition and Income (Call Reports) (FFIEC 031, FFIEC 041, 
and FFIEC 051; OMB No. 1557-0081 (OCC), 7100-0036 (Board), and 3064-
0052 (FDIC)) and Consolidated Financial Statements for Holding 
Companies (FR Y-9C; OMB No. 7100-0128 (Board)), which will be addressed 
in one or more separate Federal Register notices.

B. Regulatory Flexibility Act

    OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency, in connection with a proposed rule, to prepare an 
Initial Regulatory Flexibility Analysis describing the impact of the 
rule on small entities (defined by the SBA for purposes of the RFA to 
include commercial banks and savings institutions with total assets of 
$550 million or less and trust companies with total assets of $38.5 
million of less) or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities.
    As of June 30, 2018, the OCC supervises 886 small entities,\33\ of 
which 860 could be impacted by the proposed rule. Thus, a substantial 
number of small entities could be impacted by the proposed rule.
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    \33\ The OCC calculated the number of small entities using the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $550 million and $38.5 million, 
respectively. Consistent with the General Principles of Affiliation, 
13 CFR 121.103(a), the OCC counted the assets of affiliated 
financial institutions when determining whether to classify a 
national bank or Federal savings association as a small entity.
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    OCC staff also consider whether the proposed rule would result in a 
significant economic impact on affected small entities. OCC staff 
believe the primary cost to small institutions that elect to adopt the 
CBLR framework would be administrative costs that arise from modifying 
policies and procedures and reporting the new CBLR schedule, rather 
than the existing RC-R schedule. OCC staff estimates that each national 
bank or Federal savings association would spend no more than 320 hours 
to modify their policies and procedures and switch to reporting the 
CBLR schedule. To estimate this cost, OCC staff used a compensation 
rate of $117 per hour.\34\ Therefore, OCC staff estimate the cost per 
institution would not exceed $37,440 (320 hours x $117 per hour). In 
general, OCC staff classifies the economic impact of expected cost (to 
comply with a rule) on an individual national bank or Federal savings 
association as significant if the total estimated monetized costs in 
one year are greater than (1) 5 percent of the national bank's or 
Federal savings association's total annual salaries and benefits or (2) 
2.5 percent of the national bank's or Federal savings association's 
total annual non-interest expense. Based on this criteria, the 
estimated cost of the rule would impose a significant economic impact 
at only one of the 860 affected small institutions, which is not a 
substantial number.
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    \34\ The OCC's cost estimate includes an estimate of the time 
required to implement the mandates and the estimated average hourly 
wage of the bank employees who might be responsible for tasks 
associated with achieving compliance with the proposal and other 
rules that would be affected by implementation of the proposal. To 
estimate average hourly wages, OCC staff reviewed data from May 2017 
for wages (by industry and occupation) from the U.S. Bureau of Labor 
Statistics (BLS) for depository credit intermediation (NAICS 
522100). To estimate compensation costs associated with the rule, 
OCC staff used $117 per hour, which is based on the average of the 
90th percentile for seven occupations adjusted for inflation, plus 
an additional 34.2 percent to cover private sector benefits.
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    Additionally, a critical element of the proposed rule is its 
inherent optionality. OCC staff believe CBLR eligible national banks 
and Federal savings associations would only choose to use the CBLR 
framework if the benefits outweighed the costs.
    Therefore, the OCC certifies that the proposed rule would not have 
a significant economic impact on a substantial number of OCC-supervised 
small entities.
    Board: The Board is providing an initial regulatory flexibility 
analysis with respect to this proposed rule. The Regulatory Flexibility 
Act, 5 U.S.C. 601 et seq. (RFA), requires an agency to consider whether 
the rules it proposes will have a significant economic impact on a 
substantial number of small entities.\35\ In connection with a proposed 
rule, the RFA requires an agency to prepare an Initial Regulatory 
Flexibility Analysis describing the impact of the rule on small 
entities or to certify that the proposed rule would not have a 
significant economic impact on a substantial number of small entities. 
An initial regulatory flexibility analysis must contain (1) a 
description of the reasons why action by the agency is being 
considered; (2) a succinct statement of the objectives of, and legal 
basis for, the proposed rule; (3) a description of, and, where 
feasible, an estimate of the number of small entities to which the 
proposed rule will apply; (4) a description of the projected reporting, 
recordkeeping, and other compliance requirements of the proposed rule, 
including an estimate of the classes of small entities that will be 
subject to the requirement and the type of professional skills 
necessary for preparation of the report or record; (5) an 
identification, to the extent practicable, of all relevant Federal 
rules which may duplicate, overlap with, or conflict with the proposed 
rule; and (6) a description of any significant alternatives to the 
proposed rule which accomplish its stated objectives.
---------------------------------------------------------------------------

    \35\ Under regulations issued by the Small Business 
Administration, a small entity includes a depository institution, 
bank holding company, or savings and loan holding company with total 
assets of $550 million or less and trust companies with total assets 
of $38.5 million or less. As of June 30, 2018, there were 
approximately 3,053 small bank holding companies, 184 small savings 
and loan holding companies, and 541 small state member banks.
---------------------------------------------------------------------------

    The Board has considered the potential impact of the proposed rule 
on small entities in accordance with the RFA. Based on its analysis and 
for the reasons stated below, the Board believes that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Nevertheless, the Board is publishing and 
inviting comment on this initial regulatory flexibility analysis. A 
final regulatory flexibility analysis will be conducted after comments 
received during the public comment period have been considered.
    As discussed in detail above, the proposed rule would establish a 
community bank leverage ratio for qualifying community banking 
organizations. Qualifying community banking organizations would consist 
of insured depository institutions, bank holding companies, and savings 
and loan holding companies with total consolidated assets of less than 
$10 billion that also satisfy certain qualifying criteria. The 
qualifying criteria are designed to ensure that

[[Page 3077]]

qualifying community banking organizations do not have significant 
levels of assets that would make the community bank leverage ratio a 
less appropriate capital standard for the risks presented by the firms' 
portfolios. Qualifying community banking organizations that elect to be 
under the community bank leverage ratio generally would be exempt from 
the Board's current capital framework, including risk-based capital 
requirements and capital conservation buffer requirements.\36\ The CBLR 
would be calibrated such that qualifying community banking 
organizations would not be required to raise significant additional 
capital and would not face materially less stringent capital 
requirements. The primary benefit of the CBLR for qualifying community 
banking organizations is therefore expected to be reduced calculation 
and reporting burdens.
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    \36\ Nearly all small bank holding companies and small savings 
and loan holding companies are currently exempt from the Board's 
capital rule and are instead covered by the Board's Small Bank 
Holding Company and Savings and Loan Holding Company Policy 
Statement. The policy statement applies to bank holding companies 
and savings and loan holding companies with less than $3 billion in 
total consolidated assets that also satisfy specified eligibility 
criteria. See 12 CFR 217.1(c)(1)(ii) through (iii); 12 CFR part 225 
app. C. The proposal is not expected to impact small bank holding 
companies and small savings and loan holding companies that are 
subject to the policy statement.
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    The Board has broad authority under the International Lending 
Supervision Act of 1983 (ILSA) \37\ and the Prompt Corrective Action 
(PCA) provisions of the Federal Deposit Insurance Act \38\ to establish 
regulatory capital requirements for the institutions it regulates. For 
example, ILSA directs each Federal banking agency to cause banking 
institutions to achieve and maintain adequate capital by establishing 
minimum capital requirements as well as by other means that the agency 
deems appropriate.\39\ The PCA provisions of the Federal Deposit 
Insurance Act direct each Federal banking agency to specify, for each 
relevant capital measure, the level at which an IDI subsidiary is well 
capitalized, adequately capitalized, undercapitalized, and 
significantly undercapitalized.\40\ In addition, the Board has broad 
authority to establish regulatory capital standards for bank holding 
companies, savings and loan holding companies, and U.S. intermediate 
holding companies of foreign banking organizations under the Bank 
Holding Company Act of 1956, the Home Owners' Loan Act, and the Dodd-
Frank Act.\41\
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    \37\ 12 U.S.C. 3901-3911.
    \38\ 12 U.S.C. 1831o.
    \39\ 12 U.S.C. 3907(a)(1).
    \40\ 12 U.S.C. 1831o(c)(2).
    \41\ See 12 U.S.C. 1467a, 1844, 5365, 5371.
---------------------------------------------------------------------------

    The proposed rule would be an optional framework that qualifying 
community banking organizations could choose to apply instead of the 
Board's current capital rule. A qualifying community banking 
organization would be able to remain subject to the current capital 
rule if it chose to do so. The proposed rule therefore would not impose 
mandatory requirements on any small entities. However, the proposal 
would allow Board-regulated institutions that are qualifying community 
banking organizations to elect to be under the community bank leverage 
ratio framework. Small entities that are subject to the Board's capital 
rule could make such an election, which would require immediate changes 
to reporting, recordkeeping, and compliance systems.
    Further, as discussed previously in the Paperwork Reduction Act 
section, the proposal would make changes to the projected reporting, 
recordkeeping, and other compliance requirements of the rule by 
impacting the information that qualifying community banking 
organizations that elect to use the community bank leverage ratio would 
be required to collect.
    The agencies anticipate making changes through a separate notice to 
regulatory reporting forms that currently collect regulatory capital 
information (the Call Report (FFIEC 031, 041, and 051) and the 
Consolidated Financial Statements for Holding Companies (Form FR Y-
9C)). Firms would be required to update their systems to implement 
these changes to reporting forms. Systems changes would be 
predominantly due to changes to the applicable reporting forms that are 
expected to be released in the near future, rather than the proposal 
described in this notice. The Board does not expect that the 
compliance, recordkeeping, and reporting updates from this proposal 
would impose a significant cost on small Board-regulated institutions. 
These changes would only impact small entities that elect to use the 
community bank leverage ratio and, while there would be limited upfront 
costs to update systems, an overall reduction in burden is expected. 
However, the reduction in burden will be predominantly due to changes 
in regulatory reporting forms, and these burden changes therefore are 
expected to be discussed in a regulatory reporting notice in the near 
future. In addition, the Board is aware of no other Federal rules that 
duplicate, overlap, or conflict with the proposed changes to the 
capital rule. Therefore, the Board believes that the proposed rule will 
not have a significant economic impact on small banking organizations 
supervised by the Board and therefore believes that there are no 
significant alternatives to the proposed rule that would reduce the 
economic impact on small banking organizations supervised by the Board.
    The Board welcomes comment on all aspects of its analysis. In 
particular, the Board requests that commenters describe the nature of 
any impact on small entities and provide empirical data to illustrate 
and support the extent of the impact.
    FDIC: The Regulatory Flexibility Act (RFA) generally requires that, 
in connection with a proposed rulemaking, an agency prepare and make 
available for public comment an initial regulatory flexibility analysis 
describing the impact of the rulemaking on small entities.\42\ A 
regulatory flexibility analysis is not required, however, if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities. The Small Business 
Administration (SBA) has defined ``small entities'' to include banking 
organizations with total assets less than or equal to $550 million.\43\ 
The FDIC supervises 3,575 depository institutions,\44\ of which 2,763 
are defined as small banking entities by the terms of the RFA.\45\ 
Based on its analysis and for the reasons stated below, the FDIC 
believes that this proposal would not have a significant economic 
impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \42\ 5 U.S.C. 601 et seq.
    \43\ The SBA defines a small banking organization as having $550 
million or less in assets, where ``a financial institution's assets 
are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' 13 CFR 
121.201 n.8 (2018). ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates. . . .'' 13 CFR 121.103(a)(6) 
(2018). Following these regulations, the FDIC uses a covered 
entity's affiliated and acquired assets, averaged over the preceding 
four quarters, to determine whether the covered entity is ``small'' 
for the purposes of RFA.
    \44\ FDIC-supervised institutions are set forth in 12 U.S.C. 
1813(q)(2).
    \45\ Call Report: June 30, 2018.
---------------------------------------------------------------------------

Description of Need and Policy Objectives
    The policy objective of the proposed rule is to conform the FDIC's 
regulations to the statutory language established by the Act. On May 
24, 2018, the Economic Growth, Regulatory Relief, and Consumer 
Protection Act (the Act) amended provisions in the Dodd-Frank

[[Page 3078]]

Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) \46\ as 
well as certain other statutes administered by the agencies.\47\ 
Section 201 of the Act, titled ``Capital Simplification for Qualifying 
Community Banks,'' directs the agencies to develop a community bank 
leverage ratio (CBLR) of not less than 8 percent and not more than 10 
percent for ``qualifying community banks'' (qualifying community 
banking organizations). The Act defines a qualifying community banking 
organization as a depository institution or depository institution 
holding company with total consolidated assets of less than $10 
billion.
---------------------------------------------------------------------------

    \46\ Public Law 111-203, 124 Stat. 1391, 12 U.S.C. 5301 et seq.
    \47\ Public Law 115-174 (May 24, 2018).
---------------------------------------------------------------------------

