On December 2, 2020 the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors, and the Federal Deposit Insurance Corporation (collectively the Agencies) published an interim final regulation (IFR) to mitigate temporary transition costs on banking organizations related to the coronavirus disease 2019 (COVID event), by issuing an interim final rule to permit national banks, savings associations, state banks, bank holding companies, savings and loan holding companies, and U.S. branches and agencies of foreign banking organizations with under $10 billion in total assets as of December 31, 2019, (community banking organizations) to use asset data as of December 31, 2019, in order to determine the applicability of various regulatory asset thresholds during calendar years 2020 and 2021.

  • For the same reasons, the agencies are temporarily revising the instructions to a number of regulatory reports to provide that community banking organizations may use asset data as of December 31, 2019, in order to determine reporting requirements for reports due in calendar years 2020 or 2021.

Basis – The agencies have issued a number of rules and supervisory guidance communications designed to mitigate the consequences of the COVID event and to facilitate the safe and effective operations of banking organizations. Community banking organizations have played an instrumental role in the nation’s financial response to the COVID event, and many have experienced significant balance sheet growth as a result of the COVID event and the policy response to the event.

  • Policies encouraging banks to work with their customers, such as the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP) and the interagency statement encouraging financial institutions to work with borrowers affected by the COVID event, have resulted in much needed emergency liquidity being offered to small businesses, including, but not limited to, individuals operating sole proprietorships or acting as independent contractors, certain franchisees, nonprofit corporations, veterans organizations, Tribal businesses, and households.
  • As a result, during the COVID event many community banking organizations have experienced an unexpected and sharp increase in assets, swelling their balance sheets in some cases by more than 25 percent. Much of this growth particularly that related to participation in PPP is expected to be temporary.

Action – Community banking organizations are subject to a wide range of statutory requirements, regulations, and reporting requirements predicated on their risk profile and asset size.

  • Due to their response to the COVID event, many community banking organizations have been, or may soon be, pushed over an asset threshold that could subject them to additional regulation or to additional reporting requirements.
  • In the absence of regulatory burden relief, complying with these new or more stringent regulatory standards, especially if the community banking organization’s assets are expected to be above a threshold for a limited time, would impose significant transition and compliance costs on community banking organizations.
  • This interim final rule gives community banking organizations more time to either reduce their balance sheets by shedding temporary growth, or to prepare for higher regulatory and reporting standards.

Exclusions – This interim final rule does not address the exemption in the Board’s Regulation H from certain flood insurance escrow requirements for qualifying state member banks (less than $1 billion in assets as of December 31 of either of the two prior calendar years, provided other conditions are also met), 12 CFR 208.25(e)(3), or the provision in the Board’s Regulation BB defining small bank and intermediate small bank for purposes of determining applicable Community Reinvestment Act evaluation procedures.

  • As currently defined in Regulation BB: a small bank is a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.305 billion; an intermediate small bank is a small bank with assets of at least $326 million as of December 31 of both of the prior two calendar years and less than $1.305 billion as of December 31 of either of the prior two calendar years; and a large bank is a bank with assets of at least $1.305 billion as of December 31 of both of the prior two calendar years, 12 CFR 228.12(u)(1).
  • As indicated, the asset-based thresholds in these provisions take into account assets as of the end of the two previous calendar years. Therefore, the earliest that a bank with assets that did not exceed one of these thresholds as of December 31, 2019, could exceed the threshold is January 1, 2022.
  • As a result, consistent with this interim final rule, asset growth in 2020 or 2021 will not trigger new regulatory requirements until January 1, 2022, at the earliest. For similar reasons, the interim final rule does not adjust thresholds in the OCC and the FDIC’s flood insurance escrow rule at 12 CFR 22.5(c) (OCC) and 12 CFR 339.5(c) (FDIC) and Community Reinvestment Act regulatory thresholds for small banks and intermediate banks at 12 CFR part 25 (OCC) and 12 CFR 345 (FDIC).
  • The OCC also is not adjusting thresholds for depository institution management interlocks at 12 CFR part 26, as this part already permits any affected bank to request a waiver related to unanticipated asset growth.

This IFR was effective on December 2, 2020.