Rule2026-08298
Regulatory Capital Rule: Community Bank Leverage Ratio Framework
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 29, 2026
Effective
July 1, 2026
Issuing agencies
Treasury DepartmentComptroller of the CurrencyFederal Reserve SystemFederal Deposit Insurance Corporation
Abstract
The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation are adopting a final rule that lowers the community bank leverage ratio (CBLR) requirement from 9 percent to 8 percent, consistent with the lower bound provided in section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. The final rule also extends the length of time that certain depository institutions and depository institution holding companies can remain in the CBLR framework while not meeting all of the qualifying criteria for the CBLR framework from two consecutive quarters to four consecutive quarters, subject to a limit of eight quarters in the previous five- year period.
Full Text
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[Federal Register Volume 91, Number 82 (Wednesday, April 29, 2026)]
[Rules and Regulations]
[Pages 22973-22989]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-08298]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2025-0141]
RIN 1557-AF33
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket No. R-1876]
RIN 7100-AH08
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AG17
Regulatory Capital Rule: Community Bank Leverage Ratio Framework
AGENCY: Office of the Comptroller of the Currency, Treasury; the Board
of Governors of the Federal Reserve System; and the Federal Deposit
Insurance Corporation.
ACTION: Final rule.
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SUMMARY: The Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, and the Federal Deposit
Insurance Corporation are adopting a final rule that lowers the
community bank leverage ratio (CBLR) requirement from 9 percent to 8
percent, consistent with the lower bound provided in section 201 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act. The
final rule also extends the length of time that certain depository
institutions and depository institution holding companies can remain in
the CBLR framework while not meeting all of the qualifying criteria for
the CBLR framework from two consecutive quarters to four consecutive
quarters, subject to a limit of eight quarters in the previous five-
year period.
DATES: The final rule is effective July 1, 2026.
FOR FURTHER INFORMATION CONTACT:
OCC: Benjamin Pegg, Technical Expert, Capital Policy, (202) 649-
6370; or Carl Kaminski, Assistant Director, Ron Shimabukuro, Senior
Counsel, Daniel Perez, Counsel, or Scott Burnett, Counsel, Bank
Advisory Group, Chief Counsel's Office, (202) 649-5490, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
If you are deaf, hard of hearing, or have a speech disability, please
dial 7-1-1 to access telecommunications relay services.
Board: Juan Climent, Deputy Associate Director, (202) 872-7526;
Morgan Lewis, Manager, (202) 407-5093; Missaka Nuwan Warusawitharana,
Manager, (202) 452-3461; Lars Arnesen, Senior Financial Institution
Policy Analyst, (202) 868-0546; James Caldera, Senior Economist (202)
843-4017, Division of Supervision and Regulation; or Jay Schwarz,
Deputy Associate General Counsel, (202) 731-8852; Mark Buresh, Senior
Special Counsel, (202) 499-0261; Jasmin Keskinen, Counsel, (202) 853-
7872, Legal Division, Board of Governors of the Federal Reserve System,
20th and C Streets NW, Washington, DC 20551. For the hearing impaired
only, Telecommunication Device for the Deaf (TDD), (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section; Michael
Maloney, Senior Policy Analyst; Kyle McCormick, Senior Policy Analyst;
Keith Bergstresser, Senior Policy Analyst; Matthew Park, Financial
Analyst; Capital Markets and Accounting Policy Branch, Division of Risk
Management Supervision; Catherine Wood, Counsel; Merritt Pardini,
Counsel; Nicholas Soyer, Attorney; Legal Division,
<a href="/cdn-cgi/l/email-protection#ef9d8a889a838e9b809d968c8e9f869b8e83af898b868cc1888099"><span class="__cf_email__" data-cfemail="d7a5b2b0a2bbb6a3b8a5aeb4b6a7bea3b6bb97b1b3beb4f9b0b8a1">[email protected]</span></a>, (202) 898-6888; Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
On December 1, 2025, the Office of the Comptroller of the Currency
(OCC), the Board of Governors of the Federal Reserve System (Board),
and the Federal Deposit Insurance Corporation (FDIC) (collectively, the
agencies) published in the Federal Register a notice of proposed
rulemaking (the proposal) to amend the community bank leverage ratio
(CBLR) framework.\1\ The proposal would have lowered the CBLR
requirement from 9 percent to 8 percent and would have extended the
length of time that certain depository institutions and depository
institution holding companies can remain in the CBLR framework while
not meeting one or more of the qualifying criteria from two consecutive
quarters to four consecutive quarters, subject to a limit of eight
quarters in the previous five-year period. Following review of the
comments received on the proposal, the agencies are finalizing the
proposal without revision. Elements of the final rule also address
comments received from the Economic Growth and Regulatory Paperwork
Reduction Act (EGRPRA) review.\2\
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\1\ 90 FR 55048 (Dec. 1, 2025).
\2\ The agencies, together with the Federal Financial
Institutions Examination Council, commenced a review of their
prescribed regulations under the Economic Growth and Regulatory
Paperwork Reduction Act of 1996 in 2024 to identify outdated or
otherwise unnecessary regulatory requirements imposed on insured
depository institutions. The agencies have reviewed and considered
these comments. Public Law 104-208, Div. A, Title II, section 2222,
110 Stat. 3009-414, (1996) (codified at 12 U.S.C. 3311). See also
Regulatory Publication and Review Under the Economic Growth and
Regulatory Paperwork Reduction Act of 1996, 90 FR 35241 (Jul. 25,
2025).
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A. Economic Growth, Regulatory Relief, and Consumer Protection Act
The CBLR framework \3\ implements section 201 of the Economic
Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which
requires the agencies to establish a CBLR requirement of not less than
8 percent and not more than 10 percent
[[Page 22974]]
for qualifying community banking organizations.\4\
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\3\ 12 CFR 3.12 (OCC); 12 CFR 217.12 (Board); 12 CFR 324.12
(FDIC).
\4\ Public Law 115-174, 132 Stat. 1296, 1306-07 (2018) (codified
at 12 U.S.C. 5371 note). The authorizing statute uses the term
``qualifying community bank,'' whereas the agencies' regulations
implementing the statute use the term ``qualifying community banking
organization.'' See, e.g., 12 CFR 3.12(a)(2) (OCC); 12 CFR
217.12(a)(2) (Board); 12 CFR 324.12(a)(2) (FDIC). The terms
generally have the same meaning. Section 201(a)(3) of EGRRCPA
provides that a qualifying community banking organization is a
depository institution or depository institution holding company
with total consolidated assets of less than $10 billion that
satisfies such other factors, based on the banking organization's
risk profile, that the agencies determine are appropriate. Section
201(a)(3) further provides that this determination shall be based on
consideration of off-balance sheet exposures, trading assets and
liabilities, total notional derivatives exposures, and such other
factors that the agencies determine appropriate.
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Under section 201(c) of EGRRCPA, a qualifying community banking
organization that exceeds the CBLR requirement shall be considered to
have met: (i) the generally applicable risk-based and leverage capital
requirements in the capital rule; \5\ (ii) the capital ratio
requirements to be considered well capitalized under the agencies'
prompt corrective action (PCA) framework (in the case of insured
depository institutions); and (iii) any other applicable capital or
leverage requirements. Section 201(b) of EGRRCPA also requires the
agencies to establish procedures for the treatment of a qualifying
community banking organization whose leverage ratio falls below the
CBLR requirement as established by the agencies.
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\5\ The OCC's capital rule is at 12 CFR part 3. The Board's
capital rule is at 12 CFR part 217. The FDIC's capital rule is at 12
CFR part 324.
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In 2019, the agencies issued a final rule establishing the CBLR
framework, which became effective January 1, 2020 (2019 final rule).\6\
Under the 2019 final rule, the agencies established a CBLR requirement
of greater than 9 percent. The CBLR requirement was defined by
reference to the capital rule's existing leverage ratio, equal to tier
1 capital divided by average total consolidated assets.\7\
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\6\ 84 FR 61776 (Nov. 13, 2019).
\7\ See 12 CFR 3.10(b)(4) (OCC); 12 CFR 217.10(b)(4) (Board); 12
CFR 324.10(b)(4) (FDIC).
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Under the 2019 final rule, depository institutions and depository
institution holding companies are eligible to opt into the CBLR
framework if they are a ``qualifying community banking organization.''
The final rule defined this term to include institutions that have less
than $10 billion in total consolidated assets; a leverage ratio of
greater than 9 percent; off-balance sheet exposures (excluding
derivatives other than sold credit derivatives and unconditionally
cancelable commitments) of 25 percent or less of total consolidated
assets; and trading assets and liabilities of 5 percent or less of
total consolidated assets.\8\ A qualifying community banking
organization also cannot be an advanced approaches banking
organization.\9\
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\8\ See 12 CFR 3.12(a)(2) (OCC); 12 CFR 217.12(a)(2) (Board); 12
CFR 324.12(a)(2) (FDIC).
\9\ See 12 CFR 3.100(b) (OCC); 12 CFR 217.100(b) (Board); 12 CFR
324.100(b) (FDIC).
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A qualifying community banking organization that elects to use the
CBLR framework is considered to satisfy the risk-based capital
requirements and any other applicable capital or leverage requirements
and, in the case of an insured depository institution, to meet the
capital ratio requirements for the well capitalized capital category
under the PCA framework.\10\ At the time, the agencies adopted the 9
percent requirement on the basis that this threshold, with
complementary qualifying criteria, would generally maintain the level
of regulatory capital held by qualifying community banking
organizations and support the agencies' goal of reducing regulatory
burden while maintaining safety and soundness.\11\
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\10\ 12 CFR 6.4(b)(1)(ii) (OCC); 12 CFR 208.43(b)(1)(ii)
(Board); 12 CFR 324.403(b)(1)(ii) (FDIC). See also 12 CFR
225.2(r)(4)(i) (Board). In addition to the capital ratio
requirements, to be considered well capitalized under the PCA
framework, an insured depository institution must also demonstrate
that it is not subject to any written agreement, order, capital
directive, or as applicable, prompt corrective action directive, to
meet and maintain a specific capital level for any capital measure.
12 CFR 6.4(b)(1)(i)(E) (OCC); 12 CFR 208.43(b)(1)(i)(E) (Board); 12
CFR 324.403(b)(1)(i)(E) (FDIC). See also 12 CFR 225.2(r)(1)(iii)
(Board). These requirements continue to apply under the CBLR
framework.
\11\ See 84 FR 61776, 61778, 61780, 61784 (Nov. 13, 2019).
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The 2019 final rule also established a two-quarter grace period
during which a qualifying community banking organization that fails to
meet all of the qualifying criteria but maintains a leverage ratio of
greater than 8 percent would continue to be considered to satisfy the
risk-based capital requirements and any other applicable capital or
leverage requirements and, in the case of an insured depository
institution, to meet the capital ratio requirements for the well
capitalized capital category under the PCA framework. Under the 2019
final rule, if a community banking organization returns to compliance
with all qualifying criteria following the two-quarter grace period,
the banking organization could continue to participate in the CBLR
framework. A community banking organization that either failed to meet
all of the qualifying criteria following the grace period or that, at
any time, failed to maintain a leverage ratio of greater than 8 percent
would have been required to comply with the risk-based capital
requirements and file the associated information in its regulatory
reports for the quarter in which it ceased to be a qualifying community
banking organization.
B. Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act) was signed into law.\12\ The CARES Act
directed the agencies to make temporary changes to the CBLR framework.
Specifically, section 4012 of the CARES Act directed the agencies to
issue an interim final rule that would temporarily lower the CBLR
requirement to 8 percent and provide a reasonable grace period for
qualifying community banking organizations that fell below the 8
percent requirement.
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\12\ Coronavirus Aid, Relief, and Economic Security Act, Public
Law 116-136, 134 Stat. 281 (2020).
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The agencies issued an interim final rule implementing the CARES
Act's temporary changes to the CBLR framework on April 23, 2020
(statutory interim final rule).\13\ To provide for a more gradual
return to the initial CBLR calibration, the agencies also issued a
separate interim final rule providing a graduated transition from the
temporary 8 percent CBLR requirement back to the 9 percent requirement
(transition interim final rule).\14\ These interim final rules did not
make any changes to the other qualifying criteria in the CBLR
framework.\15\
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\13\ 85 FR 22924 (Apr. 23, 2020). The threshold for the grace
period under the statutory interim final rule was set at 7 percent,
1 percent less than the CBLR requirement of 8 percent under the
statutory interim final rule.