Other Federal Rules
    The FDIC has not identified any likely duplication, overlap, and/or 
potential conflict between the proposal and any Federal rule.
Economic Impacts on Small Entities
    As discussed previously in section II: Summary of the Proposal, a 
depository institution that is not an advanced approaches banking 
organization could be eligible to opt into the CBLR framework, if they 
meet the following criteria:
     Have total consolidated assets of less than $10 billion;
     Have total off-balance sheet exposures (excluding 
derivatives that are not credit derivatives and unconditionally 
cancelable commitments) of 25 percent or less of total consolidated 
assets;
     Have total trading assets and trading liabilities of 5 
percent or less of total consolidated assets;
     Have MSAs of 25 percent or less of CBLR tangible equity; 
and
     Have temporary difference DTAs of 25 percent or less of 
CBLR tangible equity.
    As of June 30, 2018, there were 2,713 small, FDIC-supervised 
depository institutions who would be qualifying community banking 
organizations under the proposed rule. They comprise approximately 98 
percent of small, FDIC-supervised depository institutions. Therefore, 
the proposed rule could affect an estimated 98 percent of small, FDIC-
supervised institutions.
    Utilizing the CBLR framework is expected to reduce reporting costs 
for small, FDIC-supervised institutions. Opting into the CBLR framework 
would enable institutions to no longer report Schedule RC-R of the Call 
Report, resulting in a reduction in reporting costs for institutions. 
As described in section II.J. of this preamble, Illustrative Reporting 
Form, the agencies intend to separately seek comment on the proposed 
changes to regulatory reports for qualifying community banking 
organizations that opt into the CBLR framework. To provide an 
indication of the potential reporting format and potential reporting 
burden relief for qualifying community banking organizations that opt 
into the proposed CBLR framework, the agencies included an illustrative 
report with this rulemaking, using the Call Report as an example. 
Depository institutions that may benefit from reduced reporting costs 
because of the proposed rule could employ those resources in ways the 
institution believes is more beneficial. It is difficult to accurately 
estimate the size of this potential effect because it depends on the 
characteristics of the individual institution and the future decisions 
of senior management.
    As noted previously, by opting into the CBLR framework, the capital 
levels of some small, FDIC-supervised institutions could be marginally 
affected, but it is unlikely to significantly affect the quantity of 
regulatory capital in the banking system. The FDIC estimates that 2,296 
small, FDIC-supervised institutions are qualifying community banking 
organizations. Of those entities, 2,027 report holding a volume of CBLR 
tangible equity to total consolidated assets in excess of nine percent, 
plus an additional buffer of 50 basis points. Some eligible small, 
FDIC-supervised institutions that opt into the CBLR framework could 
employ any CBLR tangible equity in excess of the level required to 
achieve nine percent of total consolidated assets in other ways the 
institution decides is more beneficial. It is difficult to accurately 
estimate what these institutions will do with the tangible equity that 
exceeds nine percent because it depends on the characteristics of each 
individual institution, the decisions of senior management, current and 
future economic conditions, as well as current and future financial 
conditions. Additionally, some institutions who are not qualifying 
community banking organizations because their CBLR tangible equity is 
less than nine percent of total consolidated assets may elect to raise 
additional tangible equity in order to become eligible. In such cases, 
each entity will have determined that the value of attaining a level of 
CBLR tangible equity necessary to meet or exceed nine percent of total 
consolidated assets outweighs the cost incurred in doing so. However, 
the statutory changes established by the Act will enable certain 
institutions to utilize the CBLR framework. The proposed rule amends 
the FDIC's regulations to conform with the CBLR framework authorized 
under the Act. Therefore, this component of the proposal would not have 
a direct effect on small, FDIC-supervised institutions.
    As noted previously, the proposed rule could affect the deposit 
insurance assessments of qualifying small, FDIC-supervised institutions 
that elect to use the CBLR framework. The extent of this effect is 
difficult to quantify with available information. The proposed rule 
removes the requirement for small, FDIC-supervised institutions that 
opt into the CBLR framework from reporting tier 1 capital or the tier 1 
leverage ratio. The FDIC, however, uses these measures as part of its 
deposit insurance assessment system. The FDIC plans to publish a 
separate notice of proposed rulemaking to address the application of 
the CBLR framework as it relates to the deposit insurance assessment 
system. The rulemaking would address, among other things, how the CBLR 
framework can be applied in lieu of the leverage ratio and in lieu of 
tier 1 capital when calculating a bank's assessment. However, since the 
final form of that rule is unknown, the potential effects on small, 
FDIC-supervised institutions are unknown. As one option, the FDIC may 
consider using the definitions in this proposal in the deposit 
insurance assessment system. For most qualifying community banking 
organizations, pursuing this option would result in no change, or would 
result in a reduction, in an institution's assessment. In particular, 
based on June 30, 2018 Call Report data, replacing the leverage ratio 
with the CBLR, and replacing tier 1 capital with CBLR tangible equity 
in the calculation of the assessment base, would result in the same or 
lower assessments for more than 90 percent of institutions that could 
be qualifying community banking organizations under this proposal. For 
other institutions, application of the CBLR framework to deposit 
insurance assessments would result in higher assessments; however, for 
over three-quarters of those institutions, that increase would 
represent less than one percent of their deposit insurance assessment 
for the second quarter of 2018.
Alternatives Considered
    As previously discussed in section II.E. Calibration of the 
Community Bank Leverage Ratio, other alternatives including calibrating 
the CBLR to eight

[[Page 3079]]

percent were considered by the FDIC. This alternative would allow more 
banking organizations to opt into the CBLR framework but would 
potentially allow a large number of CBLR banking organizations to hold 
less capital than under the generally applicable capital requirements. 
The proposed calibration of the CBLR, in conjunction with the 
qualifying community banking organization and CBLR tangible equity 
definitions, seeks to strike a balance among the following objectives: 
Maintaining strong capital levels in the banking system, ensuring 
safety and soundness, and providing appropriate regulatory burden 
relief to as many banking organizations as possible.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
proposal have any significant effects on small entities that the FDIC 
has not identified?

C. Plain Language

    Section 722 of the Gramm-Leach Bliley Act \48\ requires the Federal 
banking agencies to use plain language in all proposed and final rules 
published after January 1, 2000. The agencies invite comments on how to 
make these notices of proposed rulemaking easier to understand. For 
example:
---------------------------------------------------------------------------

    \48\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999).
---------------------------------------------------------------------------

     Have the agencies presented the material in an organized 
manner that meets your needs? If not, how could this material be better 
organized?
     Are the requirements in the notice of proposed rulemaking 
clearly stated? If not, how could the proposal be more clearly stated?
     Does the proposal contain language that is not clear? If 
so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the proposal easier to understand? 
If so, what changes to the format would make the proposal easier to 
understand?
     What else could the agencies do to make the proposal 
easier to understand?

D. OCC Unfunded Mandates Reform Act of 1995

    The OCC analyzed the proposed rule under the factors set forth in 
the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under 
this analysis, the OCC considered whether the proposed rule includes a 
Federal mandate that may result in the expenditure by State, local, and 
Tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted for inflation).
    The OCC has determined that this proposed rule would not result in 
expenditures by State, local, and Tribal governments, or the private 
sector, of $100 million or more in any one year. Accordingly, the OCC 
has not prepared a written statement to accompany this proposal.

E. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\49\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
insured depository institutions, each Federal banking agency must 
consider, consistent with principles of safety and soundness and the 
public interest, any administrative burdens that such regulations would 
place on depository institutions, including small depository 
institutions, and customers of depository institutions, as well as the 
benefits of such regulations. In addition, section 302(b) of RCDRIA 
requires new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on insured 
depository institutions generally to take effect on the first day of a 
calendar quarter that begins on or after the date on which the 
regulations are published in final form.\50\
---------------------------------------------------------------------------

    \49\ 12 U.S.C. 4802(a).
    \50\ Id.
---------------------------------------------------------------------------

    The agencies note that comment on these matters has been solicited 
in other sections of this Supplementary Information section, and that 
the requirements of RCDRIA will be considered as part of the overall 
rulemaking process. In addition, the agencies also invite any other 
comments that further will inform the agencies' consideration of 
RCDRIA.

List of Subjects

12 CFR Part 1

    Banks, banking, National banks, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 3

    Administrative practice and procedure, Federal Reserve System, 
National banks, Reporting and recordkeeping requirements.

12 CFR Part 5

    Administrative practice and procedure, National banks, Reporting 
and recordkeeping requirements, Securities.

12 CFR Part 6

    Federal Reserve System, National banks.

12 CFR Part 23

    National banks.

12 CFR Part 24

    Community development, Credit, Investments, Low and moderate income 
housing, National banks, Reporting and recordkeeping requirements, 
Rural areas, Small businesses.

12 CFR Part 32

    National banks, Reporting and recordkeeping requirements.

12 CFR Part 34

    Mortgages, National banks, Reporting and recordkeeping 
requirements.

12 CFR Part 160

    Consumer protection, Investments, Manufactured homes, Mortgages, 
Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 192

    Reporting and recordkeeping requirements, Savings associations, 
Securities.

12 CFR Part 206

    Banks, Banking, Interbank liability, Lending limits, Savings 
associations.

12 CFR Part 208

    Confidential business information, Crime, Currency, Federal Reserve 
System, Mortgages, reporting and recordkeeping requirements, 
Securities.

12 CFR Part 211

    Exports, Federal Reserve System, Foreign banking, Holding 
companies, Investments, Reporting and recordkeeping requirements.

12 CFR Part 215

    Credit, Penalties, Reporting and recordkeeping requirements.

12 CFR Part 217

    Administrative practice and procedure, Banks, banking, Holding 
companies, Reporting and recordkeeping requirements, Securities.

12 CFR Part 223

    Banks, Banking, Federal Reserve System.

[[Page 3080]]

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Holding companies, Reporting and recordkeeping 
requirements, Securities.

12 CFR Part 238

    Savings and loan holding companies (Regulation LL).

12 CFR Part 251

    Administrative practice and procedure, Banks, banking, 
Concentration Limit, Federal Reserve System, Holding companies, 
Reporting and recordkeeping requirements, Securities.

12 CFR Part 303

    Administrative practice and procedure, Bank deposit insurance, 
Banks, banking, Reporting and recordkeeping requirements, State non-
member banks, Savings associations.

12 CFR Part 324

    Administrative practice and procedure, Banks, banking, Capital 
adequacy, Reporting and recordkeeping requirements, State non-member 
banks, Savings associations.

12 CFR Part 337

    Banks, banking, Reporting and recordkeeping requirements, 
Securities.

12 CFR Part 347

    Authority delegations (Government agencies), Bank deposit 
insurance, Banks, banking, Credit, Foreign banking, Investments, 
Reporting and recordkeeping requirements, U.S. Investments abroad.

12 CFR Part 362

    Administrative practice and procedure, Authority delegations 
(Government agencies), Bank deposit insurance, Banks, banking, 
Investments, Reporting and recordkeeping requirements.

12 CFR Part 365

    Banks, banking, Mortgages.

12 CFR Part 390

    Administrative practice and procedure, Advertising, Aged, Civil 
rights, Conflict of interests, Credit, Crime, Equal employment 
opportunity, Fair housing, Government employees, Individuals with 
disabilities, Reporting and recordkeeping requirements, Savings 
associations.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons stated in the Supplementary Information, Chapter I 
of title 12 of the Code of Federal Regulations is proposed to be 
amended as follows:

PART 1--INVESTMENT SECURITIES

0
1. The authority citation for part 1 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24 (Seventh), and 93a.

0
2. Section 1.2 is amended by revising paragraph (a) to read as follows:


Sec.  1.2  Definitions.

    (a) Capital and surplus means:
    (1) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (i) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (ii) A qualifying community banking organization's allowances for 
loan and lease losses as reported in the bank's Consolidated Report of 
Condition and Income (Call Report); or
    (2) For all other banks:
    (i) A bank's tier 1 and tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in 12 CFR part 3, as applicable 
(or comparable capital guidelines of the appropriate Federal banking 
agency), as reported in the bank's Call Report; plus
    (ii) The balance of a bank's allowances for loan and lease losses 
not included in the bank's Tier 2 capital, for purposes of the 
calculation of risk-based capital described in paragraph (a)(2)(i) of 
this section, as reported in the bank's Call Report.
* * * * *

PART 3--CAPITAL ADEQUACY STANDARDS

0
3. The authority citation for part 3 continues to read as follows:

    Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818, 
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, and 5412(b)(2)(B).

0
4. Section 3.10 is amended by revising paragraph (a) to read as 
follows:


Sec.  3.10  Minimum capital requirements.

    (a) Minimum capital requirements. (1) A national bank or Federal 
savings association must maintain the following minimum capital ratios:
    (i) A common equity tier 1 capital ratio of 4.5 percent.
    (ii) A tier 1 capital ratio of 6 percent.
    (iii) A total capital ratio of 8 percent.
    (iv) A leverage ratio of 4 percent.
    (v) For advanced approaches FDIC-supervised institutions, a 
supplementary leverage ratio of 3 percent.
    (vi) For state savings associations, a tangible capital ratio of 
1.5 percent.
    (2) A qualifying community banking organization (as defined in 
Sec.  3.12), that is subject to the community bank leverage ratio (as 
defined in Sec.  3.12), is considered to have met the minimum capital 
requirements in this paragraph (a) only if the qualifying community 
banking organization maintains a community bank leverage ratio of at 
least 7.5 percent.
* * * * *
0
5. Add section 3.12 to read as follows:


Sec.  3.12  Community bank leverage ratio.

