Key Updates to the Community Bank Leverage Ratio (CBLR) Framework

Regulatory Relief for Smaller Banks Arrives in Mid-2026

The federal banking agencies (OCC, Federal Reserve, and FDIC) have finalized revisions to the Community Bank Leverage Ratio framework, providing regulatory simplification for community banks and holding companies. The final rule was published following a proposal issued in late 2025, with broad industry support. The main changes are as follows:

Lowered CBLR Requirement

The minimum leverage ratio for qualifying community banking organizations drops from 9% to 8%.

• This aligns with the lower bound authorized by the 2018 Economic Growth,Regulatory Relief, and Consumer Protection Act (EGRRCPA).
• The 8% level is intended to expand eligibility and adoption of the simpler CBLR framework while remaining comparable to (and in many cases more stringent than) well-capitalized standards under the Prompt Corrective Action (PCA) framework.
• Result: An estimated additional ~477 institutions could qualify, bringing potential participation to ~95% of organizations with under $10 billion in assets.

Extended Grace Period

Institutions that fall out of full qualifying criteria (but maintain a leverage ratio above 7%) now get four consecutive quarters (up from two) to return to compliance or transition to risk-based capital rules.

• New safeguard: Total grace period usage is capped at eight quarters in any rolling five-year (20-quarter) period.
• This gives banks more breathing room to address temporary issues like retained earnings volatility without immediately reverting to complex risk-based calculations.

Qualifying Criteria Remain Unchanged

• Total consolidated assets < $10 billion

• Limited off-balance sheet exposures and trading activity
• Not an advanced approaches institution

Effective Date and Purpose

The rule takes effect July 1, 2026.

The agencies designed these changes to reduce regulatory burden on community banks—especially smaller ones—while preserving safety and soundness. Many community banks already hold capital well above the new 8% threshold (median ~11.9% as of mid-2025 data), so the update should free up operational resources and support additional lending capacity without compromising stability.