\14\ 85 FR 22930 (Apr. 23, 2020). The transition interim final
rule extended the 8 percent CBLR requirement through December 31,
2020. Thus, even if the statutory interim final rule had terminated
prior to December 31, 2020, the transition interim final rule
provided that the CBLR requirement would continue to be set at 8
percent for the remainder of 2020. The threshold for the grace
period under the transition interim final rule was set at 1 percent
less than the CBLR requirement as it increased during the transition
period.
\15\ In 2020, the agencies also issued an interim final rule
that permitted banking organizations with under $10 billion in total
consolidated assets as of December 31, 2019, to use asset data as of
December 31, 2019, to determine certain regulatory asset thresholds,
including eligibility for the CBLR framework during calendar years
2020 and 2021. 85 FR 77345 (Dec. 2, 2020).
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Consistent with section 201(c) of EGRRCPA, under the transition
interim final rule, a community banking organization that temporarily
failed to meet any of the qualifying criteria, including the applicable
CBLR
[[Page 22975]]
requirement, generally would have been considered to satisfy the risk-
based capital requirements and any other applicable capital or leverage
requirements and, in the case of an insured depository institution, to
meet the capital ratio requirements for the well capitalized capital
category under the PCA framework during a two-quarter grace period so
long as the community banking organization maintained a leverage ratio:
greater than 7 percent in the second quarter through fourth quarter of
calendar year 2020, greater than 7.5 percent in calendar year 2021, and
greater than 8 percent thereafter. Both interim final rules were
finalized without change.\16\
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\16\ 85 FR 64003 (Oct. 9, 2020).
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On December 21, 2021, the agencies issued a statement confirming
that the CARES Act's temporary changes to the CBLR framework would
expire at the end of 2021.\17\ The CBLR requirement reverted to 9
percent on January 1, 2022.
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\17\ ``Community Bank Leverage Ratio Framework: Interagency
Statement,'' OCC Bulletin 2021-66 (Dec. 21, 2021); ``Interagency
Statement on the Community Bank Leverage Ratio Framework,'' SR
Letter 21-21 (Dec. 21, 2021); ``Interagency Statement on the
Community Bank Leverage Ratio Framework,'' FIL-81-2021 (Dec. 21,
2021).
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II. Experience With the Community Bank Leverage Ratio
The CBLR framework is intended to provide qualifying community
banking organizations the option to use a simpler, less burdensome
measure of capital adequacy. The CBLR framework reduces regulatory
burden by removing the requirements for calculating and reporting risk-
based capital ratios for qualifying community banking organizations
that opt into the framework, thereby providing meaningful regulatory
relief for such qualifying community banking organizations, while
maintaining capital levels that support safety and soundness.
As of the second quarter of 2025, the agencies estimate that 84
percent of community banking organizations qualified to use the CBLR
framework,\18\ but only 48 percent of qualifying community banking
organizations had adopted it. This adoption rate has remained
relatively constant since the rule was implemented in 2020. Notably,
data show that smaller banking organizations are more likely to adopt
the framework, underscoring the value of the simplification of the
regulatory capital requirements for those banking organizations. For
example, approximately half of qualifying community banking
organizations with less than $1 billion in assets have opted into the
framework, compared to a quarter of qualifying community banking
organizations with more than $1 billion and less than $10 billion in
assets. (See section V.A.2. for more information).
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\18\ Analysis summarized in sections II and III is conducted at
the community banking organization level and includes depository
institutions and depository institution holding companies with less
than $10 billion in total consolidated assets. Specifically,
community banking organization level analysis uses data that
combines FR Y-9C data for top-tier holding companies with Call
Report data for depository institutions that are standalone or do
not have a holding company with less than $10 billion in total
consolidated assets that files an FR Y-9C report. In instances where
consolidated regulatory data are not available at the consolidated
organization level, data are aggregated at the banking organization
level by combining the balance sheets of certain depository
institutions that share the same consolidating parent. Section V
includes additional analysis at the depository institution and
holding company level.
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Since the introduction of the CBLR framework, the overwhelming
majority of qualifying community banking organizations that participate
in the framework have continued to operate in a safe and sound manner
through a range of conditions, and most maintain capital levels well in
excess of the CBLR requirement.\19\
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\19\ As of the second quarter of 2025, community banking
organizations that participate in the framework maintain median
leverage ratios of 11.9 percent, reflecting median levels of capital
2.9 percentage points above the current 9 percent requirement.
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III. Summary of Comments Received and Overview of the Final Rule
To address concerns that the CBLR framework did not provide
effective regulatory burden relief and discouraged broader adoption,
the agencies proposed to lower the CBLR requirement from 9 percent to 8
percent and to extend the grace period from two quarters to four
quarters, subject to a limit on use of the grace period over time.
A. Summary of Comments
The agencies received approximately 30 comments on the proposal
from a range of parties, including a policy advocacy group, banking
organizations, banking and financial trade associations, other
financial market participants, a law firm, and individuals. Most of
these comments were supportive of the proposal, including the proposed
calibration of the CBLR requirement and the proposed grace period for
CBLR banking organizations to return to compliance with the CBLR
framework. One commenter asserted that the proposal improves market
efficiency, while another recommended that the proposal be finalized
and made permanent. Some comments, including from trade associations
and individuals, recommended the agencies take further action to reduce
regulatory burden on community banking organizations, including with
respect to regulatory reporting. These comments are discussed in
additional detail in section IV.F. The agencies also received comments
regarding specific aspects of the proposal discussed further below.
B. Overview of the Final Rule
To provide more meaningful regulatory burden relief to community
banking organizations while continuing to achieve the CBLR framework's
safety and soundness objectives, the agencies are finalizing the
proposal without modification. The final rule lowers the CBLR
requirement from 9 percent to 8 percent, as proposed. The final rule
also includes the proposed extension of the grace period from two
quarters to four quarters, subject to a limit of eight quarters in the
previous five-year period. The final rule is effective on July 1, 2026.
This SUPPLEMENTARY INFORMATION presents the economic analysis of the
final rule's changes and discusses administrative law matters.
IV. Final Rule
A. Lower Calibration of the CBLR Requirement
The agencies proposed to lower the calibration of the CBLR
requirement from 9 percent to 8 percent. Most commenters specifically
supported the proposal to lower the calibration of the CBLR requirement
from 9 percent to 8 percent. These commenters agreed that a lower
calibration would increase eligibility for, and adoption of, the CBLR
framework. Many commenters expressly agreed that the proposed 8 percent
calibration would remain comparable to the requirements for the well
capitalized category under the agencies' PCA framework. Commenters also
noted that the proposed calibration appropriately balanced regulatory
burden relief with safety and soundness. Several commenters stated that
the reduced calibration would support additional lending by banking
organizations that participate in the CBLR framework. One commenter
stated that the proposal would result in larger management buffers that
would allow some community banking organizations to redirect ``excess''
capital toward lending and enhancements in business operations and risk
management processes. This commenter recommended that the reduced
calibration should only be
[[Page 22976]]
provided to community banking organizations that use the excess capital
for such activities. One commenter suggested that the proposed 8
percent calibration would result in a higher effective capital
requirement than its face amount would suggest due to deductions from
regulatory capital set by the agencies' current capital rule. No
commenters opposed the proposed reduced calibration.
The agencies are adopting the 8 percent CBLR requirement as
proposed. As discussed in the proposal, the recalibration expands
eligibility as more community banking organizations will qualify for
the CBLR framework, which is significantly less burdensome than the
risk-based capital framework. This revision is also consistent with
comments received under EGRPRA, as commenters requested that the CBLR
be recalibrated to a more appropriate level, such as 8 percent, to
ensure broader access to the framework and to support credit
availability in local markets. According to data from the second
quarter of 2025, an additional 477 community banking organizations
qualify to opt into the framework with the 8 percent CBLR requirement,
and the agencies estimate that a total of 95 percent of community
banking organizations (that is, banking organizations with less than
$10 billion in total consolidated assets) qualify to participate in the
CBLR framework (see section V.B.1 for additional information).
The CBLR recalibration would generally increase management buffers
for community banking organizations participating in the CBLR framework
and could encourage community banking organizations that are currently
eligible, but that are not participating in the framework, to opt in. A
larger surplus of regulatory capital above the CBLR requirement
decreases the likelihood that qualifying community banking
organizations that participate in the CBLR framework would be required
to revert to the risk-based capital framework due to unexpected
fluctuations in their leverage ratios.
The final rule remains broadly consistent with the current well
capitalized category under the PCA framework. Specifically, the CBLR
framework remains comparable to and, in most cases, materially more
stringent than the requirements under the PCA framework.\20\ The 8
percent CBLR requirement is more stringent than the 8 percent tier 1
risk-based capital requirement to be considered well capitalized under
the PCA framework for all newly eligible community banking
organizations and for nearly all community banking organizations that
are currently eligible but do not participate in the CBLR
framework.\21\ Similarly, an 8 percent CBLR requirement is
substantially higher than the 5 percent tier 1 leverage ratio required
to be considered well capitalized under the PCA framework. As of the
second quarter of 2025, all community banking organizations that would
be newly eligible under the 8 percent CBLR requirement were well
capitalized under the PCA framework.
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\20\ This analysis compares the 8 percent CBLR requirement
relative to the 8 percent tier 1 risk-based capital requirement to
be considered well capitalized under the PCA framework for all
community banking organizations that would qualify under the
proposal, but which are not currently participating in the CBLR
framework, in order to demonstrate the stringency of the CBLR
requirement relative to risk-based capital requirements. The PCA
framework applies only to insured depository institutions. To be
considered well capitalized under the agencies' PCA framework,
depository institutions must meet or exceed a 6.5 percent common
equity tier 1 capital risk-based ratio, 8 percent tier 1 capital
risk-based ratio, and 10 percent total capital risk-based ratio, as
well as a 5 percent tier 1 leverage ratio. 12 CFR part 6 (OCC); 12
CFR part 208, subpart D (Board); 12 CFR part 324, subpart H (FDIC).
The definitions of well capitalized for bank holding companies and
savings and loan holding companies can be found at 12 CFR 225.2(r)
and 12 CFR 238.2(s), respectively.
\21\ The agencies also compared required capital under the final
rule to other risk-based capital requirements, including the total
capital requirement, and found that the 8 percent CBLR requirement
broadly requires similar or more capital for the vast majority of
depository institutions that will be eligible under the final rule.
See section V.B.1 for more information.
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The final rule does not include a requirement that the reduced
calibration be provided to only community banking organizations that
redirect ``excess'' capital toward lending and enhancements to business
operations and risk management processes. As further discussed in the
economic analysis in section V.C.2, lowering the calibration to 8
percent provides additional balance sheet capacity for lending and
other activities by community banking organizations that are currently
participating in the CBLR framework. Community banking organizations
serve a vital function in the economy through their relatively outsized
lending to agricultural and commercial borrowers.\22\ In addition,
rural communities rely heavily on community banking organizations for
lending and financial services.\23\ Additional lending by community
banking organizations supports the economic activity of the communities
and industries that they serve. However, the agencies do not determine
how banking organizations allocate capital, so long as they meet
applicable minimum capital requirements and any other applicable legal
requirements, and operate in a safe and sound manner.
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\22\ See Hanauer, M., Lytle, B., Summers, C., & Ziadeh, S.
(2021). Community banks' ongoing role in the US economy. Federal
Reserve Bank of Kansas City, Economic Review, 106(2), 37-81.
\23\ See id.
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B. Extension of the Grace Period
The agencies proposed to extend the grace period from two quarters
to four quarters, thus allowing certain qualifying community banking
organizations that fail to fully meet the qualifying criteria after
opting into the CBLR framework to have four reporting periods to either
return to fully meeting the qualifying criteria under the CBLR
framework or transition to the risk-based capital framework. Commenters
were largely supportive of the proposal to extend the grace period to
provide additional time for temporarily non-compliant banking
organizations to return to compliance with the CBLR framework. Some
commenters noted that a four-quarter grace period would be better
aligned with community banking organizations' reliance on retained
earnings to build regulatory capital, which makes rapid adjustments
difficult. Some commenters noted that the proposed grace period would
provide more time for community banking organizations to address
potential volatility in capital ratios. Two commenters noted that the
extended grace period, combined with the reduced calibration, would
reduce operational burden and allow qualifying community banking
organizations participating in the CBLR framework to sunset parallel
systems maintained in the event the banking organization reverted to
the risk-based capital framework. One commenter specifically stated
that the proposed rule's 7 percent minimum CBLR to use the grace period
provides an appropriate safeguard. One commenter recommended that the
agencies require a community banking organization to present a ``CBLR
restoration plan'' to its board of directors within the first quarter
of entering the grace period to ensure that it uses the grace period to
execute a capital strategy. No commenters opposed the proposed
extension of the grace period.