    (a) Community bank leverage ratio framework. (1) Notwithstanding 
any other provision in this part, a qualifying community banking 
organization that has made an election to use the community bank 
leverage ratio framework under paragraph (a)(3) of this section shall 
be considered to have met the minimum capital requirements under Sec.  
3.10, the capital ratio requirements for the well capitalized capital 
category under 12 CFR part 6, and any other capital or leverage 
requirements to which the qualifying community banking organization is 
subject, if it has a community bank leverage ratio greater than 9.0 
percent.
    (2) For purposes of this section, a qualifying community banking 
organization means a national bank or Federal savings association that 
is not an advanced approaches national bank or Federal savings 
association and that satisfies all of the following criteria:
    (i) Has total consolidated assets of less than $10 billion, 
calculated in accordance with the reporting instructions to Schedule RC 
of the Call Report as of the end of the most recent calendar quarter;
    (ii) Has off-balance sheet exposures of 25 percent or less of its 
total consolidated assets as of the end of the most recent calendar 
quarter, calculated as the sum of the notional amounts of the exposures 
listed in paragraphs (a)(2)(ii)(A) through (I) of this section-, 
divided by total consolidated assets, each as of the end of the most 
recent calendar quarter:
    (A) The unused portion of commitments (except for

[[Page 3081]]

unconditionally cancellable commitments);
    (B) Self-liquidating, trade-related contingent items that arise 
from the movement of goods;
    (C) Transaction-related contingent items, including performance 
bonds, bid bonds, warranties, and performance standby letters of 
credit;
    (D) Sold credit protection through
    (1) Guarantees; and
    (2) Credit derivatives;
    (E) Credit-enhancing representations and warranties;
    (F) Securities lent and borrowed, calculated in accordance with the 
reporting instructions to Schedule RC-L of the Call Report;
    (G) Financial standby letters of credit;
    (H) Forward agreements that are not derivative contracts; and
    (I) Off-balance sheet securitization exposures;
    (iii) Has total trading assets and trading liabilities, calculated 
in accordance with the reporting instructions to Schedule RC of the 
Call Report of 5 percent or less of the national bank's or Federal 
savings association's total consolidated assets, each as of the end of 
the most recent calendar quarter;
    (iv) Has mortgage servicing assets, calculated in accordance with 
the reporting instructions to Schedule RC-M of the Call Report, of 25 
percent or less of the national bank's or Federal savings association's 
CBLR tangible equity, each as of the end of the most recent calendar 
quarter; and
    (v) Has DTAs arising from temporary differences that the national 
bank or Federal savings association could not realize through net 
operating loss carrybacks, net of any related valuation allowances, of 
25 percent or less of the national bank's or Federal savings 
association's CBLR tangible equity, each as of the end of the most 
recent calendar quarter.
    (3)(i) A qualifying community banking organization may elect to use 
the community bank leverage ratio framework if it makes an opt-in 
election under this paragraph (a)(3).
    (ii) A qualifying community banking organization may elect to use 
the community bank leverage ratio framework only if it has a community 
bank leverage ratio that exceeds 9 percent at the time of the election.
    (iii) For purposes of paragraph (a)(3) of this section, a 
qualifying community banking organization makes an election to use the 
community bank leverage ratio framework by completing the community 
bank leverage ratio reporting schedule in its Call Report.
    (iv)(A) A qualifying community banking organization that has 
elected to use the community bank leverage ratio may opt-out of using 
the community bank leverage ratio by completing Schedule RC-R in its 
Call Report or by otherwise providing the information required in 
Schedule RC-R to the OCC.
    (B) A qualifying community banking organization that opts out of 
using the community bank leverage ratio pursuant to paragraph 
(a)(3)(iv)(A) of this section must comply with Sec.  3.10 immediately.
    (b) Calculation of the community bank leverage ratio. (1) A 
qualifying community banking organization's community bank leverage 
ratio is the ratio of the banking organization's CBLR tangible equity 
as defined in paragraph (b)(2) of this section, to its average total 
consolidated assets, as defined in paragraph (b)(3) of this section.
    (2) CBLR tangible equity means total bank equity capital, 
calculated in accordance with the reporting instructions to Schedule RC 
of the Call Report, before the inclusion of non-controlling (minority) 
interests in consolidated subsidiaries, as of the end of the most 
recent calendar quarter less the following (each as of the end of the 
most recent calendar quarter):
    (i) Accumulated other comprehensive income calculated in accordance 
with the reporting instructions to Schedule RC of the Call Report;
    (ii) Intangible Assets, calculated in accordance with the reporting 
instructions to Schedule RC of the Call Report, other than mortgage 
servicing assets; and
    (iii) Deferred tax assets (DTAs) that arise from net operating loss 
and tax credit carryforwards net of any related valuation allowances.
    (3) Average total consolidated assets means total assets calculated 
in accordance with the reporting instructions to Schedule RC-K of the 
Call Report as of the end of the most recent calendar quarter less the 
amounts deducted from CBLR tangible equity under paragraphs (b)(2)(ii) 
and (iii) of this section.
    (c) Treatment when ceasing to be a qualifying community banking 
organization requirements. (1) Except as provided in paragraph (c)(4) 
of this section, if a national bank or Federal savings association 
ceases to meet the definition of a qualifying community banking 
organization, the national bank or Federal savings association has two 
reporting periods (grace period) to either satisfy the requirements to 
be a qualifying community banking organization or to comply with Sec.  
3.10 and report the required capital measures under section 10 on its 
Call Report.
    (2) The grace period begins as of the end of the calendar quarter 
in which the national bank or Federal savings association ceases to 
satisfy the criteria to be a qualifying community banking organization 
provided in paragraph (a)(2) of this section. The grace period ends on 
the last day of the second consecutive calendar quarter following the 
beginning of the grace period.
    (3) During the grace period, the national bank or Federal savings 
association continues to be a qualifying community banking organization 
for the purposes of this part and must continue calculating and 
reporting its community bank leverage ratio unless the national bank or 
Federal savings association has opted out of using the community bank 
leverage ratio under paragraph (a)(3) of this section.
    (4) Notwithstanding paragraphs (c)(1) through (3) of this section, 
a national bank or Federal savings association that no longer meets the 
definition of a qualifying community banking organization as a result 
of a merger or acquisition has no grace period and immediately ceases 
to be a qualifying community banking organization. Such a national bank 
or Federal savings association must comply with Sec.  3.10 and must 
report the required capital measures under Sec.  3.10 on its next Call 
Report.
    (d) Tangible equity information. (1) A qualifying community banking 
organization, that has elected to use the community bank leverage ratio 
under this section and has a community bank leverage ratio that falls 
below 6.0 percent, must promptly provide to the OCC the information 
necessary for the calculation of its tangible equity, as defined under 
12 CFR 6.2, for purposes of determining the capital category of the 
national bank or Federal savings association under 12 CFR part 6.
    (2) Notwithstanding paragraph (d)(1), upon request by the OCC, a 
qualifying community banking organization must provide the information 
necessary for the calculation of its tangible equity, as defined under 
12 CFR part 6, to the OCC.

PART 5--RULES, POLICIES, AND PROCEDURES FOR CORPORATE ACTIVITIES

0
6. The authority citation for part 5 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24a, 93a, 215a-2, 215a-3, 481, 
1462a, 1463, 1464, 2901 et seq., 3907, and 5412(b)(2)(B).

0
7. Section 5.3 is amended by revising paragraph (e) to read as follows:


Sec.  5.3  Definitions.

* * * * *
    (e) Capital and surplus means:

[[Page 3082]]

    (1) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (i) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (ii) A qualifying community banking organization's allowances for 
loan and lease losses or allowance for credit losses, as applicable, as 
reported in the national bank's or Federal savings association's 
Consolidated Report of Condition and Income (Call Report); or
    (2) For all other national banks and Federal savings associations:
    (i) A national bank's or Federal savings association's tier 1 and 
tier 2 capital calculated under the OCC's risk-based capital standards 
set forth in 12 CFR part 3, as applicable, as reported in the bank's or 
savings association's Consolidated Reports of Condition and Income 
(Call Reports) filed under 12 U.S.C. 161 or 12 U.S.C. 1464(v), 
respectively; plus
    (ii) The balance of the national bank's or Federal savings 
association's allowances for loan and lease losses not included in the 
institution's tier 2 capital, for purposes of the calculation of risk-
based capital reported in the institution's Call Reports, described in 
paragraph (e)(2)(i) of this section.
* * * * *
0
8. Section 5.37 is amended by revising paragraph (c)(3) to read as 
follows:


Sec.  5.37  Investment in national bank or Federal savings association 
premises.

* * * * *
    (c) * * *
    (3) Capital and surplus means:
    (i) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (A) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (B) A qualifying community banking organization's allowances for 
loan and lease losses or allowance for credit losses, as applicable, as 
reported in the national bank's or Federal savings association's Call 
Report; or
    (ii) For all other national banks and Federal savings associations:
    (A) A national bank's or Federal savings association's tier 1 and 
tier 2 capital calculated under 12 CFR part 3, as applicable, as 
reported in the national bank's or Federal savings association's 
Consolidated Reports of Condition and Income (Call Reports) filed under 
12 U.S.C. 161 or 12 U.S.C. 1464(v), respectively; plus
    (B) The balance of a national bank's or Federal savings 
association's allowances for loan and lease losses not included in the 
bank's or savings association's tier 2 capital, for purposes of the 
calculation of risk-based capital described in paragraph (c)(3)(ii)(A) 
of this section, as reported in the national bank's or Federal savings 
association's Call Reports filed under 12 U.S.C. 161 or 1464(v), 
respectively.
* * * * *
0
9. Section 5.58 is amended by revising paragraph (h)(2) to read as 
follows:


Sec.  5.58  Pass-through investments by a Federal savings association.

* * * * *
    (h) * * *
    (2) The Federal savings association is not investing more than 10 
percent of its total capital (in the case of a Federal savings 
association that is a qualifying community banking organization that 
has elected to use the community bank leverage ratio framework, 10 
percent of its tangible equity capital, calculated under 12 CFR 3.12) 
in one company;
* * * * *

PART 6--PROMPT CORRECTIVE ACTION

0
10. The authority citation for part 6 continues to read as follows:

    Authority: 12 U.S.C. 93a, 1831o, 5412(b)(2)(B).

0
11. Section 6.4 is amended by:
0
a. Revising the heading to read as set forth below,
0
b. Removing paragraph (c),
0
c. Redesignating paragraphs (d) and (e) as paragraphs (c) and (d), 
respectively, and
0
d. Revising paragraphs (a) and (b).
    The revisions read as follows.


Sec.  6.4  Capital measures and capital categories.

    (a) Capital measures. (1) For purposes of section 38 of the FDI Act 
and this part, the relevant capital measures shall be:
    (i) Total Risk-Based Capital Measure: The total risk-based capital 
ratio;
    (ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based 
capital ratio;
    (iii) Common Equity Tier 1 Capital Measure: The common equity tier 
1 risk-based capital ratio;
    (iv) The Leverage Measure:
    (A) The leverage ratio; and
    (B) With respect to an advanced approaches national bank or 
advanced approaches Federal savings association, on January 1, 2018, 
and thereafter, the supplementary leverage ratio; and
    (2) For a qualifying community banking organization (as defined in 
12 CFR 3.12), that is subject to the community bank leverage ratio (as 
defined in 12 CFR 3.12), the community bank leverage ratio, as defined 
under 12 CFR 3.12 is used to determine the applicable capital category 
under paragraphs (b)(1) through (4) of this section.
    (b) Capital categories. For purposes of section 38 of the FDI Act 
and this part, a national bank or Federal savings association shall be 
deemed to be:
    (1)(i) ``Well capitalized'' if:
    (A) Total Risk-Based Capital Measure: the national bank or Federal 
savings association has a total risk-based capital ratio of 10.0 
percent or greater;
    (B) Tier 1 Risk-Based Capital Measure: The national bank or Federal 
savings association has a tier 1 risk-based capital ratio of 8.0 
percent or greater;
    (C) Common Equity Tier 1 Capital Measure: The national bank or 
Federal savings association has a common equity tier 1 risk-based 
capital ratio of 6.5 percent or greater;
    (D) Leverage Measure:
    (1) The national bank or Federal savings association has a leverage 
ratio of 5.0 percent or greater; and
    (2) With respect to a national bank or Federal savings association 
that is a subsidiary of a U.S. top-tier bank holding company that has 
more than $700 billion in total assets as reported on the company's 
most recent Consolidated Financial Statement for Bank Holding Companies 
(Form FR Y-9C) or more than $10 trillion in assets under custody as 
reported on the company's most recent Banking Organization Systemic 
Risk Report (Form FR Y-15), on Jan. 1, 2018 and thereafter, the 
national bank or Federal savings association has a supplementary 
leverage ratio of 6.0 percent or greater; and
    (E) The national bank or Federal savings association is not subject 
to any written agreement, order or capital directive, or prompt 
corrective action directive issued by the OCC pursuant to section 8 of 
the FDI Act, the International Lending Supervision Act of 1983 (12 
U.S.C. 3907), the Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), 
or section 38 of the FDI Act, or any regulation thereunder, to meet and 
maintain a specific capital level for any capital measure.
    (ii) A qualifying community banking organization, as defined under 
12 CFR 3.12, that has elected to use the community bank leverage ratio 
framework under section 12 CFR 3.12 and that has a community bank 
leverage ratio, as defined under 12 CFR 3.12,

[[Page 3083]]

greater than 9.0 percent, shall be considered to have met the capital 
ratio requirements for the well capitalized capital category in 
paragraphs (b)(1)(i)(A) through (D) of this section.
    (2)(i) ``Adequately capitalized'' if:
    (A) Total Risk-Based Capital Measure: The national bank or Federal 
savings association has a total risk-based capital ratio of 8.0 percent 
or greater;
    (B) Tier 1 Risk-Based Capital Measure: The national bank or Federal 
savings association has a tier 1 risk-based capital ratio of 6.0 
percent or greater;
    (C) Common Equity Tier 1 Capital Measure: The national bank or 
Federal savings association has a common equity tier 1 risk-based 
capital ratio of 4.5 percent or greater;
    (D) Leverage Measure:
    (1) The national bank or Federal savings association has a leverage 
ratio of 4.0 percent or greater; and
    (2) With respect to an advanced approaches national bank or 
advanced approaches Federal savings association, on January 1, 2018 and 
thereafter, the national bank or Federal savings association has an 
supplementary leverage ratio of 3.0 percent or greater; and
    (E) The national bank or Federal savings association does not meet 
the definition of a ``well capitalized'' national bank or Federal 
savings association.
    (ii) A qualifying community banking organization, as defined under 
12 CFR 3.12, that has elected to use the community bank leverage ratio 
framework under 12 CFR 3.12 and that has a community bank leverage 
ratio, as defined under 12 CFR 3.12, of 7.5 percent or greater, shall 
be considered to have met the requirements for the adequately 
capitalized capital category in paragraphs (b)(2)(i)(A) through (D) of 
this section.
    (3)(i) ``Undercapitalized'' if:
    (A) Total Risk-Based Capital Measure: The national bank or Federal 
savings association has a total risk-based capital ratio of less than 
8.0 percent;
    (B) Tier 1 Risk-Based Capital Measure: The national bank or Federal 
savings association has a tier 1 risk-based capital ratio of less than 
6.0 percent;
    (C) Common Equity Tier 1 Capital Measure: The national bank or 
Federal savings association has a common equity tier 1 risk-based 
capital ratio of less than 4.5 percent; or
    (D) Leverage Measure:
    (1) The national bank or Federal savings association has a leverage 
ratio of less than 4.0 percent; or
    (2) With respect to an advanced approaches national bank or 
advanced approaches Federal savings association, on January 1, 2018, 
and thereafter, the national bank or Federal savings association has a 
supplementary leverage ratio of less than 3.0 percent.
    (ii) A qualifying community banking organization, as defined under 
12 CFR 3.12, that has elected to use the community bank leverage ratio 
framework under section 12 CFR 3.12 and that has a community bank 
leverage ratio, as defined under 12 CFR 3.12, of less than 7.5 percent, 
shall be considered to have met the requirements for the 
undercapitalized capital category in paragraph (b)(3)(1)(A) through (D) 
of this section.
    (4)(i) ``Significantly undercapitalized'' if:
    (A) Total Risk-Based Capital Measure: The national bank or Federal 
savings association has a total risk-based capital ratio of less than 
6.0 percent;
    (B) Tier 1 Risk-Based Capital Measure: The national bank or Federal 
savings association has a tier 1 risk-based capital ratio of less than 
4.0 percent;
    (C) Common Equity Tier 1 Capital Measure: The national bank or 
Federal savings association has a common equity tier 1 risk-based 
capital ratio of less than 3.0 percent; or
    (D) Leverage Ratio: The national bank or Federal savings 
association has a leverage ratio of less than 3.0 percent.
    (ii) A qualifying community banking organization, as defined under 
12 CFR 3.12, that has elected to use the community bank leverage ratio 
framework under section 12 CFR 3.12 and that has a community bank 
leverage ratio, as defined under 12 CFR 3.12, of less than 6.0 percent, 
shall be considered to have met the requirements for the significantly 
undercapitalized capital category in paragraphs (b)(4)(i)(A) through 
(D) of this section.
    (5) ``Critically undercapitalized'' if the insured depository 
institution has a ratio of tangible equity to total assets that is 
equal to or less than 2.0 percent.
* * * * *

PART 23--LEASING

0
12. The authority citation for part 23 continues to read as follows:

    Authority: 12 U.S.C. 1 et seq., 24(Seventh), 24(Tenth), and 93a.

