U.S. Banking Regulators Finalize Rule Lowering Community Bank Leverage Ratio to 8%

The Federal Deposit Insurance Corp., Federal Reserve Board and Office of the Comptroller of the Currency on Thursday finalized a rule lowering the community bank leverage ratio to 8% from 9%, effective July 1, expanding a simpler capital option for small banks.

The change matters because it broadens access to the Community Bank Leverage Ratio, or CBLR, framework, an optional regime that lets qualifying community banks avoid calculating the full set of risk-based capital ratios. The agencies said lowering the threshold to 8% would make 477 additional community banking organizations eligible to opt in. They also estimated the change could allow current CBLR participants to expand aggregate balance sheets by about $64 billion, or 8.1%, though they said actual use of that capacity is uncertain.

The final rule makes two main revisions. First, it lowers the CBLR calibration to 8% from 9%. The ratio is a simple leverage measure based on Tier 1 capital divided by average total consolidated assets. Second, it extends the grace period for a community bank that has elected the framework but temporarily falls out of compliance, to four consecutive quarters from two.

The agencies paired that relief with safeguards. A bank that falls to or below a 7% leverage ratio immediately becomes subject to the standard risk-based capital framework. And the longer grace-period relief cannot be used indefinitely: It is capped at eight quarters within a rolling five-year, or 20-quarter, lookback period.

Eligibility for the simplified framework remains focused on small, relatively simple institutions. To qualify, a depository institution or holding company must have less than $10 billion in total consolidated assets, limited off-balance-sheet exposure, limited trading activity, and must not be subject to advanced approaches capital rules. Using the agencies’ consolidated figures, there were 4,100 unique community banking organizations as of June 30, 2025, and 4,030 met the size and simplicity thresholds for potential eligibility. Under the old 9% standard, 3,426 met all qualifying criteria.

Community banks are significant lenders to small businesses, households and agriculture, so changes to a simpler capital framework can affect compliance costs and balance-sheet capacity. The agencies said the final rule is authorized by Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, which requires the CBLR to be set within an 8% to 10% range.

The CBLR framework was first adopted in 2019 and took effect in 2020. It was temporarily lowered to 8% during the pandemic before returning to 9% on Jan. 1, 2022. The new rule makes 8% the standing calibration again.

The agencies said they adopted the rule without change from a proposal published in December 2025 after receiving about 30 public comments, most of which supported the lower ratio and longer grace period. In a joint press release, the agencies said the changes “will provide community banks with greater flexibility to use a simpler measure of capital adequacy and reduce regulatory burden.”