The agencies are finalizing this aspect of the proposal without
modification. As discussed in the proposal, community banking
organizations tend to rely more heavily on retained earnings for
regulatory capital in part because smaller banking organizations may
have reduced access to capital markets compared to larger banking
[[Page 22977]]
organizations. As a result, community banking organizations may face
challenges increasing capital quickly, particularly in environments in
which bank profitability is constrained.\24\ For additional analysis of
the change to the grace period, see section V.C.1.
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\24\ For an analysis of the impact of a low-interest-rate
environment on small banking organizations, see Genay, H., &
Podjasek, R. (2014). What is the Impact of a Low Interest Rate
Environment on Bank Profitability?. Chicago Fed Letter, 324(1).
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The four-quarter grace period should allow a banking organization
that ceases to meet the CBLR criteria sufficient time to make
appropriate changes to its activities and build up its regulatory
capital levels as necessary, or to begin reporting risk-based capital
consistent with the risk-based capital framework. By reducing the risk
of a banking organization being required to rapidly implement the risk-
based capital framework, the finalized changes could incentivize
greater adoption of the CBLR framework.
Under the final rule, a community banking organization that has
opted into the CBLR framework and no longer meets one or more of the
qualifying criteria would have a four-quarter grace period to remain in
the CBLR framework provided it maintains a leverage ratio above 7
percent. A community banking organization whose CBLR falls to or below
7 percent would be required to fully comply with risk-based capital
framework requirements for the quarter in which it reports a leverage
ratio of 7 percent or less. This 7 percent minimum ensures that
community banking organizations with capital levels that have declined
significantly would be subject to the more risk sensitive risk-based
capital framework.
For example, if a qualifying community banking organization that
has opted into the CBLR framework no longer meets one of the qualifying
criteria as of February 15 and still does not meet the criteria as of
the end of that quarter, the grace period for such a banking
organization will begin as of the end of the quarter ending March 31
(grace period quarter 1), as long as the banking organization maintains
a leverage ratio above 7 percent. The banking organization may continue
to use the CBLR framework in the June 30 quarter (grace period quarter
2), September 30 quarter (grace period quarter 3) and December 31
quarter (grace period quarter 4) but would need to comply fully with
the risk-based capital framework (including the associated reporting
requirements) as of March 31 of the following calendar year, unless by
that date the banking organization once again meets all qualifying
criteria of the CBLR framework.\25\
---------------------------------------------------------------------------
\25\ Qualifying community banking organizations would continue
to opt in to and out of the CBLR framework through their regulatory
reports. As further discussed in section IV.C., there are additional
limitations on the grace period.
---------------------------------------------------------------------------
The agencies do not consider it appropriate to require, as one
commenter suggested, that a community banking organization submit a
capital restoration plan to its board of directors within the first
quarter of entering the grace period. The CBLR framework is an optional
framework, and community banking organizations may use the grace period
to transition back to the risk-based capital framework. Similarly, a
community banking organization may enter the grace period as a result
of breaching other qualifying thresholds, including the threshold for
off-balance sheet exposures, trading activity, or total assets.
Consistent with the 2019 final rule, a banking organization that no
longer meets the definition of a qualifying community banking
organization as a result of a merger or acquisition would not be able
to use the grace period as of the quarter in which the merger or
acquisition occurs. A banking organization that plans to grow or
materially expand its activities due to a merger or acquisition should
develop systems to calculate and report risk-based capital commensurate
with those plans.
A qualifying community banking organization that has elected to use
the CBLR framework and that expects to no longer meet the qualifying
criteria as a result of a business combination generally would be
expected to provide its pro forma risk-based capital ratios to its
primary federal supervisor as part of its merger application, if
applicable, and fully comply with risk-based capital requirements for
the regulatory reporting period during which the transaction is
completed.
C. Additional Limitation Relating to Usage of the Grace Period
Under the proposal, the agencies would have limited use of the
grace period such that a community banking organization that had used
the grace period for eight quarters in the previous five-year (twenty-
quarter) period ending before the current quarter, would not have been
permitted to use the grace period in the current quarter. A few
commenters expressed support for the proposed limitation on usage of
the grace period, noting that it would provide an appropriate
safeguard. No commenters opposed the proposed limitation on usage of
the grace period. One commenter requested that the agencies provide
illustrative examples showing how the limitation would be applied.
To ensure that the recalibration of the CBLR and the extended grace
period continue to support prudent levels of capitalization, the
agencies are finalizing the limitation regarding the use of the grace
period as proposed. Specifically, although a qualifying community
banking organization may use the grace period for up to four
consecutive quarters, it would only be allowed to use the grace period
for the current quarter if it had not used the grace period for eight
or more of the twenty quarters ending before the current quarter. If a
banking organization that has used the grace period for eight of the
previous twenty quarters subsequently ceases to meet the definition of
a qualifying community banking organization, it must immediately comply
with the minimum risk-based capital requirements and report the
required risk-based capital ratios. For purposes of the limitation, a
banking organization is considered to have used the grace period for
one quarter each time it does not meet the definition of a qualifying
community banking organization at the end of a quarter.\26\
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\26\ The grace period limitation would consider usage of the
grace period of the CBLR prior to effective date of this final rule,
meaning that usage of the grace period before this final rule would
be included in a community banking organization's five-year lookback
period. Usage of the grace period should take into account the CBLR
requirement effective at the end of each quarter, including for
quarters when the CLBR requirement was temporarily reduced below 9
percent. See section II.B.
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For example, provided a community banking organization maintains a
leverage ratio above 7 percent, if the community banking organization
were to use the grace period for each quarter in calendar years 2027
and 2029 (eight total quarters in the grace period), without using the
grace period in calendar year 2028, it would not be able to use the
grace period during calendar years 2030 or 2031 or the first quarter of
2032. If it ceases to meet the CBLR criteria at the end of any quarter
during calendar years 2030 or 2031 or the first quarter of 2032, it
would be required to comply immediately with the risk-based capital
requirements. The community banking organization would, however, be
able to use the grace period in the second quarter of 2032 because, in
the twenty quarters prior (the second quarter of 2027 through the first
quarter of 2032), it would have used the grace period for less than
eight quarters (the
[[Page 22978]]
second, third and fourth quarters of 2027 and all four quarters of
2029).
Use of the grace period is based on the previous twenty quarters
irrespective of whether the community banking organization has elected
to participate in the CBLR framework for each of those quarters. For
example, if a qualifying community banking organization were to opt
into the CBLR framework and use the grace period for each of the four
quarters in calendar year 2026, revert to the risk-based capital
framework in 2027, and then opt back into the CBLR framework in 2028,
the community banking organization would include the four quarters of
2026 in which it used the grace period when calculating its grace
period limit in 2028.
In the case of a merger or acquisition, the resulting banking
organization would calculate the limitation based on the historical
usage of the grace period by the surviving entity. For example, if a
community banking organization were to use the grace period in the
third and fourth quarters of both 2027 and 2030, and were to acquire
another community banking organization in the second quarter of 2031
where the acquired entity had used the grace period in the third and
fourth quarters of 2029, the surviving community banking organization
would be considered to have used the grace period for four of the prior
twenty quarters (the third and fourth quarters of 2027 and 2030). The
acquired community banking organization's two quarters of grace period
usage in 2029 are disregarded for purposes of the CBLR framework's
limitation on the usage of the grace period.
As noted in the proposal, the agencies intend to monitor usage of
the grace period to determine whether it is functioning as intended. If
unique or unusual circumstances warrant a further extension of the
grace period, or if application of different regulatory capital
requirements becomes necessary, the agencies continue to reserve the
authority to apply different risk-based or leverage capital
requirements as appropriate and commensurate with the relevant risks
and circumstances of a banking organization.\27\
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\27\ 12 CFR 3.1(d) (OCC); 12 CFR 217.1(d) (Board); 12 CFR
324.1(d) (FDIC).
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D. Removal of Temporary CARES Act Provisions
The agencies also proposed to remove the provisions under the CBLR
framework that provided temporary relief for qualifying community
banking organizations during the COVID-19 outbreak, including
provisions required by the CARES Act.\28\ The agencies received no
comments on this aspect of the proposal and are finalizing these
amendments as proposed. Because this temporary relief expired on
December 31, 2021, removal of these provisions will have no substantive
impact.
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\28\ 12 CFR 3.12(a)(4) (OCC); 12 CFR 3.303 (OCC); 12 CFR
217.12(a)(4) (Board); 12 CFR 217.304 (Board); 12 CFR 324.12(a)(4)
(FDIC); 12 CFR 324.303 (FDIC).
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E. Other Comments
The agencies also received additional comments that were not
related to specific aspects of the proposed changes. The agencies have
considered these comments, but the final rule does not make changes to
the proposal to address these comments. The agencies will continue to
monitor the effectiveness of their rule and may make or propose changes
in the future as appropriate.
1. Revising the Asset Threshold
Several commenters recommended that the total asset threshold for
eligibility for the CBLR framework be increased beyond the $10 billion
total asset threshold provided by section 201 of EGRRCPA. Some
commenters recommended that the threshold be raised to $20 billion, $25
billion, or $30 billion and be indexed by inflation or nominal gross
domestic product going forward. One commenter recommended that interest
rate swaps sold to customers and interest rate hedges for a banking
organization's interest-rate management not be included in the
calculation of total consolidated assets.
Section 201(a)(3) of EGRRCPA provides that a qualifying community
banking organization with total consolidated assets of less than $10
billion, that satisfies other factors, would be eligible to participate
in the CBLR framework. The agencies are retaining this qualification
criterion, consistent with EGRRCPA. The agencies will continue to
monitor the effectiveness of their rule and may make or propose
changes, including changes to asset thresholds, in the future as
appropriate and as permitted by statute.
The final rule's changes to the calibration of the CBLR requirement
achieve the agencies' goal of reducing regulatory burden on banking
organizations while continuing to broadly maintain alignment between
the treatment of exposures across the CBLR framework and the Tier 1
leverage ratio applicable to banking organizations that do not
participate in the CBLR framework. Therefore, qualifying community
banking organizations will continue to calculate total consolidated
assets in accordance with the reporting instructions to the Call
Report, or to Form FR Y-9C, as applicable.
2. Treatment of Mortgage Servicing Assets
Several commenters requested that the final rule eliminate the
current 25 percent threshold deduction on mortgage servicing assets
(MSAs) under the capital rule. These commenters asserted that the
treatment for such assets is not commensurate with their risk and that
the threshold deduction may prevent community banking organizations
that would otherwise qualify from participating in the CBLR framework.
Some commenters also asserted that the current regulatory treatment of
MSAs has moved mortgage servicing outside of the banking system, and
several commenters asserted that MSAs are effectively supervised
through the examination process. Some commenters argued that the 25
percent threshold deduction on MSAs prevents adoption of the CBLR
framework by community banking organizations that are well capitalized
or have low risk profiles, which is inconsistent with the purpose of
the CBLR framework. Other commenters argued that the threshold
deduction on MSAs is overly complicated, should be inapplicable to
small banking organizations, and is therefore inconsistent with the
EGRRCPA. Additionally, one commenter recommended that the agencies
adjust the regulatory treatment of MSAs for all banking organizations,
in addition to adjusting for community banking organizations.
MSAs can be a useful tool for banking organizations to manage
interest rate risk. The value of MSAs generally increases when interest
rates rise, which extends the expected duration of related servicing
fees. As a result, they may provide a hedge against losses on other
assets that decline in value in the same interest rate environment.
Moreover, MSAs are important for banking organizations to maintain
their relationship with borrowers by retaining customer-facing
relationships even after transferring the underlying loans, allowing
cross-selling of products. Banking organizations can also improve
efficiency of servicing activities by increasing scale. The current
threshold deduction approach for MSAs can discourage banking
organizations from creating economies of scale in mortgage servicing,
which can hinder their ability to manage mortgage related interest rate
risks.
While the agencies are not eliminating or raising the existing
threshold for MSA deductions as part of this final
[[Page 22979]]
rule, the agencies are currently proposing to remove the MSA threshold
deduction for all banking organizations, including those subject to the
CBLR framework, under separate notices of proposed rulemaking.\29\ The
agencies welcome comments on the MSA threshold deduction in response to
those proposals and expect to consider changes to the threshold across
the capital framework, including the CBLR framework.
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\29\ ``Regulatory Capital Rule: Category I and II Banking
Organizations, Banking Organizations With Significant Trading
Activity, and Optional Adoption for Other Banking Organizations,''
91 FR 14952 (Mar. 27, 2026); ``Regulatory Capital Rules: Regulatory
Capital and Standardized Approach for Risk-Weighted Assets,'' 91 FR
15332 (Mar. 27, 2026).