0
13. Section 23.2 is amended by revising paragraph (b) to read as 
follows:


Sec.  23.2  Definitions.

* * * * *
    (b) Capital and surplus means:
    (1) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (i) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (ii) A qualifying community banking organization's allowances for 
loan and lease losses or allowance for credit losses, as applicable, as 
reported in the national bank's Call Report; or
    (2) For all other national banks:
    (i) A bank's tier 1 and tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in 12 CFR part 3, as applicable, 
as reported in the bank's Consolidated Reports of Condition and Income 
(Call Report) filed under 12 U.S.C. 161; plus
    (ii) The balance of a bank's allowances for loan and lease losses 
not included in the bank's Tier 2 capital, for purposes of the 
calculation of risk-based capital described in paragraph (b)(2)(i) of 
this section, as reported in the bank's Consolidated Report of 
Condition and Income filed under 12 U.S.C. 161.
* * * * *

PART 24--COMMUNITY AND ECONOMIC DEVELOPMENT ENTITIES, COMMUNITY 
DEVELOPMENT PROJECTS, AND OTHER PUBLIC WELFARE INVESTMENTS

0
14. The authority citation for part 24 continues to read as follows:

    Authority:  12 U.S.C. 24(Eleventh), 93a, 481 and 1818.

0
15. Section 24.2 is amended by revising paragraph (b) to read as 
follows:


Sec.  24.2  Definitions.

* * * * *
    (b) Capital and surplus means:
    (1) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (i) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (ii) A qualifying community banking organization's allowances for 
loan and lease losses or allowance for credit losses, as applicable, as 
reported in the national bank's Call Report; or
    (2) For all other national banks:
    (i) A bank's tier 1 and tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in 12 CFR part 3, as applicable, 
as reported in the bank's Consolidated Reports of Condition and Income 
(Call Report) as filed under 12 U.S.C. 161; plus
    (ii) The balance of a bank's allowances for loan and lease losses 
not included in the bank's tier 2 capital, for

[[Page 3084]]

purposes of the calculation of risk-based capital described in 
paragraph (b)(2)(i) of this section, as reported in the bank's Call 
Report as filed under 12 U.S.C. 161.
* * * * *

PART 32--LENDING LIMITS

0
16. The authority citation for part 32 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 12 U.S.C. 84, 93a, 1462a, 1463, 
1464(u), 5412(b)(2)(B), and 15 U.S.C. 1639h.

0
17. Section 32.2 is amended by revising paragraph (c) to read as 
follows:


Sec.  32.2  Definitions.

* * * * *
    (c) Capital and surplus means--
    (1) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (i) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (ii) A qualifying community banking organization's allowances for 
loan and lease losses or allowance for credit losses, as applicable, as 
reported in the national bank's or Federal savings association's Call 
Report; or
    (2) For all other national banks and Federal savings associations:
    (i) A national bank's or savings association's Tier 1 and Tier 2 
capital calculated under the risk-based capital standards applicable to 
the institution as reported in the bank's or savings association's 
Consolidated Reports of Condition and Income (Call Report); plus
    (ii) The balance of a national bank's or Federal savings 
association's allowances for loan and lease losses not included in the 
bank's or savings association's Tier 2 capital, for purposes of the 
calculation of risk-based capital described in paragraph (c)(2)(i) of 
this section, as reported in the national bank's or savings 
association's Call Report.
* * * * *

PART 34--REAL ESTATE LENDING AND APPRAISALS

0
18. The authority citation for part 34 continues to read as follows:

    Authority:  12 U.S.C. 1 et seq., 25b, 29, 93a, 371, 1462a, 1463, 
1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 
5412(b)(2)(B) and 15 U.S.C. 1639h.

0
19. Section 34.81 is amended by revising paragraph (a) to read as 
follows:


Sec.  34.81  Definitions.

    (a) Capital and surplus means:
    (1) For qualifying community banking organizations that have 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3:
    (i) A qualifying community banking organization's tangible equity 
capital, as calculated under 12 CFR 3.12(b)(2); plus
    (ii) A qualifying community banking organization's allowances for 
loan and lease losses, or allowance for credit losses, as applicable, 
as reported in the national bank's Call Report; or
    (2) For all other national banks:
    (i) A bank's tier 1 and tier 2 capital calculated under the OCC's 
risk-based capital standards set forth in 12 CFR part 3, as applicable, 
as reported in the bank's Call Report; plus
    (ii) The balance of a bank's allowances for loan and lease losses, 
or allowance for credit losses, as applicable, not included in the 
bank's tier 2 capital, for purposes of the calculation of risk-based 
capital described in paragraph (a)(2)(i) of this section, as reported 
in the bank's Call Report.
* * * * *

PART 160--LENDING AND INVESTMENT

0
20. The authority citation for part 160 continues to read as follows:

    Authority:  12 U.S.C. 1462a, 1463, 1464, 1467a, 1701j-3, 1828, 
3803, 3806, 5412(b)(2)(B); 42 U.S.C. 4106.

0
21. Section 160.3 is amended by adding the definition of total capital 
in alphabetical order to read as follows:
* * * * *
    Total capital means:
    (1) For a qualifying community banking organization that has 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3, total capital refers to the qualifying community banking 
organization's tangible equity capital, as calculated under 12 CFR 
3.12(b)(2);
    (2) For all other Federal savings associations, total capital means 
the sum of tier 1 capital and tier 2 capital, as calculated under 12 
CFR part 3.

PART 192--CONVERSIONS FROM MUTUAL TO STOCK FORM

0
22. The authority citation for part 192 continues to read as follows:

    Authority:  12 U.S.C. 1462a, 1463, 1464, 1467a, 2901, 
5412(b)(2)(B); 15 U.S.C. 78c, 78l, 78m, 78n, 78w.

0
23. Section 192.500 is amended by adding paragraph (a)(3)(iii) to read 
as follows:


Sec.  192.500  What management stock benefit plans may I implement?

    (a) * * *
    (3) * * *
    (iii) For a qualifying community banking organization that has 
elected to use the community bank leverage ratio framework, as set 
forth under the OCC's Capital Adequacy Standards set forth at 12 CFR 
part 3, the term tangible capital, as it is used in this paragraph 
(a)(3), refers to the qualifying community banking organization's 
tangible equity capital, as calculated under 12 CFR 3.12(b)(2).
* * * * *

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

    For the reasons set forth in the preamble, chapter II of title 12 
of the Code of Federal Regulations is proposed to be amended as set 
forth below:

PART 206--LIMITATIONS ON INTERBANK LIABILITIES (REGULATION F)

0
24. The authority citation for part 206 continues to read as follows:

    Authority:  12 U.S.C. 371b-2.

0
25. Section 206.2 is amended by revising paragraph (g) to read as 
follows:


Sec.  206.2  Definitions.

* * * * *
    (g) Total capital means the total of a bank's Tier 1 and Tier 2 
capital under the risk-based capital guidelines provided by the bank's 
primary federal supervisor. For a qualifying community banking 
organization (as defined in 12 CFR 217.12) that is subject to the 
community bank leverage ratio (as defined in 12 CFR 217.12), total 
capital means the bank's CBLR tangible equity (as defined in 12 CFR 
217.12). For an insured branch of a foreign bank organized under the 
laws of a country that subscribes to the principles of the Basel 
Capital Accord, ``total capital'' means total Tier 1 and Tier 2 capital 
as calculated under the standards of that country. For an insured 
branch of a foreign bank organized under the laws of a country that 
does not subscribe to the principles of the Basel Capital Accord, 
``total capital'' means total Tier 1 and Tier 2 capital as calculated 
under the provisions of the Accord.
* * * * *
0
26. Section 206.5 is amended by adding paragraph (a)(4) to read as 
follows:


Sec.  206.5  Capital levels of correspondents.

    (a) * * *

[[Page 3085]]

    (4) Notwithstanding paragraphs (a)(1) through (3) of this section, 
a qualifying community banking organization (as defined in 12 CFR 
217.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12), is adequately capitalized if it has a 
community bank leverage ratio of 7.5 percent or greater.
* * * * *

PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL 
RESERVE SYSTEM (REGULATION H)

0
27. The authority citation for part 208 is revised to read as follows:

    Authority:  12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-
338a, 371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 
1833(j), 1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1831w, 1831x, 
1835a, 1882, 2901-2907, 3105, 3310, 3331-3351, 3905-3909, 5371, and 
5371 note; 15 U.S.C. 78b, 78I(b), 78l(i), 780-4(c)(5), 78q, 78q-1, 
and 78w, 1681s, 1681w, 6801, and 6805; 31 U.S.C. 5318; 42 U.S.C. 
4012a, 4104a, 4104b, 4106 and 4128.

0
28. Section 208.2 is amended by revising paragraph (d) to read as 
follows:


Sec.  208.2  Definitions.

* * * * *
    (d) Capital stock and surplus means, unless otherwise provided in 
this part, or by statute, tier 1 and tier 2 capital included in a 
member bank's risk-based capital (as defined in 12 CFR 217.2 of 
Regulation Q) and the balance of a member bank's allowances for loan 
and lease losses not included in its tier 2 capital for calculation of 
risk-based capital, based on the bank's most recent Report of Condition 
and Income filed under 12 U.S.C. 324. For a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12), 
capital stock and surplus means the bank's CBLR tangible equity (as 
defined in 12 CFR 217.12) plus allowances for loan and lease losses (as 
defined in 12 CFR 217.2).
* * * * *
0
29. Section 208.43 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  208.43  Capital measures and capital category definitions.

    (a) Capital measures. (1) For purposes of section 38 of the FDI Act 
and this subpart, the relevant capital measures are:
    (i) Total Risk-Based Capital Measure: The total risk-based capital 
ratio;
    (ii) Tier 1 Risk-Based Capital Measure: The tier 1 risk-based 
capital ratio;
    (iii) Common Equity Tier 1 Capital Measure: The common equity tier 
1 risk-based capital ratio; and
    (iv) Leverage Measure:
    (A) The leverage ratio; and
    (B) With respect to an advanced approaches bank, on January 1, 
2018, and thereafter, the supplementary leverage ratio.
    (C) With respect to any bank that is a subsidiary (as defined in 
Sec.  217.2 of Regulation Q (12 CFR 217.2)) of a global systemically 
important BHC, on Jan. 1, 2018, and thereafter, the supplementary 
leverage ratio.
    (2) For a qualifying community banking organization (as defined in 
12 CFR 217.12), that is subject to the community bank leverage ratio 
(as defined in 12 CFR 217.12), the community bank leverage ratio is 
used to determine the applicable capital category under paragraphs 
(b)(1) through (4) of this section.
    (b) Capital categories. For purposes of section 38 of the FDI Act 
and this subpart, a member bank is deemed to be:
    (1)(i) ``Well capitalized'' if:
    (A) Total Risk-Based Capital Measure: The bank has a total risk-
based capital ratio of 10.0 percent or greater; and
    (B) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-
based capital ratio of 8.0 percent or greater; and
    (C) Common Equity Tier 1 Capital Measure: the bank has a common 
equity tier 1 risk-based capital ratio of 6.5 percent or greater; and
    (D) Leverage Measure:
    (1) The bank has a leverage ratio of 5.0 percent or greater; and
    (2) Beginning on Jan. 1, 2018, with respect to any bank that is a 
subsidiary of a global systemically important BHC under the definition 
of ``subsidiary'' in Sec.  217.2 of Regulation Q (12 CFR 217.2), the 
bank has a supplementary leverage ratio of 6.0 percent or greater; and
    (E) The bank is not subject to any written agreement, order, 
capital directive, or prompt corrective action directive issued by the 
Board pursuant to section 8 of the FDI Act, the International Lending 
Supervision Act of 1983 (12 U.S.C. 3907), or section 38 of the FDI Act, 
or any regulation thereunder, to meet and maintain a specific capital 
level for any capital measure.
    (ii) A bank that is a qualifying community banking organization (as 
defined in 12 CFR 217.12) that has elected to use the community bank 
leverage ratio (as defined in 12 CFR 217.12) and that has a community 
bank leverage ratio greater than 9 percent, is considered to have met 
the capital ratio requirements for the well capitalized capital 
category in paragraphs (b)(1)(i)(A) through (D) of this section.
    (2)(i) ``Adequately capitalized'' if:
    (A) Total Risk-Based Capital Measure: The bank has a total risk-
based capital ratio of 8.0 percent or greater; and
    (B) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-
based capital ratio of 6.0 percent or greater; and
    (C) Common Equity Tier 1 Capital Measure: The bank has a common 
equity tier 1 risk-based capital ratio of 4.5 percent or greater; and
    (D) Leverage Measure:
    (1) The bank has a leverage ratio of 4.0 percent or greater; and
    (2) With respect to an advanced approaches bank, on January 1, 
2018, and thereafter, the bank has a supplementary leverage ratio of 
3.0 percent or greater; and
    (E) The bank does not meet the definition of a ``well capitalized'' 
bank.
    (ii) A bank that is a qualifying community banking organization (as 
defined in 12 CFR 217.12) that has elected to use the community bank 
leverage ratio (as defined in 12 CFR 217.12) and that has a community 
bank leverage ratio of 7.5 percent or greater, is considered to have 
met the requirements for the adequately capitalized capital category in 
paragraphs (b)(2)(i)(A) through (D) of this section.
    (3)(i) ``Undercapitalized'' if:
    (A) Total Risk-Based Capital Measure: The bank has a total risk-
based capital ratio of less than 8.0 percent; or
    (B) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-
based capital ratio of less than 6.0 percent; or
    (C) Common Equity Tier 1 Capital Measure: The bank has a common 
equity tier 1 risk-based capital ratio of less than 4.5 percent; or
    (D) Leverage Measure:
    (1) The bank has a leverage ratio of less than 4.0 percent; or
    (2) With respect to an advanced approaches bank, on January 1, 
2018, and thereafter, the bank has a supplementary leverage ratio of 
less than 3.0 percent.
    (ii) A bank that is a qualifying community banking organization (as 
defined in 12 CFR 217.12) that has elected to use the community bank 
leverage ratio (as defined in 12 CFR 217.12) and that has a community 
bank leverage ratio of less than 7.5 percent, is considered to have met 
the requirements for the undercapitalized capital category in 
paragraphs (b)(3)(i)(A) through (D) of this section.
    (4)(i) ``Significantly undercapitalized'' if:
    (A) Total Risk-Based Capital Measure: The bank has a total risk-
based capital ratio of less than 6.0 percent; or

