Fed, FDIC Finalize Changes Easing Community Bank Leverage Ratio

Regulators have finalized a rule that lowers the Community Bank Leverage Ratio (CBLR) from 9% to 8% and lengthens the grace period for falling below the qualifying criteria, easing capital constraints and making the simplified framework accessible to more community banks.

What changed in the final rule

• The CBLR requirement is reduced from 9% to 8% (Tier 1 capital to average total consolidated assets).

• The grace period for qualifying community banks that fall out of compliance with one of the CBLR criteria is extended from two quarters to four quarters, subject to a cap on how often the grace period can be used.

• During the grace period, a bank must maintain at least a 7% leverage ratio; dropping to 7% or below triggers a requirement to move back to the full risk‑based capital framework.

• The agencies (Fed, FDIC, OCC) finalized the rule essentially as proposed, without substantive modifications, and indicated that the changes are intended to preserve safety and soundness while reducing burden and volatility around capital planning for community banks.

• The rule will take effect July 1, 2026, after which community banks may elect to operate under the revised CBLR framework.

Rationale and expected impact

• Regulators state that lowering the CBLR and extending the grace period will “provide more flexibility” in capital management for community banks while still requiring capital well above the minimum leverage standard.

• By reducing the risk that a temporary dip triggers a rapid switch back to the complex risk‑based framework, the agencies expect fewer forced, pro‑cyclical balance sheet adjustments in periods of stress.

• Industry groups (e.g., ABA) argue this will expand the number of banks that can opt into the simplified regime and free additional balance‑sheet capacity for lending to small businesses, farmers, and households in local markets.

Snapshot of old vs. new CBLR framework