Community Bank Leverage Ratio lowered to 8% with a longer grace period
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This rule makes it easier for eligible community banks to use the simpler Community Bank Leverage Ratio framework. It lowers the required capital ratio from 9% to 8% and gives banks more time to fix temporary eligibility problems, extending the grace period from two quarters to four quarters, with a cap on repeated use over five years. The main impact is on small U.S. banks and bank holding companies with less than $10 billion in assets that qualify for the framework. These banks will have more room to stay in the simpler capital regime, may avoid switching back and forth as often, and could choose to hold less capital above the minimum. The rule takes effect on July 1, 2026.
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Key Changes
- Lowers the Community Bank Leverage Ratio requirement from 9% to 8%
- Extends the grace period for temporary noncompliance from two quarters to four quarters
- Limits grace-period use to no more than eight quarters in the prior five-year period
Obligations
What this law requires
Eligible community banking organizations may elect to use the Community Bank Leverage Ratio (CBLR) framework only if they meet the framework’s qualifying criteria, including having less than $10 billion in total consolidated assets, a leverage ratio above the required CBLR threshold, off-balance sheet exposures at or below 25% of total consolidated assets, trading assets and liabilities at or below 5% of total consolidated assets, and not being an advanced approaches banking organization.
A qualifying community banking organization that elects the CBLR framework must maintain a CBLR above 8% to be deemed to satisfy the generally applicable risk-based and leverage capital requirements and, for insured depository institutions, to be considered well capitalized under PCA.
If a community banking organization falls below the CBLR qualifying criteria but still maintains a leverage ratio above 8%, it may remain in the CBLR framework for up to four consecutive quarters during the grace period.
A community banking organization that fails to return to compliance with all qualifying criteria by the end of the four-quarter grace period must comply with the risk-based capital requirements and file the associated information in its regulatory reports for the quarter in which it ceases to be a qualifying community banking organization.
A community banking organization that at any time fails to maintain a leverage ratio above 8% must exit the CBLR framework and comply with the risk-based capital requirements.