[[Page 3086]]

    (B) Tier 1 Risk-Based Capital Measure: The bank has a tier 1 risk-
based capital ratio of less than 4.0 percent; or
    (C) Common Equity Tier 1 Capital Measure: The bank has a common 
equity tier 1 risk-based capital ratio of less than 3.0 percent; or
    (D) Leverage Measure: The bank has a leverage ratio of less than 
3.0 percent.
    (ii) A bank that is a qualifying community banking organization (as 
defined in 12 CFR 217.12) that has elected to use the community bank 
leverage ratio (as defined in 12 CFR 217.12) and that has a community 
bank leverage ratio of less than 6 percent, is considered to have met 
the requirements for the significantly undercapitalized capital 
category in paragraphs (b)(4)(i)(A) through (D) of this section.
    (5) ``Critically undercapitalized'' if the bank has a ratio of 
tangible equity, as defined in Sec.  208.41, to total assets that is 
equal to or less than 2.0 percent.
* * * * *
0
30. Section 208.73 is amended by removing paragraph (a), redesignating 
paragraphs (b) through (f) as paragraphs (a) through (e), respectively, 
and revising newly redesignated paragraph (a) to read as follows:


Sec.  208.73  What additional provisions are applicable to state member 
banks with financial subsidiaries?

    (a) Capital requirements for state member banks. A state member 
bank other than a qualifying community banking organization (as defined 
in 12 CFR 217.12) that is subject to the community bank leverage ratio 
(as defined in 12 CFR 217.12) that controls or holds an interest in a 
financial subsidiary must comply with the rules set forth in Sec.  
217.22(a)(7) of Regulation Q (12 CFR 217.22(a)(7)) in determining its 
compliance with applicable regulatory capital standards (including the 
well capitalized standard of Sec.  208.71(a)(1)).
* * * * *

PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)

0
31. The authority citation for part 211 continues to read as follows:

    Authority:  12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq., 
3101 et seq., 3901 et seq., and 5101 et seq.; 15 U.S.C. 1681s, 
1681w, 6801 and 6805.
0
32. In part 211, remove the words ``Capital Adequacy Guidelines'' 
wherever they appear and add in their place the words ``capital rule''.
0
33. Section 211.2 is amended by revising paragraphs (b), (c), and (x) 
to read as follows:


Sec.  211.2  Definitions.

* * * * *
    (b) Capital rule means 12 CFR part 217.
    (c) Capital and surplus means, unless otherwise provided in this 
part: (1) For organizations subject to the capital rule (other than 
qualifying community banking organizations (as defined in 12 CFR 
217.12) that are subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12)):
    (i) Tier 1 and tier 2 capital included in an organization's risk-
based capital ratios (under the capital rule); and
    (ii) The balance of allowances for loan and lease losses not 
included in an organization's tier 2 capital for calculation of risk-
based capital ratios, based on the organization's most recent 
consolidated Report of Condition and Income.
    (2) For qualifying community banking organizations (as defined in 
12 CFR 217.12) that are subject to the community bank leverage ratio 
(as defined in 12 CFR 217.12), CBLR tangible equity (as defined in 12 
CFR 217.12) plus allowances for loan and lease losses (as defined in 12 
CFR 217.2).
    (3) For all other organizations, paid-in and unimpaired capital and 
surplus, and includes undivided profits but does not include the 
proceeds of capital notes or debentures.
* * * * *
    (x) Tier 1 capital has the same meaning as provided under 12 CFR 
part 217, except that for a qualifying community banking organization 
(as defined in 12 CFR 217.12) that is subject to the community bank 
leverage ratio (as defined in 12 CFR 217.12), tier 1 capital means CBLR 
tangible equity (as defined in 12 CFR 217.12).
* * * * *
0
34. Section 211.9 is amended by redesignating footnote 5 to paragraph 
(a) as footnote 1 to paragraph (a) andrevising paragraph (a)(1) to read 
as follows:


Sec.  211.9  Investment procedures.

    (a) * * *
    (1) Minimum capital adequacy standards. Except as the Board may 
otherwise determine, in order for an investor to make investments 
pursuant to the procedures set out in this section, the investor, the 
bank holding company, and the member bank shall be in compliance with 
applicable minimum standards for capital adequacy set out in the 
capital rule; provided that, if the investor is an Edge or agreement 
corporation, the minimum capital required is total and tier 1 capital 
ratios of 8 percent and 4 percent, respectively.
* * * * *

PART 215--LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL 
SHAREHOLDERS OF MEMBER BANKS (REGULATION O)

0
35. The authority citation for part 215 continues to read as follows:

    Authority:  12 U.S.C. 248(a), 375a(10), 375b(9) and (10), 1468, 
1817(k), 5412; and Pub. L. 102-242, 105 Stat. 2236 (1991).
0
36. Section 215.2 is amended by revising paragraphs (i)(1) and (i)(2) 
and adding paragraph (i)(3) to read as follows:


Sec.  215.2  Definitions.

* * * * *
    (i) * * *
    (1) The bank's Tier 1 and Tier 2 capital included in the bank's 
risk-based capital under the capital guidelines of the appropriate 
Federal banking agency, based on the bank's most recent consolidated 
report of condition filed under 12 U.S.C. 1817(a)(3); and
    (2) The balance of the bank's allowances for loan and lease losses 
not included in the bank's Tier 2 capital for purposes of the 
calculation of risk-based capital by the appropriate Federal banking 
agency, based on the bank's most recent consolidated report of 
condition filed under 12 U.S.C. 1817(a)(3).
    (3) Notwithstanding paragraphs (i)(1) through (2) of this section, 
for a member bank that is a qualifying community banking organization 
(as defined in 12 CFR 217.12) that is subject to the community bank 
leverage ratio (as defined in 12 CFR 217.12), unimpaired capital and 
unimpaired surplus equals CBLR tangible equity (as defined in 12 CFR 
217.12) plus allowances for loan and lease losses (as defined in 12 CFR 
217.2).
* * * * *

PART 217--CAPITAL ADEQUACY OF BANKING HOLDING COMPANIES, SAVINGS 
AND LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)

0
37. The authority citation for part 217 is revised to read as follows:

    Authority:  12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 
1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1851, 3904, 
3906-3909, 4808, 5365, 5368, 5371, and 5371 note.
0
38. Section 217.10 is amended by revising paragraph (a) to read as 
follows:

[[Page 3087]]

Sec.  217.10  Minimum capital requirements.

    (a) Minimum capital requirements. (1) A Board-regulated institution 
must maintain the following minimum capital ratios:
    (i) A common equity tier 1 capital ratio of 4.5 percent.
    (ii) A tier 1 capital ratio of 6 percent.
    (iii) A total capital ratio of 8 percent.
    (iv) A leverage ratio of 4 percent.
    (v) For advanced approaches Board-regulated institutions, a 
supplementary leverage ratio of 3 percent.
    (2) A qualifying community banking organization (as defined in 12 
CFR 217.12), that is subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12), is considered to have met the minimum 
capital requirements in this paragraph (a) only if the qualifying 
community banking organization has a community bank leverage ratio of 
at least 7.5 percent or more.
* * * * *
0
39. Section 217.12 is added as to read as follows:


Sec.  217.12  Community bank leverage ratio.

    (a) Community bank leverage ratio framework. (1) Notwithstanding 
any other provision in this part, a qualifying community banking 
organization that has made an election to use the community bank 
leverage ratio framework under paragraph (a)(3) of this section shall 
be considered to have met the minimum capital requirements under Sec.  
217.10, the capital ratio requirements for the well capitalized capital 
category under 12 CFR 208.43(b)(1), and any other capital or leverage 
requirements to which the qualifying community banking organization is 
subject, if it has a community bank leverage ratio greater than 9 
percent.
    (2) For purposes of this section, a qualifying community banking 
organization means a Board-regulated institution that is not an 
advanced approaches Board-regulated institution and that satisfies all 
of the following criteria:
    (i) Has total consolidated assets of less than $10 billion, 
calculated in accordance with the reporting instructions to Schedule RC 
of the Call Report or Schedule HC of Form FR Y-9C, as applicable, as of 
the end of the most recent calendar quarter;
    (ii) Has off-balance sheet exposures of 25 percent or less of its 
total consolidated assets as of the end of the most recent calendar 
quarter, calculated as the sum of the notional amounts of the exposures 
listed in paragraphs (a)(2)(ii)(A) through (I) of this section, divided 
by total consolidated assets, each as of the end of the most recent 
calendar quarter:
    (A) The unused portion of commitments (except for unconditionally 
cancellable commitments);
    (B) Self-liquidating, trade-related contingent items that arise 
from the movement of goods;
    (C) Transaction-related contingent items, including performance 
bonds, bid bonds, warranties, and performance standby letters of 
credit;
    (D) Sold credit protection through guarantees and credit 
derivatives;
    (E) Credit-enhancing representations and warranties;
    (F) Securities lent and borrowed, calculated in accordance with the 
reporting instructions to Schedule RC-L of the Call Report or Schedule 
HC-L of Form FR Y-9C, as applicable;
    (G) Financial standby letters of credit;
    (H) Forward agreements that are not derivative contracts; and
    (I) Off-balance sheet securitization exposures;
    (iii) Has total trading assets and trading liabilities, calculated 
in accordance with the reporting instructions to Schedule RC of the 
Call Report or Schedule HC of Form FR Y-9C, as applicable, of 5 percent 
or less of the Board-regulated institution's total consolidated assets, 
each as of the end of the most recent calendar quarter;
    (iv) Has mortgage servicing assets, calculated in accordance with 
the reporting instructions to Schedule RC-M of the Call Report or 
Schedule HC-M of Form FR Y-9C, as applicable, of 25 percent or less of 
the Board-regulated institution's CBLR tangible equity, each as of the 
end of the most recent calendar quarter; and
    (v) Has DTAs arising from temporary differences that the Board-
regulated institution could not realize through net operating loss 
carrybacks, net of any related valuation allowances, of 25 percent or 
less of the Board-regulated institution's CBLR tangible equity, each as 
of the end of the most recent calendar quarter.
    (3)(i) A qualifying community banking organization may elect to use 
the community bank leverage ratio framework if it makes an opt-in 
election under this paragraph (a)(3).
    (ii) A qualifying community banking organization may elect to use 
the community bank leverage ratio framework only if it has a community 
bank leverage ratio that exceeds 9 percent at the time of the election.
    (iii) For purposes of this paragraph (a)(3), a qualifying community 
banking organization makes an election to use the community bank 
leverage ratio framework by completing the community bank leverage 
ratio reporting schedule in its Call Report or Form FR Y-9C, as 
applicable.
    (iv)(A) A qualifying community banking organization that has 
elected to use the community bank leverage ratio may opt out of using 
the community bank leverage ratio by completing Schedule RC-R in its 
Call Report or Schedule HC-R of Form FR Y-9C, as applicable, or by 
otherwise providing the information required in Schedule RC-R or 
Schedule HC-R, as applicable, to the Board.
    (B) A qualifying community banking organization that opts out of 
using the community bank leverage ratio pursuant to paragraph 
(a)(3)(iv)(A) of this section must comply with Sec.  217.10 
immediately.
    (b) Calculation of the community bank leverage ratio. (1) A 
qualifying community banking organization's community bank leverage 
ratio is the ratio of the banking organization's CBLR tangible equity, 
as defined in paragraph (b)(2) of this section, to its average total 
consolidated assets, as defined in paragraph (b)(3) of this section.
    (2) CBLR tangible equity means total bank equity capital, 
calculated in accordance with the reporting instructions to Schedule RC 
of the Call Report or Schedule HC of Form FR Y-9C, as applicable, 
before the inclusion of noncontrolling (minority) interests in 
consolidated subsidiaries, as of the end of the most recent calendar 
quarter less the following (each as of the end of the most recent 
calendar quarter):
    (i) Accumulated other comprehensive income calculated in accordance 
with the reporting instructions to Schedule RC of the Call Report or 
Schedule HC of Form FR Y-9C, as applicable;
    (ii) Intangible Assets, calculated in accordance with the reporting 
instructions to Schedule RC of the Call Report or Schedule HC of Form 
FR Y-9C, as applicable, other than mortgage servicing assets; and
    (iii) Deferred tax assets (DTAs) that arise from net operating loss 
and tax credit carryforwards net of any related valuation allowances.
    (3) Average total consolidated assets means total assets calculated 
in accordance with the reporting instructions to Schedule RC-K of the 
Call Report or Schedule HC-K of Form FR Y-9C, as applicable, as of the 
end of the most recent calendar quarter less the amounts deducted from 
CBLR tangible equity under paragraphs (b)(2)(ii) and (iii) of this 
section.
    (c) Treatment when ceasing to be a qualifying community banking 
organization requirements. (1) Except as