---------------------------------------------------------------------------
3. Treatment of Off-balance Sheet Exposures
One commenter recommended that the threshold in the CBLR framework
for off-balance sheet exposures be increased from the current threshold
of 25 percent to at least 30 percent to account for seasonality and
provide more flexibility to community banking organizations whose
business activities result in significant off-balance sheet exposures.
This commenter argued that some CBLR banking organizations were at, or
above, the halfway point for this threshold. The commenter also
highlighted that conditionally cancelable unused commitments comprise
the majority of off-balance sheet exposures for CBLR banking
organizations. Additionally, the commenter noted that commitments can
be subject to seasonal variation, particularly for banking
organizations that engage in commercial and agricultural lending.
To qualify for the CBLR framework, community banking organizations
may not have off-balance sheet exposures of more than 25 percent of
total consolidated assets. In response to comments, the agencies
conducted additional analysis of banking organizations' off-balance
sheet exposures. While the bulk of these exposures are composed of
conditionally cancellable commitments, the vast majority of community
banking organizations have total off-balance sheet exposures below the
25 percent threshold.\30\ Moreover, the data suggest that instances in
which community banking organizations exceed the 25 percent threshold
attributable to seasonal variation tend to be temporary and resolve
within a one-year period.
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\30\ The agencies analyzed Call Report data between the first
quarter of 2020 and the second quarter of 2025 for depository
institutions that satisfy all qualifying criteria other than the
off-balance sheet criterion and found that only 1.2 percent had off-
balance sheet exposures between 25 and 30 percent.
---------------------------------------------------------------------------
The four-quarter grace period under the final rule helps to
mitigate the impact of temporary fluctuations in off-balance-sheet
exposures, including those arising from seasonal movements in unused
commitments. The extended grace period ensures that a banking
organization that ceases to meet the criteria for a qualifying
community banking organization has sufficient time to make appropriate
changes to its activities, and has the flexibility to manage seasonal
variations in off-balance sheet exposures, in order to reestablish
compliance with the CBLR framework. As a result, the final rule retains
the 25 percent threshold for off-balance sheet exposures.
4. Interaction With Supervisory Practices
One commenter recommended that the connection between sustained
compliance with the CBLR framework and the capital component of the
CAMELS rating be strengthened. Another commenter requested that the
final rule prohibit examiners from requiring qualifying community
banking organizations that opt into the CBLR framework to calculate
risk-based capital ratios, and another commenter asked the agencies to
confirm that community banking organizations participating in the CBLR
framework are not expected to maintain parallel risk-based capital
systems. One commenter supported the early release of draft updates to
relevant reporting instructions to provide banking organizations
sufficient time to prepare, reduce implementation risk, and minimize
operational disruption.
Any review of the CAMELS rating system would be conducted through
the Federal Financial Institutions Examination Council (FFIEC). A
qualifying community banking organization that participates in the CBLR
framework is not required to calculate risk-based capital ratios or
satisfy risk-based capital requirements. It has not been the agencies'
policy to require qualifying community banking organizations that opt
in to the CBLR framework to demonstrate to their primary federal
supervisor that they have a readiness plan to comply with risk-based
capital requirements in the event they become ineligible to participate
in the CBLR framework. As noted in section VI.A, the agencies expect to
make clarifying revisions to the instructions for the Call Reports and
the FR Y-9C to reflect the final rule. These clarifications are not
expected to affect the items that community banking organizations
participating in the CBLR framework are required to report.
5. Competitiveness and Application of CBLR Framework to Legal Entities
One commenter stated that despite the proposed changes to the CBLR
framework, community banking organizations would continue to face
higher capital requirements than large banking organizations, and
another commenter noted that other rulemakings could increase
competitive advantages for larger banking organizations. One commenter
recommended that the agencies eliminate the need to choose between the
CBLR framework and the Small Bank Holding Company and Savings and Loan
Holding Company Policy Statement (Small BHC and SLHC Policy
Statement).\31\ Another commenter requested that the agencies clarify
that the CBLR framework applies separately to community bank depository
institutions and community bank holding companies. One commenter
recommended that the CBLR framework continue to be optional for
community banking organizations. Another commenter suggested that the
agencies allow banking organizations with multiple depository
institutions, some of which have chosen to participate in the CBLR
framework and some of which have not, to use a single consolidated
risk-based calculation at the parent level.
---------------------------------------------------------------------------
\31\ 12 CFR 225, appendix C.
---------------------------------------------------------------------------
The agencies have proposed modifications to the risk-based capital
framework and will consider public comment on the risk-based capital
framework in connection with these risk-based capital proposals.\32\
The CBLR framework is intended to be used by community banking
organizations that meet certain qualifying criteria. The final rule
does not prevent bank holding companies or savings and loan holding
companies, regardless of their subsidiary depository institutions'
adoption or non-adoption of the CBLR framework, from operating under
the Small BHC and SLHC Policy Statement if they meet its requirements.
The CBLR framework continues to be optional for qualifying community
banking organizations, and the final rule does not prevent a qualifying
community banking organization from adopting the CBLR, regardless of
the adoption or non-adoption by an affiliate depository institution or
depository institution holding company. Banking organizations within a
consolidated
[[Page 22980]]
group may make different elections with respect to the CBLR framework.
---------------------------------------------------------------------------
\32\ See 91 FR 14952 (Mar. 27, 2026); 91 FR 15332 (Mar. 27,
2026).
---------------------------------------------------------------------------
V. Economic Analysis
This section outlines the expected economic effects of the final
rule, including both its benefits and costs, on community banking
organizations. The final rule modifies the CBLR framework for
qualifying community banking organizations along two key dimensions.
First, it reduces the calibration of the CBLR requirement from 9
percent to 8 percent. Second, a qualifying community banking
organization that fails to meet one or more of the qualifying criteria
after opting into the CBLR framework will have four quarters, rather
than two quarters,\33\ to meet the qualifying criteria under the CBLR
framework or to comply with the risk-based capital requirements. The
analysis compares outcomes under the final rule to a baseline scenario
in which the current framework would not have changed; specifically,
the baseline assumes a 9 percent CBLR requirement with a two-quarter
grace period for electing community banking organizations.
---------------------------------------------------------------------------
\33\ Subject to a maximum of eight quarters within any given
five-year (twenty-quarter) period.
---------------------------------------------------------------------------
The analysis is based on data from Reports of Condition and Income
(Call Reports) for depository institutions and Consolidated Financial
Statements for Holding Companies (FR Y-9C) for the quarter ending June
30, 2025.\34\ Core statistics are reported at the depository
institution, community bank holding company, and community banking
organization levels, with the latter using consolidated organization
data aggregated at the top-tier consolidated organization level. While
some supporting analysis is conducted at either the depository
institution level or the community banking organization level, the
agencies expect the conclusions to be broadly applicable across these
entity types.
---------------------------------------------------------------------------
\34\ The reported estimates in this final rule differ slightly
from those published in the proposal due to routine data revisions:
however, these changes are small in magnitude and do not affect any
conclusions or policy determinations in this rule.
---------------------------------------------------------------------------
A. Baseline
According to Call Reports for the quarter ending June 30, 2025,
there are 4,477 depository institutions operating in the United
States.\35\ Of these, 4,241 meet the size and simplicity thresholds for
CBLR eligibility: total consolidated assets of less than $10 billion,
off-balance sheet exposures of no more than 25 percent of total
consolidated assets, total trading assets and trading liabilities of no
more than 5 percent of total consolidated assets, and are not an
advanced approaches banking organization.
---------------------------------------------------------------------------
\35\ Not including nine insured branches of foreign banks or
seven noninsured depository institutions that do not report
regulatory capital. Of the 4,477 depository institutions, 4,421 have
their deposits insured by the FDIC.
---------------------------------------------------------------------------
According to FR Y-9C data for the quarter ending June 30, 2025,
there are 238 community bank holding companies subject to the capital
rule.\36\ Of these, 227 meet the size and simplicity thresholds for
CBLR eligibility.
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\36\ Bank holding companies with less than $3 billion in
consolidated assets are generally not required to file the FR Y-9C.
However, depository institution holding companies with less than $3
billion in total consolidated assets and which meet certain
additional criteria may qualify for the Board's Small BHC and SLHC
Policy Statement and not be subject to the capital rule. See 12 CFR
217.1(c)(1)(i)(B) and (C); 12 CFR part 225, appendix C; 12 CFR
238.8.
---------------------------------------------------------------------------
Taking a consolidated perspective, these depository institutions
and holding companies together compose 4,100 unique community banking
organizations as of June 30, 2025.\37\ Of these, 4,030 meet the size
and simplicity thresholds for CBLR eligibility.
---------------------------------------------------------------------------
\37\ For the consolidated organization analysis, CBLR
participation and eligibility are assessed at the highest tier
entity in a banking organization. In cases where multiple depository
institutions belong to the same organization, and one that does not
have a top-tier community bank holding company subject to the
capital rule, CBLR eligibility for the consolidated organization is
defined based on the total assets of these depository institutions.
If eligible depository institutions account for at least 50 percent
of the consolidated organizations' assets, the community banking
organization is considered to be CBLR-eligible for purposes of this
analysis. The consolidated community banking organization in these
instances is considered to be a CBLR organization if at least one of
its depository institutions participate in the CBLR framework.
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1. Community Banking Organizations and CBLR Framework Participation
Of the 4,241 depository institutions that meet the size and
simplicity thresholds for CBLR eligibility, 3,638 report a leverage
ratio greater than 9 percent and therefore meet all requirements to
qualify for the CBLR framework. Of those 3,638 qualifying depository
institutions, 1,693 currently participate in the CBLR framework. That
is, 47 percent of eligible depository institutions have adopted the
CBLR framework. This participation rate has remained relatively
constant since the CBLR framework was implemented in 2020. Another 23
depository institutions, although not presently meeting the CBLR
requirement, remain in the framework under the current two quarter
grace period.\38\ Table 1 reports counts of these depository
institutions, including a breakdown by discrete leverage ratio:
---------------------------------------------------------------------------
\38\ An additional two depository institutions have leverage
ratios greater than 9 percent but do not meet one of the qualifying
criteria.
Table 1--Current Counts of Depository Institutions by Leverage Ratio
----------------------------------------------------------------------------------------------------------------
Range of leverage ratio (percent) *
---------------------------------------------------------------- Total
<=7 7-8 8-9 9-10 10-11 11-12 >12
----------------------------------------------------------------------------------------------------------------
Excess leverage ratio **............... <=-2 -2--1 -1-0 0-1 1-2 2-3 >3 .......
Depository institutions that meet CBLR 22 101 480 869 755 547 1,467 4,241
size and simplicity requirements ***..
Participating depository institutions 0 0 21 272 322 263 838 1,716
****..................................
% Participating depository institutions 0% 0% 4% 31% 43% 48% 57% 40%
----------------------------------------------------------------------------------------------------------------
Call Report Data, June 30, 2025.
* Each range excludes the lower end and includes the upper end.
** ``Excess leverage ratio'' is equal to leverage ratio minus the CBLR requirement of 9 percent.
*** These counts include only depository institutions that meet the qualifying community banking organization
criteria involving advanced approaches, total consolidated assets, off-balance sheet exposures, and trading
assets and liabilities.
**** ``Participating depository institutions'' are those qualifying depository institutions that had elected to
use the CBLR framework as of June 30, 2025.
As Table 1 shows, the fraction of participating depository
institutions increases with the depository institutions' excess
leverage ratio. This tendency suggests that, by decreasing the CBLR
requirement to 8 percent, the final rule could encourage some currently
eligible depository institutions to opt into the framework.
Turning to community bank holding companies, 165 report a leverage
ratio greater than 9 percent and meet all requirements to be considered
qualifying community banking organizations. Of the 165 qualifying
community bank holding companies, 25
[[Page 22981]]
currently opt into the CBLR framework.\39\ That is, 16 percent of
qualifying community bank holding companies are participating in the
CBLR framework.
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\39\ One additional community bank holding company participates
in the CBLR framework but does not currently meet all of the
qualifying criteria.
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Taking a consolidated perspective, 3,426 community banking
organizations have a leverage ratio greater than 9 percent and meet all
requirements to be considered qualifying community banking
organizations. Of those 3,426 qualifying community banking
organizations, 1,658 currently opt in to the CBLR framework.\40\ That
is, 48 percent of qualifying community banking organizations
participate in the CBLR framework.
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\40\ Twenty-one additional community banking organizations
participate in the CBLR framework but do not currently meet all of
the qualifying criteria.
