The federal banking agencies have finalized a significant recalibration of the Community Bank Leverage Ratio (CBLR) framework. In a joint final rule, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, and the Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) have lowered the CBLR requirement from 9% to 8% and lengthened the grace period for certain temporary breaches of the CBLR criteria. The rule becomes effective July 1, 2026, and is intended to deliver more meaningful regulatory relief while preserving supervisory comfort with capital adequacy and safety and soundness.

Background

The CBLR framework was created under § 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which directed the agencies to develop a simplified leverage-based capital regime for smaller, less complex institutions with less than $10 billion in total consolidated assets. The statute required the CBLR to be set between 8% and 10% and allows qualifying community banks that exceed that ratio to be deemed in compliance with the generally applicable risk-based and leverage capital requirements and, for insured depository institutions, to be considered “well capitalized” for prompt corrective action purposes. When the agencies first implemented the framework in 2019, they calibrated the CBLR at greater than 9%, with a limited two-quarter grace period for temporary noncompliance. Experience since then, including lessons from the temporary 8% CBLR permitted during the COVID-19 pandemic, convinced the agencies that a lower permanent calibration and a more flexible grace period could better achieve the statute’s goal of reducing burden without compromising prudential objectives.

Key Features of the Final Rule

The headline change is straightforward: qualifying community banking organizations that elect the CBLR framework will now need to maintain a leverage ratio above 8%, rather than above 9%, to receive the benefits of the regime. Those benefits remain substantial. A bank that meets the qualifying criteria and exceeds the CBLR requirement is deemed to satisfy all generally applicable risk-based and leverage capital requirements and, if it is an insured depository institution, the capital ratio requirements to be treated as well capitalized under the prompt corrective action framework. The underlying eligibility standards are unchanged. The framework continues to apply only to non–advanced approaches depository institutions and holding companies with less than $10 billion in total consolidated assets, limited off-balance sheet exposures, and modest trading assets and liabilities. What changes under the rule is how many institutions actually fit within that envelope and how much capital headroom they enjoy once inside it. Using mid‑2025 data, the agencies estimate that lowering the CBLR to 8% will raise eligibility to roughly 95% of community banking organizations and make the framework more attractive to banks that previously chose to remain under the full risk-based regime despite meeting the qualifying criteria.

A Longer, Structured Grace Period

The final rule also significantly revises the treatment of institutions that have opted into the CBLR but later fail to meet one or more of the qualifying criteria. Under the prior rule, such banks had only two consecutive quarters to either reestablish full compliance or revert to the risk-based capital framework, provided their leverage ratio remained above 8% during that period. The new rule doubles that timeframe to four consecutive quarters, while setting a firm floor: the institution must maintain a leverage ratio strictly greater than 7% to use the grace period at all. In addition, the agencies have introduced a usage cap to discourage repeated or chronic reliance on the grace period. A bank may not use the grace period in a given quarter if it has already used it for eight or more quarters in the prior five-year (20‑quarter) lookback period. Once that threshold is reached, any subsequent failure to meet the qualifying criteria requires immediate compliance with the risk-based capital rules and associated reporting in that quarter’s regulatory reports. The rule preserves an important structural safeguard by disallowing use of the grace period in connection with mergers or acquisitions that themselves cause a bank to cease being a qualifying community banking organization; institutions planning material growth through combination are expected to be prepared to calculate and report risk-based capital ratios on a timely basis.

Looking Ahead

The agencies have signaled that they will continue to monitor the performance and uptake of the CBLR framework and may make further adjustments as broader capital reforms proceed, including potential changes to the treatment of mortgage servicing assets and other elements of the standardized capital rules. For now, community banks have a clear path to a simpler, more flexible leverage-based capital regime that remains anchored in safety and soundness.