[[Page 3088]]

provided in paragraph (c)(4) of this section, if an Board-regulated 
institution ceases to meet the definition of a qualifying community 
banking organization, the Board-regulated institution has two reporting 
periods (grace period) to either satisfy the requirements to be a 
qualifying community banking organization or to comply withSec.  
217.10and report the required capital measures under Sec.  217.10 on 
its Call Report or Form FR Y-9C, as applicable.
    (2) The grace period begins as of the end of the calendar quarter 
in which the Board-regulated institution ceases to satisfy the criteria 
to be a qualifying community banking organization provided in paragraph 
(a)(2) of this section. The grace period ends on the last day of the 
second consecutive calendar quarter following the beginning of the 
grace period.
    (3) During the grace period, the Board-regulated institution 
continues to be a qualifying community banking organization for 
purposes of this part and must continue calculating and reporting its 
community bank leverage ratio unless the Board-regulated institution 
has opted out of using the community bank leverage ratio under 
paragraph (a)(3).
    (4) Notwithstanding paragraphs (c)(1) through (3), an Board-
regulated institution that no longer meets the definition of a 
qualifying community banking organization as a result of a merger or 
acquisition has no grace period and immediately ceases to be a 
qualifying community banking organization. Such an Board-regulated 
institution comply with Sec.  217.10 and must report the required 
capital measures under Sec.  217.10 on its next Call Report or Form FR 
Y-9C.
    (d) Tangible equity information. (1) A qualifying community banking 
organization that has elected to use the community bank leverage ratio 
under this section and has a community bank leverage ratio that falls 
below 6 percent, must promptly provide to the Board the information 
necessary for the calculation of its tangible equity, as defined under 
section 12 CFR 208.41, for purposes of determining the capital category 
of the banking organization under 12 CFR 208.43.
    (2) Notwithstanding paragraph (d)(1) of this section, upon request 
by the Board, a qualifying community banking organization must provide 
the information necessary for the calculation of its tangible equity, 
as defined under 12 CFR 208.41, to the Board.
* * * * *

PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES 
(REGULATION W)

0
40. The authority citation for part 223 continues to read as follows:

    Authority:  12 U.S.C. 371c(b)(1)(E), (b)(2)(A), and (f), 371c-
1(e), 1828(j), 1468(a), and section 312(b)(2)(A) of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (12 U.S.C. 5412).
0
41. Section 223.3 is amended by adding paragraph (d)(4) to read as 
follows:


Sec.  223.3  What are the meanings of the other terms used in sections 
23A and 23B and this part?

* * * * *
    (d) * * *
    (4) Notwithstanding paragraphs (d)(1) through (3) of this section, 
for a qualifying community banking organization (as defined in 12 CFR 
217.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12), capital stock and surplus equals CBLR 
tangible equity (as defined in 12 CFR 217.12) plus allowances for loan 
and lease losses (as defined in 12 CFR 217.2).
* * * * *

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
42. The authority citation for part 225 continues to read as follows:

    Authority:  12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3906, 
3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.
0
43. Section 225.2 is amended by by revising paragraph (h), 
redesignating footnote 2 to paragraph (r)(1) as footnote 1 to paragraph 
(r)(1), and adding paragraph (r)(4) to read as follows:


Sec.  225.2  Definitions.

* * * * *
    (h) Lead insured depository institution means the largest insured 
depository institution controlled by the bank holding company as of the 
quarter ending immediately prior to the proposed filing, based on a 
comparison of the average total risk-weighted assets controlled during 
the previous 12-month period be each insured depository institution 
subsidiary of the holding company. For purposes of this paragraph, for 
a qualifying community banking organization (as defined in 12 CFR 
217.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12), average total risk-weighted assets equal the 
qualifying community banking organization's average total consolidated 
assets (as defined in 12 CFR 217.12).
* * * * *
    (r) * * *
    (4) Notwithstanding paragraphs (r)(1) through (3) of this section:
    (i) A bank holding company that is a qualifying community banking 
organization (as defined in 12 CFR 217.12) that is subject to the 
community bank leverage ratio (as defined in 12 CFR 217.12), is well 
capitalized if:
    (A) It has a community bank leverage ratio greater than 9.0 
percent; and
    (B) It satisfies the requirements of paragraph (r)(1)(iii) of this 
section.
    (ii) A depository institution that is a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12) is well 
capitalized if it has a community bank leverage ratio greater than 9.0 
percent.
* * * * *
0
44. Section 225.14 is amended by:
0
a. Redesignating footnote 3 to paragraph (a)(1)(ii) as footnote 1 to 
paragraph (a)(1)(ii);
0
b. Revising paragraphs (a)(1)(v)(A) and (vii), and . (c)(6)(i); and
0
c. Adding paragraphs (c)(6)(iii; and (f).
    The revisions and additions read as follows:


Sec.  225.14  Expedited action for certain bank acquisitions by well-
run bank holding companies.

    (a) * * *
    (1) * * *
    (v) (A) If the bank holding company is not a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12), and:
    (1) If the bank holding company has consolidated assets of $3 
billion or more, an abbreviated consolidated pro forma balance sheet as 
of the most recent quarter showing credit and debit adjustments that 
reflect the proposed transaction, consolidated pro forma risk-based 
capital ratios for the acquiring bank holding company as of the most 
recent quarter, and a description of the purchase price and the terms 
and sources of funding for the transaction; or
    (2) If the bank holding company has consolidated assets of less 
than $3 billion, a pro forma parent-only balance sheet as of the most 
recent quarter showing credit and debit adjustments that reflect the 
proposed transaction, and a description of the purchase price, the 
terms and sources of funding for the transaction, and the sources and 
schedule for retiring any debt incurred in the transaction;

[[Page 3089]]

    (B) If the bank holding company is a qualifying community banking 
organization (as defined in 12 CFR 217.12) that is subject to the 
community bank leverage ratio (as defined in 12 CFR 217.12), an 
abbreviated consolidated pro forma balance sheet as of the most recent 
quarter showing credit and debit adjustments that reflect the proposed 
transaction, consolidated pro forma community bank leverage ratio for 
the acquiring bank holding company as of the most recent quarter, and a 
description of the purchase price and the terms and sources of funding 
for the transaction;
* * * * *
    (vii)(A) For each insured depository institution (that is not a 
qualifying community banking organization (as defined in 12 CFR 217.12) 
that is subject to the community bank leverage ratio (as defined in 12 
CFR 217.12)) whose Tier 1 capital, total capital, total assets or risk-
weighted assets change as a result of the transaction, the total risk-
weighted assets, total assets, Tier 1 capital and total capital of the 
institution on a pro forma basis; and
    (B) For each insured depository institution that is a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12), whose CBLR tangible equity (as defined in 12 CFR 217.12) or 
total assets change as a result of the transaction, the total assets, 
and CBLR tangible equity of the institution on a pro forma basis; and
* * * * *
    (c) * * *
    (6) * * *
    (i) * * *
    (A) Limited Growth. Except as provided in paragraphs (c)(6)(ii) and 
(iii) of this section, the sum of the aggregate risk-weighted assets to 
be acquired in the proposal and the aggregate risk-weighted assets 
acquired by the acquiring bank holding company in all other qualifying 
transactions does not exceed 35 percent of the consolidated risk-
weighted assets of the acquiring bank holding company. For purposes of 
this paragraph other qualifying transactions means any transaction 
approved under this section or Sec.  225.23 during the 12 months prior 
to filing the notice under this section; and
    (B) Individual size limitation. Except as provided in paragraph 
(c)(6)(iii) of this section, the total risk-weighted assets to be 
acquired do not exceed $7.5 billion;
* * * * *
    (iii) Qualifying community banking organizations. Paragraphs 
(c)(6)(i)(A) and (B) of this section shall not apply if:
    (A) The acquiring bank holding company is a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12);
    (B) The sum of the total assets to be acquired in the proposal and 
the total assets acquired by the acquiring bank holding company in all 
other qualifying transactions does not exceed 35 percent of the average 
total consolidated assets (as defined in 12 CFR 217.12) of the 
acquiring bank holding company as last reported to the Board. For 
purposes of this paragraph other qualifying transactions means any 
transaction approved under this section or Sec.  225.23 during the 12 
months prior to filing the notice under this section; and
    (C) The total assets to be acquired do not exceed $7.5 billion;
* * * * *
    (f) Qualifying community banking organizations. For purposes of 
this section, a qualifying community banking organization (as defined 
in 12 CFR 217.12) that is subject to the community bank leverage ratio 
(as defined in 12 CFR 217.12) controls total risk-weighted assets equal 
to the qualifying community banking organization's average total 
consolidated assets (as defined in 12 CFR 217.12) as last reported to 
its primary banking supervisor.
0
45. Section 225.22 is amended by adding paragraph (d)(8)(vi) to read as 
follows:


Sec.  225.22  Exempt nonbanking activities and acquisitions.

* * * * *
    (d) * * *
    (8) * * *
    (vi) Qualifying community banking organizations. For purposes of 
paragraph (d)(8)(ii) of this section, a lending company or industrial 
bank that is a qualifying community banking organization (as defined in 
12 CFR 217.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12), or is a subsidiary of such a qualifying 
community banking organization, has risk-weighted assets equal to:
    (A) Its average total consolidated assets (as defined in 12 CFR 
217.12) as most recently reported to its primary banking supervisor (as 
defined in Sec.  225.14(d)(5)); or
    (B) Its total assets, if the company or industrial bank does not 
report such average total consolidated assets.
* * * * *
0
46. Section 225.23 is amended by:
0
a .Redesignating footnote 2 to paragraph (a)(1) as footnote 1 to 
paragraph (a)(1);
0
b. Revising paragraphs (a)(1)(iii) and (c)(5)(i); and
0
c. Adding paragraphs (c)(5)(iii) and (e).
    The revisions and additions read as follows:


Sec.  225.23  Expedited action for certain nonbanking proposals by 
well-run bank holding companies.

    (a) * * *
    (1) * * *
    (iii) If the proposal involves an acquisition of a going concern:
    (A) If the acquiring bank holding company is not a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12):
    (1) If the bank holding company has consolidated assets of $3 
billion or more, an abbreviated consolidated pro forma balance sheet 
for the acquiring bank holding company as of the most recent quarter 
showing credit and debit adjustments that reflect the proposed 
transaction, consolidated pro forma risk-based capital ratios for the 
acquiring bank holding company as of the most recent quarter, a 
description of the purchase price and the terms and sources of funding 
for the transaction, and the total revenue and net income of the 
company to be acquired; or
    (2) If the bank holding company has consolidated assets of less 
than $3 billion, a pro forma parent-only balance sheet as of the most 
recent quarter showing credit and debit adjustments that reflect the 
proposed transaction, a description of the purchase price and the terms 
and sources of funding for the transaction and the sources and schedule 
for retiring any debt incurred in the transaction, and the total 
assets, off-balance sheet items, revenue and net income of the company 
to be acquired;
    (B) If the acquiring bank holding company is a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12), an 
abbreviated consolidated pro forma balance sheet for the acquiring bank 
holding company as of the most recent quarter showing credit and debit 
adjustments that reflect the proposed transaction, consolidated pro 
forma community bank leverage ratio for the acquiring bank holding 
company as of the most recent quarter, a description of the purchase 
price and the terms and sources of funding for the transaction,

[[Page 3090]]

and the total revenue and net income of the company to be acquired;
    (C) For each insured depository institution (that is not a 
qualifying community banking organization (as defined in 12 CFR 217.12) 
that is subject to the community bank leverage ratio (as defined in 12 
CFR 217.12)) whose Tier 1 capital, total capital, total assets or risk-
weighted assets change as a result of the transaction, the total risk-
weighted assets, total assets, Tier 1 capital and total capital of the 
institution on a pro forma basis; and
    (D) For each insured depository institution that is a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12), whose CBLR tangible equity (as defined in 12 CFR 217.12) or 
total assets change as a result of the transaction, the total assets 
and CBLR tangible equity of the institution on a pro forma basis;
* * * * *
    (c) * * *
    (5) * * *
    (i) In general--
    (A) Limited growth. Except as provided in paragraphs (c)(5)(ii) and 
(iii) of this section, the sum of aggregate risk-weighted assets to be 
acquired in the proposal and the aggregate risk-weighted assets 
acquired by the acquiring bank holding company in all other qualifying 
transactions does not exceed 35 percent of the consolidated risk-
weighted assets of the acquiring bank holding company. For purposes of 
this paragraph, ``other qualifying transactions'' means any transaction 
approved under this section or Sec.  225.14 during the 12 months prior 
to filing the notice under this section;
    (B) Consideration paid. Except as provided in paragraph (c)(5)(iii) 
of this section, the gross consideration to be paid by the acquiring 
bank holding company in the proposal does not exceed 15 percent of the 
consolidated Tier 1 capital of the acquiring bank holding company; and
    (C) Individual size limitation. Except as provided in paragraph 
(c)(5)(iii) of this section, the total risk-weighted assets to be 
acquired do not exceed $7.5 billion;
* * * * *
    (iii) Qualifying community banking organizations. Paragraphs 
(c)(5)(i)(A), (B), and (C) of this section shall not apply if:
    (A) The acquiring bank holding company is a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12); and
    (B) The sum of the total assets to be acquired in the proposal and 
the total assets acquired by the acquiring bank holding company in all 
other qualifying transactions does not exceed 35 percent of the average 
total consolidated assets (as defined in 12 CFR 217.12) of the 
acquiring bank holding company as last reported to the Board. For 
purposes of this paragraph ``other qualifying transactions'' means any 
transaction approved under this section or Sec.  225.14 during the 12 
months prior to filing the notice under this section;
    (C) The gross consideration to be paid by the acquiring bank 
holding company in the proposal does not exceed 15 percent of the CBLR 
tangible equity (as defined in 12 CFR 217.12) of the acquiring bank 
holding company; and
    (D) The total assets to be acquired do not exceed $7.5 billion;
* * * * *
    (e) Qualifying community banking organizations. For purposes of 
this section, a qualifying community banking organization (as defined 
in 12 CFR 217.12) that is subject to the community bank leverage ratio 
(as defined in 12 CFR 217.12) controls total risk-weighted assets equal 
to the qualifying community banking organization's average total 
consolidated assets (as defined in 12 CFR 217.12) as last reported to 
its primary banking supervisor.
0
47. Section 225.24 is amended byrevising paragraphs (a)(2)(iv)(B) and 
(a)(2)(vi) to read as follows:


Sec.  225.24  Procedures for other nonbanking proposals.