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2. CBLR Framework Adoption Among Small Community Banking Organizations
The smallest community banking organizations tend to opt into the
CBLR framework at higher rates. Fifty-three percent of qualifying
community banking organizations with assets less than $1 billion are
participating in the framework as of June 30, 2025, compared to 28
percent of qualifying community banking organizations with assets above
$1 billion. Of qualifying community banking organizations with less
than $500 million in assets, 57 percent are currently participating in
the framework. Viewed another way, 91 percent of community banking
organizations that are currently participating in the CBLR framework
have total assets of less than $1 billion.\41\
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\41\ See section VI.A for a further analysis of entities with
less than $850 million in assets for the Regulatory Flexibility Act
(RFA).
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B. Effects of the Final Rule
1. CBLR Framework Eligibility and Adoption Under the Calibration of the
Final Rule
As shown in Table 1 above, 480 depository institutions have
leverage ratios between 8 and 9 percent while meeting all other
qualifying criteria for the CBLR framework. Under the final rule, these
480 depository institutions would become eligible for the CBLR
framework, in addition to the 3,638 depository institutions that
already qualify as of June 30, 2025, which would represent a 13 percent
increase in the population of eligible depository institutions. As
such, under the final rule, more depository institutions would become
eligible for the CBLR framework.
While the final rule is expected to increase the number of
qualifying depository institutions, historical experience indicates
that a portion of qualifying depository institutions prefer to not opt
into the CBLR framework. Several commenters agreed with the agencies
that the revisions to the CBLR framework in the proposal are likely to
encourage greater participation. To provide a broad estimate of the
number of depository institutions that could opt into the framework
under the final rule, the agencies assume that the likelihood of
adoption depends primarily on a depository institution's buffer of tier
1 capital in excess of the CBLR requirement. This assumption implies
that the relationship between adoption rates and excess leverage ratios
will remain consistent with that observed under the baseline. Based on
this approach, the agencies estimate that 2,039 depository institutions
would adopt the CBLR under the expanded scope, representing an increase
of 323 depository institutions relative to the current rule.\42\ This
estimate is imprecise because it is based on a simple model, which does
not take into account the potential impact of the grace period
extension on CBLR adoption.\43\ The model also does not account for the
potential impact of regulatory capital proposals currently released for
comment on qualifying depository institutions' decisions to adopt or
not adopt CBLR.\44\ Institutions generally face a tradeoff between
lower required capital under the risk-based framework and simpler
reporting requirements under the CBLR framework. Any reductions in
capital requirements under the risk-based framework could lead to fewer
qualifying depository institutions choosing to adopt the CBLR framework
than estimated by the model.\45\
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\42\ See Appendix for details on the CBLR-election projection
methodology.
\43\ The estimate of 323 additional participating depository
institutions could be undercounted because the benefits of the final
rule, as later discussed in this section, would make the CBLR
framework more attractive to depository institutions and could
result in greater adoption of the CBLR framework among organizations
that currently qualify, but have not elected, to use the CBLR. On
the other hand, recent experience showed a relatively small change
in adoption rates when the statutory interim final rule reduced the
CBLR requirement temporarily from 9 percent to 8 percent between the
first and second quarters of 2020. Although at that time 141
additional depository institutions elected to use the CBLR
framework, there was a decrease of 194 electing depository
institutions between the fourth quarter of 2020 (the last quarter
for which the CBLR requirement was 8 percent) and the first quarter
of 2022 (the first quarter for which the CBLR requirement reverted
to 9 percent). Confounding factors such as the COVID-19 pandemic,
the initial rollout of the CBLR framework, and the temporary nature
of the decrease make this comparison difficult.
\44\ In March 2026, the agencies proposed modifications to
regulatory capital and the standardized approach for risk-weighted
assets. See 91 FR 15332 (Mar. 27, 2026). In March 2026, the agencies
also published a separate proposal, under which Category I and II
banking organizations would be subject to a single set of risk-based
capital ratio requirements based on the ``expanded risk-based
approach.'' Other banking organizations could also choose to adopt
the expanded risk-based approach. See 91 FR 14952 (Mar. 27, 2026).
\45\ See Section VI.G in the standardized approach proposal.
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For community bank holding companies, 46 have leverage ratios
between 8 and 9 percent while meeting all other criteria for the CBLR
framework, which would represent a 28 percent increase in the
population of eligible community bank holding companies relative to the
165 that currently qualify.
Considering the depository institutions and holding companies
together from a consolidated perspective, 477 community banking
organizations have leverage ratios between 8 and 9 percent while
meeting all other qualifying criteria, which would represent a 14
percent increase in the population of eligible community banking
organizations relative to the 3,426 community banking organizations
that currently qualify.
The agencies assess the stringency of the CBLR framework by
comparing the 8 percent risk-based tier 1 capital requirement to be
considered well capitalized under the PCA framework directly with the
CBLR requirement for community banking organizations that are not
participating in the CBLR framework and are expected to be eligible
under the final rule.\46\ The 8 percent CBLR requirement is less
stringent than the tier 1 risk-based capital requirement for five of
the 1,768 currently eligible banking organizations that are not
participating in the framework.\47\ No newly eligible community banking
organizations are expected to face a less stringent tier 1 capital
requirement under the 8 percent CBLR requirement.
---------------------------------------------------------------------------
\46\ The PCA framework applies only to insured depository
institutions. The definitions of well capitalized for bank holding
companies and savings and loan holding companies can be found at 12
CFR 225.2(r) and 12 CFR 238.2(s), respectively.
\47\ The ratio is deemed most stringent if it has the higher
requirement in dollar terms.
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C. Expected Benefits of the Final Rule
The agencies identify two main benefits of the final rule's changes
to the CBLR framework. First, by expanding eligibility and extending
the grace period, the final rule is expected to
[[Page 22982]]
enable more community banking organizations to benefit from the
regulatory cost savings provided by the CBLR framework. Second, the
reduced CBLR requirement is expected to provide community banking
organizations that are currently participating in the CBLR framework
with capacity to expand their balance sheets, which could lead to
increased lending to the communities served by these banking
organizations.
Several commenters agreed that the proposed changes to the CBLR
framework are likely to provide material benefits to community banking
organizations. For additional details on benefits described by
commenters see Section V.F.
1. Regulatory Cost Savings
All participating community banking organizations under the final
rule are expected to benefit from the CBLR framework by avoiding the
costs associated with gathering, recording, and reporting various risk-
based capital measures. While the agencies do not have sufficient
information to quantify all aspects of these savings,\48\ participating
community banking organizations that operate internal recordkeeping
systems to comply with risk-based capital regulations may discontinue
or simplify these systems. Other participating community banking
organizations that rely on third party vendors to operate the relevant
compliance systems could experience reductions in outsourcing
costs.\49\
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\48\ According to agency estimates published in January 2020,
per-response Paperwork Reduction Act (PRA) burden hours for
preparing Call Reports, which is only one component of risk-based
capital compliance costs, would decrease by approximately 3.5 hours
between 2019 and 2020, with the change in burden ``predominantly due
to changes associated with the community bank leverage ratio final
rule.'' See 85 FR 4780, 4782 (Jan. 27, 2020). This estimated change
in PRA burden also includes various other changes to the Call
Reports that were implemented in the first quarter of 2020 and
assumed a 60 percent CBLR adoption rate.
\49\ These cost savings could be partially offset by one-time
costs of adoption incurred by electing banking organizations.
---------------------------------------------------------------------------
Some participating community banking organizations currently
maintain parallel record keeping systems to comply with both the CBLR
framework and the risk-based capital requirements to minimize the cost
of falling out of compliance with the CBLR framework. The final rule is
expected to reduce the risk of having to revert to the risk-based
capital framework and to provide additional time to adjust systems in
the event that a community banking organization no longer meets the
qualifying criteria. As such, the final rule could enable some
participating community banking organizations to discontinue these
systems and realize meaningful cost savings. Although institutions that
discontinue a parallel system could incur costs to reestablish it if
they later exit the CBLR framework, institutions would be expected to
make such decisions only where the anticipated net benefits of
discontinuation exceed these potential future costs.
The final rule's extension of the CBLR grace period is expected to
provide benefits to community banking organizations participating in
the framework who enter the grace period due to a drop in their
leverage ratios or a failure to meet any of the other qualifying
criteria and who are capable of meeting the criteria within a four-
quarter period but not a two-quarter period. Between the second quarter
of 2022 and fourth quarter of 2024, 210 participating depository
institutions have entered grace periods for one or more quarters.\50\
Within these two years, there were 28 depository institutions that were
required to leave the CBLR framework at least once because they did not
regain CBLR eligibility within two quarters, and subsequently regained
CBLR eligibility within four quarters.\51\ Thus, if the grace period
had been four quarters, these 28 depository institutions would have
been able to remain in the CBLR framework and avoid any costs incurred
by returning to the risk-based capital framework. This suggests that
some depository institutions could benefit from the extension of the
grace period.
---------------------------------------------------------------------------
\50\ The agencies' analysis of the CBLR grace period uses data
starting in 2022, when the CBLR requirement was returned to 9
percent under the transition interim final rule. The agencies'
analysis only includes depository institutions that entered the
grace period by the fourth quarter of 2024, the last date in the
sample used by the agencies for which two subsequent quarters of
Call Report data are available, which are necessary to determine
whether the depository institutions regained eligibility within the
two-quarter grace period. The agencies end their data in the second
quarter of 2025 to align with the sample analyzed in the proposal.
Some depository institutions experienced multiple instances of
entering the grace period; the agencies find 261 such instances
between the second quarter of 2022 and the fourth quarter of 2024,
involving 210 distinct depository institutions. As eligibility for
the grace period applies at the individual institution level, the
analysis focuses on depository institutions, without taking into
account consolidation among institutions with joint ownership.
\51\ Of the 210 grace period depository institutions: 78
depository institutions had at least one instance in which they
entered the grace period and subsequently did not regain CBLR
eligibility within the grace period (including the 28 that did not
regain eligibility within two quarters but did within four
quarters); 13 depository institutions regained CBLR eligibility in
all the instances where they entered the grace period but still
chose to leave the CBLR framework in at least one of the instances;
and 119 depository institutions regained CBLR eligibility within the
two-quarter grace period and continued within the CBLR framework (in
all the instances where they entered the grace period). Three
depository institutions entered the grace period between the second
quarter of 2022 and the fourth quarter of 2024, but ceased reporting
Call Reports at some point in this time period and were not included
in the previously listed population counts.
---------------------------------------------------------------------------
Many commenters noted that the extended grace period would allow
more temporarily non-compliant CBLR banking organizations to return to
full compliance without experiencing operational challenges or
incurring unnecessary costs.
An increase in CBLR framework adoption is expected to especially
benefit smaller banking organizations that participate by reducing
their costs of compliance with the risk-based capital framework. Such
fixed costs can have greater salience for smaller banking
organizations. This benefit is consistent with the finding in section
V.A.2 that a greater fraction of smaller banking organizations
participate in the CBLR framework.
2. Increased Balance Sheet Capacity to Support Lending
The agencies examine how the calibration under the final rule
expands the balance sheet capacity of community banking organizations
that currently participate in the CBLR framework using a two-step
process. First, the agencies estimate the potential reduction in
community banking organizations' tier 1 leverage ratios due to the
final rule's change in the CBLR requirement from 9 percent to 8
percent. The analysis assumes that community banking organizations
participating in the CBLR framework could reduce their tier 1 leverage
ratios by the final rule's change of 1 percentage point of average
consolidated assets, except for those community banking organizations
with a leverage ratio less than 10 percent. The latter are assumed to
reduce their tier 1 leverage ratio to 9 percent (that is, maintain an
excess leverage ratio of 1 percentage point).
In the second step, the analysis computes the growth in each
participating community banking organization's total consolidated
assets that would reduce its tier 1 leverage ratio to the ratio derived
in step one, while holding tier 1 capital fixed. The estimated asset
growth rate is then multiplied by the community banking organization's
average consolidated assets to obtain its expanded asset base under the
final rule, with the provision that community banking organizations do
not grow above $10 billion in total assets.
[[Page 22983]]
The agencies estimate that the reduced CBLR requirement under the
final rule could provide currently participating community banking
organizations with the capacity to expand their balance sheets by $64
billion in aggregate. This would represent an 8.1 percent expansion of
participating community banking organizations' assets or a 1.8 percent
expansion relative to the total assets of all community banking
organizations. This increase in balance sheet capacity could facilitate
additional lending by community banking organizations participating in
the CBLR framework and support the economic activity of the communities
they serve.\52\ However, community banking organizations may not
utilize this capacity in full. There is uncertainty regarding the
extent to which such an increase in lending by these banking
organizations will occur.\53\
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\52\ For perspective from the academic literature on the
relationship between bank capital requirements and lending, see,
among others: J. S. M[eacute]sonnier, and A. Monk, Heightened bank
capital requirements and bank credit in a crisis: the case of the
2011 EBA Capital Exercise in the euro area, Rue de la Banque, (08)
(2015); M. Behn, R. Haselmann, and P. Wachtel, Procyclical capital
regulation and lending, The Journal of Finance, 71(2) (2016); C.
