On November 21, 2018, the federal banking agencies (the “Agencies”) released a proposal (the “Proposed Rule”) to simplify the regulatory capital requirements for qualifying community banking organizations (QCBOs) (i.e., depository institutions and depository institution holding companies with assets of less than $10 billion that meet certain conditions).

If adopted, the Proposed Rule would be the most significant change to the U.S. capital rules for community banks since 2013, when the Agencies adopted Basel III capital rules applicable to all U.S. banks. The 2013 rules, under which community banks continue to operate, established three risk-weighted asset (RWA) minimum capital standards (common equity Tier 1 capital/RWA of 4.5%; Tier 1 capital/RWA of 6%; and total capital/RWA of 8%) and a minimum leverage ratio of 4%.