    (a) * * *
    (2) * * *
    (iv) * * *
    (B) Consolidated pro forma risk-based capital and leverage ratio 
calculations for the acquiring bank holding company as of the most 
recent quarter (or, in the case of a qualifying community banking 
organization (as defined in 12 CFR 217.12) that is subject to the 
community bank leverage ratio (as defined in 12 CFR 217.12), 
consolidated pro forma community bank leverage ratio calculations for 
the acquiring bank holding company as of the most recent quarter); and
* * * * *
    (vi) (A) For each insured depository institution (that is not a 
qualifying community banking organization (as defined in 12 CFR 217.12) 
that is subject to the community bank leverage ratio (as defined in 12 
CFR 217.12)) whose Tier 1 capital, total capital, total assets or risk-
weighted assets change as a result of the transaction, the total risk-
weighted assets, total assets, Tier 1 capital and total capital of the 
institution on a pro forma basis; and
    (B) For each insured depository institution that is a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12), whose CBLR tangible equity (as defined in 12 CFR 217.12) or 
total assets change as a result of the transaction, the total assets 
and CBLR tangible equity of the institution on a pro forma basis;
* * * * *
0
48. Section 225.87 is amended by adding paragraph (b)(4)(iv) to read as 
follows:


Sec.  225.87  Is notice to the Board required after engaging in a 
financial activity?

* * * * *
    (b) * * *
    (4) * * *
    (iv) For purposes of paragraph (b)(4) of this section, a financial 
holding company that is a qualifying community banking organization (as 
defined in 12 CFR 217.12) that is subject to the community bank 
leverage ratio (as defined in 12 CFR 217.12) has Tier 1 capital equal 
to its CBLR tangible equity (as defined in 12 CFR 217.12).
0
49. Section 225.174 is amended by adding paragraph (d) to read as 
follows:


Sec.  225.174  What aggregate thresholds apply to merchant banking 
investments?

* * * * *
    (d) Qualifying community banking organizations. For purposes of 
this section, a financial holding company that is a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12) has Tier 1 capital equal to its CBLR tangible equity (as 
defined in 12 CFR 217.12).
0
50. Section 225.175 is amended by adding paragraph (c)(3) to read as 
follows:


Sec.  225.175  What risk management, record keeping and reporting 
policies are required to make merchant banking investments?

* * * * *
    (c) * * *
    (3) Qualifying community banking organizations. For purposes of 
this paragraph (c), a financial holding company that is a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12) has Tier 1 capital equal to its CBLR tangible equity (as 
defined in 12 CFR 217.12).

[[Page 3091]]

PART 238--SAVINGS AND LOAN HOLDING COMPANIES (REGULATION LL)

0
51. The authority citation for part 238 continues to read as follows:

    Authority: 5 U.S.C. 552, 559; 12 U.S.C. 1462, 1462a, 1463, 1464, 
1467, 1467a, 1468, 1813, 1817, 1829e, 1831i, 1972; 15 U.S.C. 78l.

0
52. Section 238.53 is amended by revising paragraphs (c)(2)(iii)(B) and 
(v) to read as follows:


Sec.  238.53  Prescribed services and activities of savings and loan 
holding companies.

* * * * *
    (c) * * *
    (2) * * *
    (iii) * * *
    (B) Consolidated pro forma risk-based capital and leverage ratio 
calculations for the acquiring savings and loan holding company as of 
the most recent quarter (or, in the case of a qualifying community 
banking organization (as defined in 12 CFR 217.12) that is subject to 
the community bank leverage ratio (as defined in 12 CFR 217.12), 
consolidated pro forma community bank leverage ratio calculations for 
the acquiring savings and loan holding company as of the most recent 
quarter); and
* * * * *
    (v) (A) For each insured depository institution (that is not a 
qualifying community banking organization (as defined in 12 CFR 217.12) 
that is subject to the community bank leverage ratio (as defined in 12 
CFR 217.12)) whose Tier 1 capital, total capital, total assets or risk-
weighted assets change as a result of the transaction, the total risk-
weighted assets, total assets, Tier 1 capital and total capital of the 
institution on a pro forma basis; and
    (B) For each insured depository institution that is a qualifying 
community banking organization (as defined in 12 CFR 217.12) that is 
subject to the community bank leverage ratio (as defined in 12 CFR 
217.12), whose CBLR tangible equity (as defined in 12 CFR 217.12) or 
total assets change as a result of the transaction, the total assets 
and CBLR tangible equity of the institution on a pro forma basis;
* * * * *

PART 251--CONCENTRATION LIMIT (REGULATION XX)

0
53. The authority citation for part 251 continues to read as follows:

    Authority:  12 U.S.C. 1818, 1844(b), 1852, 3101 et seq.

0
54. Section 251.3 is amended by revising paragraph (c)(2) and adding 
paragraph (c)(3) to read as follows:


Sec.  251.3  Concentration limit.

* * * * *
    (c) * * *
    (2) U.S. company not subject to applicable risk-based capital 
rules. For a U.S. company that is not subject to applicable risk-based 
capital rules (other than a qualifying community banking organization 
(as defined in 12 CFR 217.12) that is subject to the community bank 
leverage ratio (as defined in 12 CFR 217.12)), consolidated liabilities 
are equal to the total liabilities of such company on a consolidated 
basis, as determined under applicable accounting standards.
    (3) Qualifying community banking organizations. For a U.S. company 
that is a qualifying community banking organization (as defined in 12 
CFR 217.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 217.12), consolidated liabilities are equal to:
    (i) Average total consolidated assets (as defined in 12 CFR 217.12) 
of the company as last reported on the qualifying community banking 
organization's applicable regulatory filing with the qualifying 
community banking organization's appropriate Federal banking agency; 
minus
    (ii) The company's CBLR tangible equity (as defined in 12 CFR 
217.12).
* * * * *

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

    For the reasons stated in the preamble, the Federal Deposit 
Insurance Corporation proposes to amend chapter III of Title 12, Code 
of Federal Regulations as follows:

PART 303--Filing Procedures

0
55. The authority citation for part 303 continues to read as follows:

    Authority:  12 U.S.C. 378, 1464, 1813, 1815, 1817, 1818, 1819(a) 
(Seventh and Tenth), 1820, 1823, 1828, 1831a, 1831e, 1831o, 1831p-1, 
1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5414; 15 U.S.C. 1601-
1607.

0
56. Section 303.2 is amended by revising paragraph (ee) to read as 
follows:


Sec.  303.2  Definitions.

* * * * *
    (ee) Tier 1 capital shall have the same meaning as provided in 
Sec.  324.2 of this chapter. For a qualifying community banking 
organization (as defined in 12 CFR 324.12) that is subject to the 
community bank leverage ratio (as defined in 12 CFR 324.12), Tier 1 
capital means the FDIC-supervised institution's CBLR tangible equity 
(as defined in 12 CFR 324.12).
* * * * *

PART 324--Capital Adequacy of FDIC-Supervised Institutions

0
57. The authority citation for part 324 continues to read as follows:

    Authority:  12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b), 
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n), 
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub.L. 102-233, 
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub.L. 102-242, 
105 Stat. 2236, 2355, as amended by Pub.L. 103-325, 108 Stat. 2160, 
2233 (12 U.S.C. 1828 note); Pub.L. 102-242, 105 Stat. 2236, 2386, as 
amended by Pub.L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828 
note); Pub.L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note); 
Pub. L. 115-174 Sec.  201.

0
58. Section 324.10 is amended by revising paragraph (a) to read as 
follows:


Sec.  324.10  Minimum capital requirements.

    (a) Minimum capital requirements. (1) An FDIC-supervised 
institution must maintain the following minimum capital ratios:
    (i) A common equity tier 1 capital ratio of 4.5 percent.
    (ii) A tier 1 capital ratio of 6 percent.
    (iii) A total capital ratio of 8 percent.
    (iv) A leverage ratio of 4 percent.
    (v) For advanced approaches FDIC-supervised institutions, a 
supplementary leverage ratio of 3 percent.
    (vi) For state savings associations, a tangible capital ratio of 
1.5 percent.
    (2) A qualifying community banking organization (as defined in 12 
CFR 324.12), that is subject to the community bank leverage ratio (as 
defined in 12 CFR 324.12), is considered to have met the minimum 
capital requirements in this paragraph (a) only if the qualifying 
community banking organization has a community bank leverage ratio of 
at least 7.5 percent or more.
* * * * *
0
59. Section 324.12 is added to read as follows:


Sec.  324.12  Community bank leverage ratio.

    (a) Community bank leverage ratio framework. (1) Notwithstanding 
any other provision in this part, a qualifying community banking 
organization that has made an election to use the community bank 
leverage ratio framework under paragraph (a)(3) of this section shall 
be considered to have met the minimum capital requirements under Sec.  
324.10, the capital ratio requirements for the well capitalized

[[Page 3092]]

capital category under Sec.  324.403(b)(1)(i)(A) through (D) of this 
part, and any other capital or leverage requirements to which the 
qualifying community banking organization is subject, if it has a 
community bank leverage ratio greater than 9 percent.
    (2) For purposes of this section, a qualifying community banking 
organization means an FDIC-supervised institution that is not an 
advanced approaches FDIC-supervised institution and that satisfies all 
of the following criteria:
    (i) Has total consolidated assets of less than $10 billion, 
calculated in accordance with the reporting instructions to Schedule RC 
of the Call Report as of the end of the most recent calendar quarter;
    (ii) Has off-balance sheet exposures of 25 percent or less of its 
total consolidated assets as of the end of the most recent calendar 
quarter, calculated as the sum of the notional amounts of the exposures 
listed in paragraphs (a)(2)(ii)(A) through (I), divided by total 
consolidated assets, each as of the end of the most recent calendar 
quarter:
    (A) The unused portion of commitments (except for unconditionally 
cancellable commitments);
    (B) Self-liquidating, trade-related contingent items that arise 
from the movement of goods;
    (C) Transaction-related contingent items, including performance 
bonds, bid bonds, warranties, and performance standby letters of 
credit;
    (D) Sold credit protection through guarantees and credit 
derivatives;
    (E) Credit-enhancing representations and warranties;
    (F) Securities lent and borrowed, calculated in accordance with the 
reporting instructions to Schedule RC-L of the Call Report;
    (G) Financial standby letters of credit;
    (H) Forward agreements that are not derivative contracts; and
    (I) Off-balance sheet securitization exposures;
    (iii) Has total trading assets and trading liabilities, calculated 
in accordance with the reporting instructions to Schedule RC of the 
Call Report of 5 percent or less of the FDIC-supervised institution's 
total consolidated assets, each as of the end of the most recent 
calendar quarter;
    (iv) Has mortgage servicing assets, calculated in accordance with 
the reporting instructions to Schedule RC-M of the Call Report, of 25 
percent or less of the FDIC-supervised institution's CBLR tangible 
equity, each as of the end of the most recent calendar quarter; and
    (v) Has DTAs arising from temporary differences that the FDIC-
supervised institution could not realize through net operating loss 
carrybacks, net of any related valuation allowances, of 25 percent or 
less of the FDIC-supervised institution's CBLR tangible equity, each as 
of the end of the most recent calendar quarter.
    (3)(i) A qualifying community banking organization may elect to use 
the community bank leverage ratio framework if it makes an opt-in 
election under this paragraph (a)(3).
    (ii) A qualifying community banking organization may elect to use 
the community bank leverage ratio framework only if it has a community 
bank leverage ratio that exceeds 9 percent at the time of the election.
    (iii) For purposes of this paragraph (a)(3), a qualifying community 
banking organization makes an election to use the community bank 
leverage ratio framework by completing the community bank leverage 
ratio reporting schedule in its Call Report.
    (iv)(A) A qualifying community banking organization that has 
elected to use the community bank leverage ratio may opt out of using 
the community bank leverage ratio by completing Schedule RC-R in its 
Call Report or by otherwise providing the information required in 
Schedule RC-R to the FDIC.
    (B) A qualifying community banking organization that opts out of 
using the community bank leverage ratio pursuant to paragraph 
(a)(3)(iv)(A) of this section must comply with Sec.  324.10 
immediately.
    (b) Calculation of the community bank leverage ratio. (1) A 
qualifying community banking organization's community bank leverage 
ratio is the ratio of the banking organization's CBLR tangible equity, 
as defined in paragraph (b)(2) of this section, to its average total 
consolidated assets, as defined in paragraph (b)(3) of this section.
    (2) CBLR tangible equity means total bank equity capital, 
calculated in accordance with the reporting instructions to Schedule RC 
of the Call Report, before the inclusion of noncontrolling (minority) 
interests in consolidated subsidiaries, as of the end of the most 
recent calendar quarter less the following (each as of the end of the 
most recent calendar quarter):
    (i) Accumulated other comprehensive income calculated in accordance 
with the reporting instructions to Schedule RC of the Call Report;
    (ii) Intangible Assets, calculated in accordance with the reporting 
instructions to Schedule RC of the Call Report, other than mortgage 
servicing assets;
    (iii) Deferred tax assets (DTAs) that arise from net operating loss 
and tax credit carryforwards net of any related valuation allowances; 
and
    (iv) Identified losses. A qualifying community banking organization 
must deduct identified losses (to the extent that CBLR tangible equity 
would have been reduced if the appropriate accounting entries to 
reflect the identified losses had been recorded on the banking 
organization's books).
    (3) Average total consolidated assets means total assets calculated 
in accordance with the reporting instructions to Schedule RC-K of the 
Call Report as of the end of the most recent calendar quarter less the 
amounts deducted from CBLR tangible equity under paragraphs (b)(2)(ii) 
through (iv) of this section.
    (c) Treatment when ceasing to be a qualifying community banking 
organization requirements. (1) Except as provided in paragraph (c)(4) 
of this section, if an FDIC-supervised institution ceases to meet the 
definition of a qualifying community banking organization, the FDIC-
supervised institution has two reporting periods (grace period) to 
either satisfy the requirements to be a qualifying community banking 
organization or to comply with Sec.  324.10 and report the required 
capital measures under Sec.  324.10 on its Call Report.
    (2) The grace period begins as of the end of the calendar quarter 
in which the FDIC-supervised institution ceases to satisfy the criteria 
to be a qualifying community banking organization provided in paragraph 
(a)(2) of this section. The grace period ends on the last day of the 
second consecutive calendar quarter following the beginning of the 
grace period.
    (3) During the grace period, the FDIC-supervised institution 
continues to be a qualifying community banking organization for 
purposes of this part and must continue calculating and reporting its 
community bank leverage ratio unless the FDIC-supervised institution 
has opted out of using the community bank leverage ratio under 
paragraph (a)(3).
    (4) Notwithstanding paragraphs (c)(1) through (3), an FDIC-
supervised institution that no longer meets the definition of a 
qualifying community banking organization as a result of a merger or 
acquisition has no grace period and immediately ceases to be a 
qualifying community banking organization. Such an FDIC-supervised 
institution comply with Sec.  324.10 and must report the required 
capital measures under Sec.  324.10 on its next Call Report.