Mendicino, K. Nikolov, J. Suarez, and D. Supera, Bank capital in the
short and in the long run, Journal of Monetary Economics, 115
(2020); S. Firestone, A. Lorenc, and B. Ranish, An empirical
economic assessment of the costs and benefits of bank capital in the
United States, SSRN 349416 (2019); D. Corbae, and P. D'Erasmo,
Capital buffers in a quantitative model of banking industry
dynamics, Econometrica, 89(6) (2021); V. Elenev, T. Landvoigt, and
S. Van Nieuwerburgh, A macroeconomic model with financially
constrained producers and intermediaries, Econometrica, 89(3)
(2021).
\53\ Section V.D discusses the agencies' experience with
temporary changes in the CBLR requirement.
---------------------------------------------------------------------------
Many newly eligible community banking organizations that opt into
the CBLR framework could also increase their lending relative to total
assets. Historical data indicate that among depository institutions
that adopted the CBLR framework between 2020Q1 and 2025Q2, the share of
loans and leases \54\ in total average assets increased by about 6.6
percentage points during the year following adoption.\55\ This average
increase only occurs after adoption of the CBLR framework--it is not
present in analogous year-over-year differences ending four quarters
prior, one quarter prior, or one quarter after the election,\56\--which
suggests that the final rule could result in an increase in lending by
newly eligible community banking organizations that opt into the CBLR
framework.
---------------------------------------------------------------------------
\54\ As reported on schedule RC-C of the Call Report.
\55\ The agencies obtain a 95 percent confidence interval of 5.4
to 7.7 percent across approximately 2,155 electing depository
institutions between the first quarter of 2020 and the second
quarter of 2025.
\56\ The average year-over-year changes ending four quarters
prior, one quarter prior, and one quarter after CBLR election were
1.3 percentage points, -0.2 percentage points, and -0.2 percentage
points, respectively. Only the first of these three measures were
statistically different from zero.
---------------------------------------------------------------------------
In summary, the expected benefits of the final rule accrue to both
community banking organizations participating under the current
requirements and to community banking organizations that will adopt the
framework under the requirements of the final rule. Although the
agencies cannot precisely quantify these benefits, the fact that fewer
than half of qualifying community banking organizations currently opt
into the CBLR framework suggests that the potential benefits could be
substantial.
D. Expected Costs of the Final Rule
The final rule remains broadly consistent with the current well
capitalized category under the PCA framework. It may, however, impose
costs on banking organizations and the banking industry in that it
could encourage community banking organizations currently participating
in the CBLR framework to operate with lower capital ratios or newly
eligible community banking organizations that opt into the CBLR
framework to take on riskier loans. For example, the increase in
balance sheet capacity presented in section V.C.2 assumes banking
organizations currently participating in the CBLR framework will grow
their balance sheets while maintaining the same amount of capital.
The evidence on potential balance sheet adjustments is mixed. Some
studies evaluating the initial creation of the CBLR framework suggest
that participating community banking organizations increased their
share of relatively higher-yielding assets, including unsecured loans,
and experienced modest increases in non-performing loans, charge-offs,
or subordinate mortgage exposures.\57\ However, the extent of these
changes appears heterogeneous across organizations and the overall
effect on risk-taking seems muted. This also suggests that, while the
final rule may result in changes to the composition, in addition to the
level, of bank lending, the compositional shift will likely be minimal.
---------------------------------------------------------------------------
\57\ See Liu, Ruinan, 2025, ``Leverage Without Risk Weights: A
Double-Edged Sword for Community Banks,'' Working paper, <a href="https://ssrn.com/abstract=5202564">https://ssrn.com/abstract=5202564</a> (accessed March 9, 2026); and Lu, George,
2024, ``The Effect of Capital Modification on Community Banking:
Evidence from the Community Bank Leverage Ratio Framework,'' Working
paper, <a href="https://www.proquest.com/docview/3112826570?pq-origsite=gscholar&fromopenview=true&sourcetype=Dissertations%20&%20Theses">https://www.proquest.com/docview/3112826570?pq-origsite=gscholar&fromopenview=true&sourcetype=Dissertations%20&%20Theses</a> (accessed March 9, 2026).
---------------------------------------------------------------------------
In addition, the agencies could not find evidence that previous
temporary changes in the CBLR requirement substantially affected the
amount of tier 1 capital maintained by depository institutions. Between
the fourth quarter of 2020, when the CBLR requirement was above 8
percent, and the fourth quarter of 2022, when the CBLR requirement was
above 9 percent, the aggregate leverage ratio for a balanced panel of
1,337 participating depository institutions increased by 8 basis
points, from 13.39 to 13.47, suggesting that the aggregate tier 1
capital at electing depository institutions did not react in aggregate
to the increase in the CBLR requirement.\58\ These results should be
interpreted with caution, however. In addition to being based on a
relatively short observation window amid unusual economic conditions,
the temporary nature of the previous change in requirements limits
comparability to the final rule as banking organizations are likely to
react more strongly to changes that are not subject to expiration.
Moreover, depository institutions participating in the CBLR framework
currently maintain high levels of tier 1 capital, with a median excess
leverage ratio of 2.9 percent of average total consolidated assets.
---------------------------------------------------------------------------
\58\ Call Report Data for the quarters ending December 2020 and
2022. During the same period, the leverage ratios for a balanced
panel of 1,288 qualifying community banking organizations that did
not elect to use the CBLR framework increased more: from 14.47
percent of 14.74 percent.
---------------------------------------------------------------------------
Some commenters argued that the revisions to the CBLR framework
would not materially increase risk to the financial system or the
communities served by participating organizations. Other commenters
emphasized the low-risk profile common to CBLR-eligible banking
organizations, which helps to alleviate potential safety and soundness
concerns about the reduced CBLR requirement.
The final rule's extension of the grace period from two quarters to
four quarters could entail additional costs if community banking
organizations approaching the CBLR requirement delay timely capital
adjustments. A longer grace period may allow some community banking
organizations to operate temporarily below the CBLR requirement while
remaining in the CBLR framework, potentially increasing supervisory
monitoring needs. One commenter expressed concern that a four-quarter
grace period could lead to number of organizations below the 8 percent
threshold. However, as noted in the proposal, the final rule's grace
[[Page 22984]]
period limitation--which allows a qualifying community banking
organization to use the grace period for up to four consecutive
quarters at a time only if it has not used the grace period for eight
or more of the prior twenty quarters--is expected to mitigate these
potential costs. In addition, the extension could produce regulatory
cost savings for community banking organizations by limiting
unnecessary exits and re-entries into the framework due to short-term
fluctuations in their leverage ratios.
Overall, the agencies anticipate that the benefits of the final
rule justify the costs.
E. Reasonable Alternatives
The agencies considered several alternatives to the final rule that
could meet the objectives of this rulemaking. For the reasons
described, the agencies view the final rule as the most appropriate and
effective means of achieving the policy objectives described in Section
III.
The agencies considered not promulgating any regulatory action to
amend the CBLR framework. However, as previously discussed, the
agencies desire to increase the adoption rate for the CBLR framework.
As discussed above, the final rule is expected to provide clear cost
savings and other benefits over this no-action alternative.
The agencies also considered lowering the CBLR requirement to above
8 percent but keeping the grace period to two quarters. This
alternative would have provided some relief to community banking
organizations; however, as described above, the extension of the grace
period under the final rule is expected to provide substantial
regulatory relief that meets the objectives of the EGRRCPA and the
stated objectives of the final rule without entailing significant
costs. The agencies did not receive any comments regarding this
alternative.
F. Response to Additional Comments
Several commenters noted that the anticipated reduction in
regulatory burden is likely to provide material benefits to community
banking organizations, such as enhanced capital planning and greater
capacity to fund operational improvements. One commenter noted that
retained earnings could be redirected by CBLR banking organizations to
improve their business operations and risk management, for example, via
technology upgrades.\59\ The same commenter suggested that the changes
described in the proposal may also provide CBLR banking organizations
with greater capacity to rebuild capital in periods of stress, despite
the likelihood of decreased retained earnings. Another commenter noted,
similarly, that the reduced CBLR requirement could strengthen electing
banking organizations' ability to weather the volatility of local
business cycles. Additional benefits for CBLR banking organizations
mentioned by commenters include greater flexibility to invest in
innovation necessary to remain competitive and the potential enablement
of accretive mergers and acquisitions useful for achieving economies of
scale.
---------------------------------------------------------------------------
\59\ Specifically, the commenter noted several challenges that
community banking organizations face that could be improved through
targeted investments including: a shrinking share of banking system
deposits, difficulty keeping up with technological advancements, and
difficulty meeting minimum standards for mitigating cybersecurity
risks and financial crime.
---------------------------------------------------------------------------
Many of the benefits raised by commenters are possible under the
final CBLR rule. In addition to benefits that follow directly from
regulatory cost savings, CBLR banking organizations may use some of the
expanded balance sheet capacity quantified in Section V.C.2 to invest
in assets that support operational enhancements or innovation.
Appendix: CBLR-Election Projection
Table 2 calculates the fraction of depository institutions that
adopt the CBLR framework by groups of excess tier 1 leverage ratios
split in 1 percentage point increments. For example, 31 percent of
depository institutions with an excess leverage ratio between 0 and 1
percent of average total consolidated assets adopted the CBLR framework
as of June 30, 2025. Assuming that these observed adoption rates remain
unchanged for each excess leverage ratio category under the 8 percent
calibration, the agencies can estimate the number of depository
institutions that will join the framework.
The agencies estimate that 2,039 depository institutions could
adopt the CBLR framework under the 8 percent calibration, representing
an increase of 323 depository institutions relative to the current
rule. Under this projection, 129 of the newly electing depository
institutions have a leverage ratio between 8 and 9 percent and would be
newly eligible, while 189 depository institutions are currently
eligible and would decide to join under the new calibration.\60\
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\60\ In addition, 4 depository institutions are projected to be
in the grace period. The individual projections are rounded to the
nearest whole number; therefore, the reported total may not equal
the arithmetic sum of the rounded components.
Table 2--Estimated Counts of Electing Depository Institutions Under the Final Rule, Partitioned by Leverage
Ratios
----------------------------------------------------------------------------------------------------------------
Range of leverage ratio (percent) *
--------------------------------------------------------------- Total
<=7 7-8 8-9 9-10 10-11 11-12 >12
----------------------------------------------------------------------------------------------------------------
Excess leverage ratio **................ <=-1 -1-0 0-1 1-2 2-3 3-4 >4 .......
Depository institutions that meet CBLR 22 101 480 869 755 547 1,467 4,241
size and simplicity requirements ***...
% Electing depository institutions 0% 4% 31% 43% 48% 57% 57% 48%
(final rule) ***.......................
# Electing depository institutions 0 4 150 371 363 312 838 2,039
(final rule) ***.......................
# Electing depository institutions 0 0 21 272 322 263 838 1,716
(current) ***..........................
[Delta] Electing depository institutions 0 4 129 99 41 49 0 323
(final rule--current) ***..............
----------------------------------------------------------------------------------------------------------------
Call Report Data, June 30, 2025.
* Each range excludes the lower end and includes the upper end.
** ``Excess leverage ratio'' is equal to leverage ratio minus the CBLR requirement of 8 percent. ``% Electing
depository institutions (final rule)'' is the estimated percent of those that would choose to elect into the
CBLR. ``# Electing depository institutions (final rule)'' equals the product of the number of all depository
institutions that meet CBLR size and simplicity requirements and ``% Electing depository institutions (final
rule).'' ``[Delta] Electing depository institutions (final rule--current)'' is the difference between ``#
Electing depository institutions (final rule)'' and the current number of electing depository institutions
(``# Electing banks (current)'').
*** These counts include depository institutions that meet the qualifying community banking organization
criteria with respect to advanced approaches, total consolidated assets, off-balance sheet exposures, and
total trading assets and liabilities. The counts may not add up to the total due to rounding.
