By Álvaro Espitia and Avik Ray
Crop insurance indemnities have risen due to the worsening effects of climate change, including droughts and floods. This trend is incredibly challenging for farmers who grow commodities like corn,...
As we told you last month, two out of every three community banks chose not to opt into the Community Bank Leverage Ratio. We've updated our numbers as more banks file their Call Reports, but the trend continues. The latest numbers show just 1,709 banks out of 5,115 have indicated they are using the new simpler capital framework, which was mandated by Congress as part of its 2018 bill that rolled back key aspects of the Dodd-Frank reforms. Regulators originally set the leverage ratio as greater than 9 percent but temporarily lowered it to greater than 8 percent for 2020 due to the COVID-19 crisis. It will increase to 8.5 percent in 2021 before reaching 9 percent on Jan. 1, 2022.
The smallest banks were most likely to opt into the framework, and the largest banks were the least likely. About 41 percent of banks with assets below $100 million opted in compared to just 17 percent of banks with assets above $1 billion.
Previous Invictus Group studies found that 96 percent of banks would be better off not opting into the framework, which allows most qualifying community banks to forgo risk weighting and other capital rules. But even if a bank ignores the framework, it could be missing out on maximizing its earnings potential by not adequately stress testing the bank first.
Here’s a look at what the Call Reports show:
- Lisa Getter and Malcolm Clark
Invictus Blog, banking, liquidity
Author: Avik Ray , Director, Liquidity Risk Analytics
In the dynamic landscape of community banking, staying ahead of potential liquidity problems is crucial for maintaining stability and growth. As guardians of the financial...
Invictus Blog, banking, liquidity
Author: Adam Mustafa, CEO
Concerns surrounding liquidity and funding are poised to become a pressing issue for banks with concentrations in commercial real estate (CRE), drawing the attention of bank examiners, analysts, and...