[[Page 3093]]

    (d) Tangible equity information. (1) A qualifying community banking 
organization that has elected to use the community bank leverage ratio 
under this section and has a community bank leverage ratio that falls 
below 6 percent, must promptly provide to the FDIC the information 
necessary for the calculation of its tangible equity, as defined under 
Sec.  324.2, for purposes of determining the capital category of the 
banking organization under subpart H of this part.
    (2) Notwithstanding paragraph (d)(1), upon request by the FDIC, a 
qualifying community banking organization must provide the information 
necessary for the calculation of its tangible equity, as defined under 
Sec.  324.2, to the FDIC.
0
60. Section 324.403is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec.  324.403  Capital measures and capital category definitions.

    (a) Capital measures. (1) For purposes of section 38 of the FDI Act 
and this subpart H, the relevant capital measures shall be:
    (i) The total risk-based capital ratio;
    (ii) The Tier 1 risk-based capital ratio;
    (iii) The common equity tier 1 ratio;
    (iv) The leverage ratio;
    (v) The tangible equity to total assets ratio; and
    (vi) Beginning January 1, 2018, the supplementary leverage ratio 
calculated in accordance with Sec.  324.11 for advanced approaches 
FDIC-supervised institutions that are subject to subpart E of this 
part.
    (2) For a qualifying community banking organization (as defined 
under Sec.  324.12), that is subject to the community bank leverage 
ratio (as defined under Sec.  324.12), the community bank leverage 
ratio (as defined under Sec.  324.12), is used to determine the 
applicable capital category under paragraphs (b)(1) through (4) of this 
section.
    (b) Capital categories. For purposes of section 38 of the FDI Act 
and this subpart, an FDIC-supervised institution shall be deemed to be:
    (1) (i) ``Well capitalized'' if it:
    (A) Has a total risk-based capital ratio of 10.0 percent or 
greater; and
    (B) Has a Tier 1 risk-based capital ratio of 8.0 percent or 
greater; and
    (C) Has a common equity tier 1 capital ratio of 6.5 percent or 
greater; and
    (D) Has a leverage ratio of 5.0 percent or greater; and
    (E) Is not subject to any written agreement, order, capital 
directive, or prompt corrective action directive issued by the FDIC 
pursuant to section 8 of the FDI Act (12 U.S.C. 1818), the 
International Lending Supervision Act of 1983 (12 U.S.C. 3907), or the 
Home Owners' Loan Act (12 U.S.C. 1464(t)(6)(A)(ii)), or section 38 of 
the FDI Act (12 U.S.C. 1831o), or any regulation thereunder, to meet 
and maintain a specific capital level for any capital measure.
    (ii) Beginning on January 1, 2018 and thereafter, an FDIC-
supervised institution that is a subsidiary of a covered BHC will be 
deemed to be well capitalized if the FDIC-supervised institution 
satisfies paragraphs (b)(1)(i)(A) through (E) of this section and has a 
supplementary leverage ratio of 6.0 percent or greater. For purposes of 
this paragraph, a covered BHC means a U.S. top-tier bank holding 
company with more than $700 billion in total assets as reported on the 
company's most recent Consolidated Financial Statement for Bank Holding 
Companies (Form FR Y-9C) or more than $10 trillion in assets under 
custody as reported on the company's most recent Banking Organization 
Systemic Risk Report (Form FR Y-15).
    (iii) A qualifying community banking organization, as defined under 
Sec.  324.12, that has elected to use the community bank leverage ratio 
framework under Sec.  324.12 and that has a community bank leverage 
ratio, as defined under Sec.  324.12, greater than 9 percent, shall be 
considered to have met the capital ratio requirements for the well 
capitalized capital category in paragraphs (b)(1)(i)(A) through (D) of 
this section.
    (2)(i) ``Adequately capitalized'' if it:
    (A) Has a total risk-based capital ratio of 8.0 percent or greater; 
and
    (B) Has a Tier 1 risk-based capital ratio of 6.0 percent or 
greater; and
    (C) Has a common equity tier 1 capital ratio of 4.5 percent or 
greater; and
    (D) Has a leverage ratio of 4.0 percent or greater; and
    (E) Does not meet the definition of a well capitalized bank.
    (ii) Beginning January 1, 2018, an advanced approaches FDIC-
supervised institution will be deemed to be ``adequately capitalized'' 
if it satisfies paragraphs (b)(2)(i)(A) through (E) of this section and 
has a supplementary leverage ratio of 3.0 percent or greater, as 
calculated in accordance with Sec.  324.11 of subpart B of this part.
    (iii) A qualifying community banking organization, as defined under 
Sec.  324.12, that has elected to use the community bank leverage ratio 
framework under section Sec.  324.12 and that has a community bank 
leverage ratio, as defined under Sec.  324.12, of 7.5 percent or 
greater, shall be considered to have met the requirements for the 
adequately capitalized capital category in paragraphs (b)(2)(i)(A) 
through (D) of this section.
    (3)(i) ``Undercapitalized'' if it:
    (A) Has a total risk-based capital ratio that is less than 8.0 
percent; or
    (B) Has a Tier 1 risk-based capital ratio that is less than 6.0 
percent; or
    (C) Has a common equity tier 1 capital ratio that is less than 4.5 
percent; or
    (D) Has a leverage ratio that is less than 4.0 percent.
    (ii) Beginning January 1, 2018, an advanced approaches FDIC-
supervised institution will be deemed to be ``undercapitalized'' if it 
has a supplementary leverage ratio of less than 3.0 percent, as 
calculated in accordance with Sec.  324.11.
    (iii) A qualifying community banking organization, as defined under 
Sec.  324.12, that has elected to use the community bank leverage ratio 
framework under section Sec.  324.12 and that has a community bank 
leverage ratio, as defined under Sec.  324.12, of less than 7.5 
percent, shall be considered to have met the requirements for the 
undercapitalized capital category in paragraphs (b)(3)(i)(A) through 
(D) of this section.
    (4)(i) ``Significantly undercapitalized'' if it has:
    (A) A total risk-based capital ratio that is less than 6.0 percent; 
or
    (B) A Tier 1 risk-based capital ratio that is less than 4.0 
percent; or
    (C) A common equity tier 1 capital ratio that is less than 3.0 
percent; or
    (D) A leverage ratio that is less than 3.0 percent.
    (ii) A qualifying community banking organization, as defined under 
Sec.  324.12, that has elected to use the community bank leverage ratio 
framework under section Sec.  324.12 and that has a community bank 
leverage ratio, as defined under Sec.  324.12, of less than 6 percent, 
shall be considered to have met the requirements for the significantly 
undercapitalized capital category in paragraphs (b)(4)(i)(A) through 
(D) of this section.
    (5) ``Critically undercapitalized'' if the insured depository 
institution has a ratio of tangible equity, as defined in Sec.  324.2, 
to total assets that is equal to or less than 2.0 percent.

PART 337--UNSAFE AND UNSOUND BANKING PRACTICES

0
61. The authority citation for part 337 continues to read as follows:

    Authority:  12 U.S.C. 375a(4), 375b, 1463(a)(1), 1816, 1818(a), 
1818(b), 1819, 1820(d), 1828(j)(2), 1831, 1831f, 5412.

0
62. Section 337.3 is amended by redesignating footnote 3 to paragraph 
(b) as footnote 1 and revising newly to read as follows:

[[Page 3094]]

Sec.  337.3  Limits on extensions of credit to executive officers, 
directors, and principal shareholders of insured nonmember banks.

* * * * *
    (b) * * *
    1 For the purposes of Sec.  337.3, an insured nonmember bank's 
capital and unimpaired surplus shall have the same meaning as found in 
Sec.  215.2(f) of Federal Reserve Board Regulation O (12 CFR 215.2(f)). 
For a qualifying community banking organization (as defined in 12 CFR 
324.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 324.12), capital and unimpaired surplus shall mean 
the FDIC-supervised institution's CBLR tangible equity (as defined in 
12 CFR 324.12) plus allowances for loan and lease losses (as defined in 
12 CFR 324. 2).
* * * * *

PART 347--INTERNATIONAL BANKING

0
63. The authority citation for part 347 continues to read as follows:

    Authority:  12 U.S.C. 1813, 1815, 1817, 1819, 1820, 1828, 3103, 
3104, 3105, 3108, 3109; Pub L. No. 111-203, section 939A, 124 Stat. 
1376, 1887 (July 21, 2010) (codified 15 U.S.C. 78o-7 note).

0
64. Section 347.102 is amended by revising paragraph (u) to read as 
follows:


Sec.  347.102  Definitions.

* * * * *
    (u) Tier 1 capital means Tier 1 capital as defined in Sec.  324.2 
of this chapter. For a qualifying community banking organization (as 
defined in 12 CFR 324.12) that is subject to the community bank 
leverage ratio (as defined in 12 CFR 324.12), Tier 1 capital means the 
FDIC-supervised institution's CBLR tangible equity (as defined in 12 
CFR 324.12).
* * * * *

PART 362--ACTIVITIES OF INSURED STATE BANKS AND INSURED SAVINGS 
ASSOCIATIONS

0
65. The authority citation for part 362 continues to read as follows:

    Authority:  12 U.S.C. 1816, 1818, 1819(a) (Tenth), 1828(j), 
1828(m), 1828a, 1831a, 1831e, 1831w, 1843(l).

0
66. Section 362.2 is amended by revision paragraph (s) to read as 
follows:


Sec.  362.2  Definitions.

* * * * *
    (s) Tier one capital has the same meaning as set forth in part 324 
of this chapter for an insured State nonmember bank or insured state 
savings association. For other state-chartered depository institutions, 
the term ``tier one capital'' has the same meaning as set forth in the 
capital regulations adopted by the appropriate Federal banking agency. 
For a qualifying community banking organization (as defined in 12 CFR 
324.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 324.12), Tier one capital means the FDIC-supervised 
institution's CBLR tangible equity (as defined in 12 CFR 324.12).
* * * * *

PART 365--REAL ESTATE LENDING STANDARDS

0
67. The authority citation for part 365 continues to read as follows:

    Authority:  12 U.S.C. 1828(o) and 5101 et seq.

0
68. Appendix A to subpart A of part 365 is amended by:
0
a. Following the heading ``Supervisory Loan-to-Value-Limits'', in the 
table, redesignating footnotes 1 and 2 as footnotes 2 and 3;
0
b. In the first paragraph of the appendix, redesignating footnote 5 as 
footnote 1; and
0
c. Following the heading ``Loans in Excess of the Supervisory Loan-to-
Value-Limits'', redesignating the second footnote 2 as footnote 4 and 
revising newly redesignated footnote 4.
    The revision reads as follows:

Appendix A to Subpart A of Part 365--Interagency Guidelines for Real 
Estate Lending Policies

* * * * *
    4 For state non-member banks and state savings associations, 
``total capital'' refers to that term described in 12 CFR 324.2. For a 
qualifying community banking organization (as defined in 12 CFR 324.12) 
that is subject to the community bank leverage ratio (as defined in 12 
CFR 324.12), ``total capital'' refers to the FDIC-supervised 
institution's CBLR tangible equity (as defined in 12 CFR 324.12).
* * * * *

PART 390--REGULATIONS TRANSFERRED FROM THE OFFICE OF THRIFT 
SUPERVISION

0
69. The authority citation for part 390 continues to read as follows:

    Authority:  12 U.S.C. 1819.

0
70. Section 390.265 is amended by revising footnote 4 to read as 
follows:
* * * * *
    4 For the state member banks, the term ``total capital'' is defined 
at 12 CFR 217.2. For insured state non-member banks, the term ``total 
capital'' is defined at 12 CFR 324.2. For national banks, the term 
``total capital'' is defined at 12 CFR 3.2. For state savings 
associations, the term ``total capital'' is defined at 12 CFR 324.2. 
For a qualifying community banking organization (as defined in 12 CFR 
324.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 324.12), ``total capital'' means the FDIC-supervised 
institution's CBLR tangible equity (as defined in 12 CFR 324.12).
* * * * *
0
71. Section 390.344 is amended by revising the definition of 
``Capital'' to read as follows:
* * * * *


Sec.  390.344  Definitions applicable to capital distributions.

* * * * *
    Capital means total capital, as computed under part 324 of this 
chapter. For a qualifying community banking organization (as defined in 
12 CFR 324.12) that is subject to the community bank leverage ratio (as 
defined in 12 CFR 324.12), total capital means the FDIC-supervised 
institution's CBLR tangible equity (as defined in 12 CFR 324.12).
* * * * *

    Dated: November 15, 2018.
Joseph M. Otting,
Comptroller of the Currency.
    By order of the Board of Governors of the Federal Reserve 
System, November 21, 2018.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
    Dated at Washington, DC, on November 20, 2018.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-27002 Filed 2-7-19; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P