[[Page 22985]]
VI. Regulatory Analysis
A. Paperwork Reduction Act
This final rule has been reviewed for compliance with the Paperwork
Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.). In accordance
with the PRA, the agencies may not conduct or sponsor, and a respondent
is not required to respond to, an information collection unless the
information collection displays a currently valid Office of Management
and Budget (OMB) control number. The agencies have reviewed the final
rule and determined that it would not introduce any new collection of
information pursuant to the PRA. Therefore, no submission will be made
to OMB for review.
As discussed in the proposal, the final rule, however, necessitates
clarification of the instructions to the Financial Statements for
Holding Companies (FR Y-9; OMB No. 7100-0128). The Board plans to
address such clarifications separately. This final rule will also
necessitate clarification of the instructions to reporting for
depository institutions. The agencies, under the auspices of the
Federal Financial Institutions Examination Council (FFIEC), plan to
separately address such clarifications to the instructions to the
Consolidated Reports of Condition and Income (Call Report) (FFIEC 031,
FFIEC 041, and FFIEC 051; OMB Nos. 1557-0081; 3064-0052, and 7100-
0036).
B. Regulatory Flexibility Act
OCC
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires an agency, in connection with a final rule, to prepare a Final
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the Small Business Administration (SBA) for
purposes of the RFA to include commercial banks and savings
institutions with total assets of $850 million or less and trust
companies with total assets of $47 million or less) or to certify that
the final rule will not have a significant economic impact on a
substantial number of small entities.
To measure whether a rule will impact a ``substantial number of
small entities'' the OCC focused on the potential costs of the rule on
OCC-supervised small entities, consistent with guidance on the RFA
published by the Office of Advocacy of the Small Business
Administration.\61\ As of December 31, 2024, the OCC supervised
approximately 609 small entities, of which 577 will be impacted by the
proposal.<SUP>62 63</SUP> Thus, a substantial number of small entities
will be impacted by the final rule.
---------------------------------------------------------------------------
\61\ See, ``A Guide for Government Agencies; How to Comply with
the Regulatory Flexibility Act,'' (pp. 18-20), available at: <a href="https://advocacy.sba.gov/wp-content/uploads/2019/07/How-to-Comply-with-the-RFA-WEB.pdf">https://advocacy.sba.gov/wp-content/uploads/2019/07/How-to-Comply-with-the-RFA-WEB.pdf</a>.
\62\ The OCC based its estimate of the number of small entities
on the Small Business Administration's size thresholds for
commercial banks and savings institutions (NAICS Code: 522110), and
trust companies (NAICS Code: 523991), which are $850 million and $47
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR 121.103(a), the OCC counted the assets of
affiliated financial institutions when determining whether to
classify an OCC-supervised institution as a small entity. The OCC
used December 31, 2024, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See, footnote 8 of the U.S. Small Business Administration's Table of
Size Requirements.
\63\ The OCC included all OCC-supervised small entities that
qualify for the CBLR framework in the proposal. Not all qualifying
national banks and Federal savings associations will choose to adopt
the CBLR framework, but all qualifying national banks and Federal
savings associations will have the option.
---------------------------------------------------------------------------
The OCC also considered whether the final rule will result in a
significant economic impact on affected small entities. The total
impact associated with the final rule is the estimated annual tax
benefit or cost. In general, the OCC classifies the economic impact of
expected cost (to comply with a rule) on an individual bank as
significant if the total estimated monetized costs in one year are
greater than (1) 5 percent of the bank's total annual salaries and
benefits \64\ or (2) 2.5 percent of the bank's total annual non-
interest expense.\65\ Based on the above criteria, the estimated cost
of the rule could impose a significant economic impact at 8 of the 577
small entities if they elected to opt into the CBLR framework. The OCC
uses 5 percent to determine a substantial number, and only around 1
percent (8/609 = 1.3%) of small entities could be significantly
impacted by the rule. Furthermore, the CBLR framework is voluntary, and
small national banks and Federal savings associations can choose to
remain in the current risk-based capital framework. Thus, the OCC
certifies that the final rule will not have a significant economic
impact on a substantial number of OCC-supervised small entities.
---------------------------------------------------------------------------
\64\ Call report schedule RI, Item 7.a., Salaries and employee
benefits.
\65\ Call report schedule RI, Item 7.e., Total noninterest
expense.
---------------------------------------------------------------------------
Board
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a final rulemaking, an agency prepare and make
available a final regulatory flexibility analysis describing the impact
of the final rule on small entities.\66\ However, a final regulatory
flexibility analysis is not required if the agency certifies that the
final rule will not have a significant economic impact on a substantial
number of small entities.
---------------------------------------------------------------------------
\66\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------
Under regulations issued by the Small Business Administration
(SBA), a small entity includes a depository institution, bank holding
company, or savings and loan holding company with total assets of $850
million or less.\67\ Consistent with the SBA's General Principles of
Affiliation, the Board includes the assets of all domestic and foreign
affiliates toward the applicable size threshold when determining
whether to classify a particular entity as a small entity.\68\ For the
reasons described below and under section 605(b) of the RFA, the Board
certifies that the final rule will not have a significant economic
impact on a substantial number of small entities for purposes of the
RFA.\69\
---------------------------------------------------------------------------
\67\ See 13 CFR 121.201.
\68\ See 13 CFR 121.103.
\69\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------
In connection with the proposed rule, the Board stated that it
believed that the proposal would not have a significant economic impact
on a substantial number of small entities. Nevertheless, the Board
published and invited comment on an initial regulatory flexibility
analysis of the proposal. No comments were received on the initial
regulatory flexibility analysis.
The Board is finalizing the amendments to the community bank
leverage ratio framework. The final rule will lower the community bank
leverage ratio requirement for these organizations from greater than 9
percent to greater than 8 percent, consistent with the lower bound
provided in section 201 of the EGRRCPA. The final rule will also extend
the length of time that a qualifying community banking organization can
remain in the CBLR framework while being below the CBLR requirement
from two quarters to four quarters subject to a limit of eight or more
quarters within the previous five-year period. The finalized changes
will increase the number of qualifying community banking organizations
eligible to elect, and to continue, to use the framework.
The Board has considered whether to conduct a final regulatory
flexibility analysis in connection with the final rule. However, the
final rule amends an optional framework that qualifying community
banking organizations could
[[Page 22986]]
choose to apply instead of the Board's current capital rule and would
increase the number of qualifying community banking organizations
eligible to elect to use the framework. The final rule, therefore,
would not impose mandatory requirements on any small entities and would
not make changes to the projected reporting, recordkeeping, and other
compliance requirements of the community bank leverage ratio framework.
Additionally, the Board expects a reduction in reporting,
recordkeeping, and other compliance requirements for small entities
that elect to use the community bank leverage ratio framework. In light
of the foregoing, the Board certifies that the final rule does not have
a significant economic impact on a substantial number of small entities
for purposes of the RFA.
FDIC
The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a final rule, to prepare a final regulatory
flexibility analysis that describes the impact of the final rule on
small entities.\70\ However, a final regulatory flexibility analysis is
not required if the agency certifies that the final rule will not have
a significant economic impact on a substantial number of small
entities. The SBA defines ``small entities'' to include banking
organizations with total assets of less than or equal to $850
million.\71\ Generally, the FDIC considers a significant economic
impact to be a quantified effect in excess of 5 percent of total annual
salaries and benefits or 2.5 percent of total noninterest expenses. The
FDIC believes that effects in excess of one or more of these thresholds
typically represent significant economic impacts for FDIC-supervised
institutions. In connection with the proposed rule, the FDIC invited
comments on all aspects of the supporting information provided in the
RFA section and received none. For the reasons described below, the
FDIC certifies that the final rule will not have a significant economic
impact on a substantial number of small entities.
---------------------------------------------------------------------------
\70\ 5 U.S.C. 601 et seq.
\71\ The SBA defines a small banking organization as having $850
million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 87 FR 69118, effective Dec. 19, 2022). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' See 13 CFR 121.103. Following
these regulations, the FDIC uses an insured depository institution's
affiliated and acquired assets, averaged over the preceding four
quarters, to determine whether the insured depository institution is
``small'' for the purposes of RFA.
---------------------------------------------------------------------------
The final rule amends the CBLR framework. To determine whether the
final rule will have a significant economic impact, the FDIC compares
expected outcomes under the final rule to a baseline scenario in which
the current regulations remain unchanged; specifically, the CBLR
requirement of 9 percent with a two-quarter grace period.
As described in section V, Economic Analysis, of this document, the
final rule potentially affects all community banking organizations,
including many FDIC-supervised insured depository institutions (IDIs).
According to Call Reports for the quarter ending June 30, 2025, the
FDIC supervises 2,085 IDIs that are considered small entities for the
purposes of the RFA (small entity IDIs).\72\ Of these IDIs, 2,058 meet
the size and simplicity requirements of the CBLR framework by having
total consolidated assets of less than $10 billion, off-balance sheet
exposures of no more than 25 percent of total consolidated assets, and
total trading assets and trading liabilities of no more than 5 percent
of total consolidated assets. Within that cohort, 1,753 small entity
IDIs also report leverage ratios greater than 9 percent, making them
eligible to participate in the CBLR framework. Further, 989 of these
eligible small entity IDIs currently elect into the framework.\73\
Finally, 16 are in the CBLR grace period--all of them failed to meet
the 9-percent leverage ratio requirement. Table 3 reports counts of
these FDIC-supervised small entity IDIs, including a breakdown by
discrete leverage ratio:
---------------------------------------------------------------------------
\72\ Excluding branches of foreign banks. FDIC Call Reports,
June 30, 2025. The reported estimates in this final rule differ
slightly from those published in the proposal due to routine data
revisions: however, these changes are small in magnitude and do not
affect any conclusions or policy determinations in this rule.
\73\ FDIC Call Reports, June 30, 2025.
Table 3--Current Counts of Small Entity IDIs, Partitioned by Leverage Ratios
--------------------------------------------------------------------------------------------------------------------------------------------------------
Range of leverage ratio (percent) *
----------------------------------------------------------------------------- Total
<=7 7-8 8-9 9-10 10-11 11-12 >12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Excess leverage ratio **........................................ <=-2 -2--1 -1-0 0-1 1-2 2-3 >3 .........
IDIs that meet CBLR size and simplicity requirements ***........ 15 50 240 363 355 260 775 2,058
Participating IDIs **........................................... 0 0 16 157 191 146 495 1,005
% Participating IDIs............................................ 0% 0% 7% 43% 54% 56% 64% 49%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Call Report Data, June 30, 2025.
* Each range excludes the lower end and includes the upper end.
** ``Excess leverage ratio'' is equal to leverage ratio minus the CBLR requirement of above 9 percent. ``Participating IDIs'' are those qualifying small
entity IDIs that elect to use the CBLR framework as of June 30, 2025.
*** These counts include only FDIC-supervised insured depository institutions (IDIs) that are considered small entities by the Regulatory Flexibility
Act and that meet the qualifying community banking organization criteria involving advanced approaches, total consolidated assets, off-balance sheet
exposures, and trading assets and liabilities. These counts do not include one IDI that does not currently meet off-balance sheet criterion but is in
the CBLR grace period.
The final rule modifies the CBLR framework for qualifying community
banking organizations in two ways. First, it reduces the CBLR
requirement from 9 percent to 8 percent. This reduction increases the
population of IDIs eligible for the CBLR framework by 240 (14 percent),
as compared to the baseline population of 1,753. However, as discussed
in section V and presented in Table 3, many banks that qualify for the
CBLR choose not to elect. Using the same methodology as in section V,
and assuming adoption rates remain consistent with observed
relationship between adoption and excess leverage ratios, the FDIC
estimates that approximately 158 additional small entity IDIs would be
expected to elect into the CBLR framework under the final rule. These
electing IDIs will benefit by avoiding the costs associated with
gathering, recording, and reporting various risk-based capital
measures. Those that operate internal recordkeeping systems to comply
with risk-based capital regulations may discontinue or simplify these
systems. Others that rely on third party vendors to operate the
relevant compliance
[[Page 22987]]
systems could experience reductions in outsourcing costs. The FDIC does
not have the data necessary to quantify these benefits.
The reduction in the CBLR requirement under the final rule lowers
capital requirements for all small entity IDIs that participate in the
CBLR framework. Some IDIs may benefit by expanding their balance
sheets. However, as discussed in section V, the agencies acknowledge
uncertainty regarding the extent to which this expansion may occur;
empirical results do not provide any strong evidence that participating
banks will adjust their balance sheet composition or tier 1 capital
holdings, relative to the baseline. Specifically, leverage ratios for
participating CBLR banks did not increase between 2020 and 2022, when
the requirement increased from 8 to 9 percent.\74\ As such, for
purposes of this RFA analysis, the FDIC expects most small entity IDIs
will not significantly adjust their leverage ratios in response to the
final rule.
