CBAI Urges Additional Capital Regulatory Relief

In a December 21, 2017 comment letter to the Federal Reserve, FDIC, and the OCC, CBAI urged the regulators to provide additional, long-overdue and well-deserved capital regulatory relief for community banks. The comment letter was in response to the Agencies’ Notice of Proposed Rulemaking (NPR) regarding the simplification of capital rules pursuant to the 2016 EGRPRA decennial review.

A majority of the NPR’s provisions would apply to community banking organizations that are not subject to the “advanced approaches”. CBAI appreciates simplification of the criteria for HVCRE loans but remain concerned about the 130% risk weighting for all ADC loans. CBAI recommended that properly underwritten ADC loans receive 100% risk weighting without limitation on the the borrower's investment or debt service coverage ratios associated with the loan.

CBAI also remains concerned that the individual deduction thresholds for mortgage servicing assets (MSAs), certain deferred tax assets (DTAs), and the investments in the capital of unconsolidated institutions (including Trust Preferred Securities (TruPS) are not high enough. CBAI recommends raising the individual cap on these assets to 50% of Common Equity Tier 1 Capital for community banks with less than $50 billion in assets and urged that the risk weight assigned to these assets, when they are not deducted, should be reduced to 100%.

Unfortunately, the proposal did not address equality in the application of Prompt Corrective Action (PCA) between community banks and the largest banks, an exemption for community banks from Basel III, and including the entirety of a community bank’s ALLL in regulatory Capital. CBAI urged the Agencies to address these important issues as well. Read CBAI Comment Letter.