Bill would lower de novo requirements, reduce community bank leverage ratio

A bill introduced last week in the House of Representatives would ease requirements for de novos while lowering the leverage ratio for community banks. .Introduced Jan. 7, the Main Street Capital Access Act would institute a three-year phase-in for de novo banks to meet federal capital requirements. During that time, the Community Bank Leverage Ratio would drop to 7.5 percent or the generally applicable ratio, whichever is lower. The legislation was introduced amid a steep drop in de novos. More than 180 new bank charters were issued in 2007, but that number fell to an annual average of less than a half dozen from 2010-23. Last year, Federal Reserve Vice Chair for Supervision Michelle Bowman suggested lowering the community bank leverage ratio threshold to 8 percent from 9 percent, saying it could increase participation and increase lending capacity. The leverage ratio, an optional framework adopted by the Federal Reserve, FDIC and the Office of the Comptroller of the Currency, is intended to simplify capital requirements. As of last year, less than half of the nation’s more than 4,000 community banks have opted in. Smaller institutions are more likely to use it, with more than half having less than $1 billion in assets, compared to 26 percent of larger community banks.The bill, introduced by House Financial Services Committee Chair French Hill (R-Ark.) and Financial Institutions Subcommittee Chair Andy Barr (R-Ky.), requires regulators to notify banks whether their merger and acquisition applications are complete within 30 days of the initial filing. Final agency action would need to be taken within 90 days. The provision could further increase the pace of bank M&A, which has significantly risen in the first 12 months of the Trump administration. By the end of the third quarter of last year, 126 bank deals had been announced, which equaled the number of deals announced in all of 2024.Banking agencies issuing new regulations and supervisory decisions would need to consider the bank’s risk profile and business model under the bill, and make regulatory threshold adjustments. Reputational risk would not be allowed to be used in bank supervision. The legislation directs the Federal Financial Institutions Examinations Council to recommend changes to the CAMELS rating system and review material supervisory determinations issued by banking agencies.The American Bankers Association and Independent Community Bankers of America support the bill.