---------------------------------------------------------------------------
\74\ Call Report Data for the quarters ending December 30, 2020
and 2022.
---------------------------------------------------------------------------
The second modification to the CBLR framework under the final rule
is the extension of the grace period from two quarters to four
quarters. As noted in section V, of the 210 depository institutions
that entered the grace period in recent years, 28 (13 percent) will
benefit from a four-quarter grace period. As of the second quarter of
2025, there are 16 FDIC-supervised small entity IDIs in the grace
period because they do not meet the existing 9 percent CBLR requirement
but exceed the 8 percent CBLR requirement. The FDIC estimates that all
of these IDIs will experience benefits under the final rule relative to
the baseline, as they would avoid any costs associated with reverting
to the generally applicable capital rules. While the FDIC does not have
the data necessary to quantify these benefits, for purposes of this RFA
analysis, the FDIC notes that the 16 IDIs make up less than a percent
of the total number of small entity IDIs supervised by the FDIC.
The final rule may result in indirect costs on small entity IDIs
that voluntarily participate in the CBLR framework. Depending on the
behaviors of electing banks, such costs may include the increased risk
of bank failures; however, Section V notes that empirical evidence for
such costs are mixed, muted, and modest. For purposes of this RFA
analysis, the FDIC notes that the final rule does not impose direct
mandatory costs on any small entity IDIs.
In summary, the FDIC estimates that an additional 158 IDIs will
accrue benefits from CBLR election and 16 IDIs will accrue benefits
from the grace period extension under the final rule. While the FDIC
does not have data to quantify the benefits to these IDIs, these 174
IDIs make up less than nine percent of all FDIC-supervised small entity
IDIs. The FDIC does not consider nine percent to be a substantial
number of small entities. In other words, even if all 174 IDIs accrue
significant benefits, the final rule will not significantly affect a
substantial number of small entities. Other aspects of the final rule,
while potentially affecting all small entity IDIs that participate in
the CBLR framework, are indirect effects and/or are not expected to be
significant based on empirical evidence.
Given the analysis above, the FDIC certifies that the final rule
will not have a significant economic impact on a substantial number of
small entities.
C. Plain Language
Section 722 of the Gramm-Leach Bliley Act \75\ requires the Federal
banking agencies \76\ to use plain language in all proposed and final
rules published after January 1, 2000. The agencies invited comment on
the use of plain language and have sought to present the final rule in
a simple and straightforward manner.
---------------------------------------------------------------------------
\75\ Public Law 106-102, section 722, 113 Stat. 1338, 1471
(1999); 12 U.S.C. 4809.
\76\ The Federal banking agencies are the OCC, Board, and FDIC.
---------------------------------------------------------------------------
D. OCC Unfunded Mandates Reform Act of 1995
The OCC analyzed the final rule under the factors set forth in the
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this
analysis, the OCC considered whether the final rule includes a Federal
mandate that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted for inflation, currently $193
million). Because the final rule would not specifically require banks
to modify their policies and procedures, the OCC has determined that
there are no expenditures for the purposes of UMRA. Therefore, the OCC
concludes that the final rule would not result in an expenditure of
$100 million or more annually by State, local, and tribal governments,
or by the private sector.
E. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\77\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions, each Federal banking agency must
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations. In addition, section 302(b) of RCDRIA
requires new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on insured
depository institutions generally to take effect on the first day of a
calendar quarter that begins on or after the date on which the
regulations are published in final form, with certain exceptions,
including for good cause.\78\
---------------------------------------------------------------------------
\77\ 12 U.S.C. 4802(a).
\78\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
The agencies solicited comment on the requirements of RCDRIA,
including on any administrative burdens that the proposal would place
on depository institutions, including small depository institutions,
and their customers, and the benefits of the proposal that should be
considered in determining the effective date and administrative
compliance requirements for the final rule.
In accordance with section 302 of RCDRIA, the agencies considered
any administrative burdens, as well as benefits, that the final rule
would place on depository institutions and their customers in
determining the effective date and administrative compliance required
of the final rule. Consistent with the requirements of section 302 of
RCDRIA, the final rule is effective on July 1, 2026.
F. Executive Orders 12866, 13563 and 14192
Executive Order 12866 (Regulatory Planning and Review) \79\ and
Executive Order 13563 (Improving Regulation and Regulatory Review) \80\
direct agencies to assess the costs and benefits of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits.
[[Page 22988]]
This rule was drafted and reviewed in accordance with Executive Order
12866. Within OMB, the Office of Information and Regulatory Affairs
(OIRA) has determined that this rulemaking is an economically
significant regulatory action under section 3(f)(1) of Executive Order
12866. Accordingly, the rule was submitted to OIRA for review. As noted
in other sections of the SUPPLEMENTARY INFORMATION of this document,
the agencies have assessed the costs and benefits of this rulemaking
and have made a reasoned determination that the benefits of this
rulemaking justify its costs. This final rule is considered to be an
Executive Order 14192 deregulatory action.
---------------------------------------------------------------------------
\79\ E.O. 12866, 58 FR 51735 (Oct. 4, 1993).
\80\ E.O. 13563, 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------
G. Congressional Review Act
For purposes of Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (also known as the Congressional
Review Act), OMB makes a determination as to whether a final rule
constitutes a ``major'' rule.\81\ If a rule is deemed a ``major rule''
by OMB, the Congressional Review Act generally provides that the rule
may not take effect until at least 60 days following its
publication.\82\
---------------------------------------------------------------------------
\81\ 5 U.S.C. 801 et seq.
\82\ 5 U.S.C. 801(a)(3); 5 U.S.C. 804(2).
---------------------------------------------------------------------------
The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in--(A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers; individual industries;
Federal, State, or local government agencies; or geographic regions; or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\83\ OMB has determined that the final rule is a major
rule for purposes of the Congressional Review Act. As required, the
agencies will submit the final rule and other appropriate reports to
Congress and the Government Accountability Office for review.
---------------------------------------------------------------------------
\83\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Federal savings associations, Investments, National
banks, Reporting and recordkeeping requirements.
12 CFR Part 217
Administrative practice and procedures, Banks, banking, Capital,
Federal Reserve System, Holding companies, Reporting and recordkeeping
requirements, Risk, Securities.
12 CFR Part 324
Administrative practice and procedure, Banks, banking, Capital,
Capital adequacy, Confidential business information, Investments,
Reporting and recordkeeping requirements, Savings associations, State
non-member banks.
Department of The Treasury
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the preamble, the Office of the
Comptroller of the Currency amends part 3 of chapter I of title 12 of
the Code of Federal Regulations as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 is revised to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, 5371, 5371 note,
5412(b)(2)(B), and Pub. L. 116-136, 134 Stat. 281.
0
2. Amend Sec. 3.12 by:
0
a. In paragraphs (a)(1) and (a)(2)(i), removing the text ``9 percent''
wherever it appears and adding in its place the text ``8 percent'';
0
b. Removing paragraph (a)(4);
0
c. Revising paragraph (c)(1);
0
d. In paragraph (c)(2), removing the word ``second'' and adding in its
place the word ``fourth'';
0
e. In paragraph (c)(6), removing the text ``8 percent'' wherever it
appears and adding in its place the text ``7 percent''; and
0
f. Adding paragraph (c)(7).
The revision and addition read as follows:
Sec. 3.12 Community bank leverage ratio framework.
* * * * *
(c) * * *
(1) Except as provided in paragraphs (c)(5) through (7) of this
section, if a national bank or Federal savings association ceases to
meet the definition of a qualifying community banking organization, the
national bank or Federal savings association has a period of four
reporting periods under its Call Report (grace period) either to
satisfy the requirements to be a qualifying community banking
organization or to comply with Sec. 3.10(a)(1) and report the required
capital measures under Sec. 3.10(a)(1) on its Call Report.
* * * * *
(7) Notwithstanding paragraphs (c)(1) through (4) of this section,
a national bank or Federal savings association that has spent eight or
more of the previous twenty quarters within the grace period may not
use the grace period in the current quarter. If the national bank or
Federal savings association does not meet the definition of a
qualifying community banking organization in the current quarter, the
national bank or Federal savings association must immediately comply
with the minimum capital requirements under Sec. 3.10(a)(1) and must
report the required capital measures under Sec. 3.10(a)(1).
Sec. 3.303 [REMOVED AND RESERVED]
0
3. Remove and reserve Sec. 3.303.
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board amends part
217 of chapter II of Title 12 of the Code of Federal Regulations as
follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
4. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371, 5371 note, and sec. 4012, Pub. L.
116-136, 134 Stat. 281.
0
5. Amend Sec. 217.12 by:
0
a. In paragraphs (a)(1) and (a)(2)(i), removing the text ``9 percent''
wherever it appears and adding in its place the text ``8 percent'';
0
b. Removing paragraph (a)(4);
0
c. Revising paragraph (c)(1);
0
d. In paragraph (c)(2), removing the word ``second'' and adding in its
place the word ``fourth'';
0
e. In paragraph (c)(6), removing the text ``8 percent'' wherever it
appears and adding in its place the text ``7 percent''; and
0
f. Adding paragraph (c)(7).
The revision and addition read as follows:
Sec. 217.12 Community bank leverage ratio framework.
* * * * *
[[Page 22989]]
(c) * * *
(1) Except as provided in paragraphs (c)(5) through (7) of this
section, if a Board-regulated institution ceases to meet the definition
of a qualifying community banking organization, the Board-regulated
institution has a period of four reporting periods under its Call
Report or Form FR Y-9C, as applicable, (grace period) either to satisfy
the requirements to be a qualifying community banking organization or
to comply with Sec. 217.10(a)(1) and report the required capital
measures under Sec. 217.10(a)(1) on its Call Report or its Form FR Y-
9C, as applicable.
* * * * *
(7) Notwithstanding paragraphs (c)(1) through (4) of this section,
a Board-regulated institution that has spent eight or more of the
previous twenty quarters within the grace period may not use the grace
period in the current quarter. If the Board-regulated institution does
not meet the definition of a qualifying community banking organization
in the current quarter, the Board-regulated institution must
immediately comply with the minimum capital requirements under Sec.
217.10(a)(1) and must report the required capital measures under Sec.
217.10(a)(1).
Sec. 217.304 [Removed and Reserved]
0
6. Remove and reserve Sec. 217.304.
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR CHAPTER III
Authority and Issuance
For the reasons stated in the joint preamble, the Board of
Directors of the Federal Deposit Insurance Corporation amends 12 CFR
part 324 as follows:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
7. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note),
Pub. L. 115-174; section 4014 Sec. 201, Pub. L. 116-136, 134 Stat.
281 (15 U.S.C. 9052).
0
8. Amend Sec. 324.12 by:
0
a. In paragraphs (a)(1) and (a)(2)(i), removing the text ``9 percent''
wherever it appears and adding in its place the text ``8 percent'';
0
b. Removing paragraph (a)(4);
0
c. Revising paragraph (c)(1);
0
d. In paragraph (c)(2), removing the word ``second'' and adding in its
place the word ``fourth'';
0
e. In paragraph (c)(6), removing the text ``8 percent'' wherever it
appears and adding in its place the text ``7 percent''; and
0
f. Adding paragraph (c)(7).
The revision and addition read as follows:
Sec. 324.12 Community bank leverage ratio framework.
* * * * *
(c) * * *
(1) Except as provided in paragraphs (c)(5) through (7) of this
section, if an FDIC-supervised institution ceases to meet the
definition of a qualifying community banking organization, the FDIC-
supervised institution has a period of four reporting periods under its
Call Report (grace period) either to satisfy the requirements to be a
qualifying community banking organization or to comply with Sec.
324.10(a)(1) and report the required capital measures under Sec.
324.10(a)(1) on its Call Report.
* * * * *
(7) Notwithstanding paragraphs (c)(1) through (4) of this section,
an FDIC-supervised institution that has spent eight or more of the
previous twenty quarters within the grace period may not use the grace
period in the current quarter. If the FDIC-supervised institution does
not meet the definition of a qualifying community banking organization
in the current quarter, the FDIC-supervised institution must
immediately comply with the minimum capital requirements under Sec.
324.10(a)(1) and must report the required capital measures under Sec.
324.10(a)(1).
Sec. 324.303 [Removed and Reserved]
0
9. Remove and reserve Sec. 324.303.
Jonathan V. Gould,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Benjamin W. McDonough,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors,
Dated at Washington, DC, on April 24, 2026.
Jennifer M. Jones,
Deputy Executive Secretary.
[FR Doc. 2026-08298 Filed 4-28-26; 8:45 am]
BILLING CODE P
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