Lower community bank leverage ratio proposed; agencies cite more flexibility, ‘optionality’

Lowering from 9% to 8% the “community bank” leverage ratio (CBLR) in capital requirements was proposed by all three federal bank regulatory agencies Tuesday, which also proposed a longer period for the banks to achieve compliance with the new level.

Action to lower the leverage ratio was taken by the Federal Deposit Insurance Corp. (FDIC) Board at its meeting Tuesday; the Office of the Comptroller of the Currency (OCC) and the Federal Reserve followed up with their proposals.

The agencies said the proposal would continue to “require a level of capital that is consistent with ensuring the safety and soundness of community banks and comparable to–or higher than–the amount required under the risk-based capital framework.”

“By incorporating these changes, the revisions would reduce regulatory burden and provide community banks with greater flexibility and optionality in their capital management approach,” the agencies said in a joint statement. “The proposal reflects a deeper understanding of the unique business models, risk profiles, and operational realities of community banks. These tailored modifications represent a necessary step in continuing to focus attention on the unique needs of community banks in today’s financial landscape.”

According to the agencies, the 2019 CBLR“simplifies regulatory capital requirements for community banks by allowing them to adopt a relatively simple leverage ratio to measure capital adequacy.” They noted that a bank that opts into the framework is not required to calculate and report risk-based capital ratios.

The agencies contended that the proposal would maintain a leverage ratio that is double the minimum leverage ratio applicable to community banks that do not opt into the framework.

“These changes demonstrate the agencies’ ongoing commitment to focusing attention on community banks and their vital role in local economies, while ensuring appropriate safeguards remain in place,” the agencies said in their statement. “The proposed modifications provide community banks with enhanced options to manage their regulatory obligations while maintaining their ability to serve their communities.”

Comments on the proposal are due within 60 days after publication the Federal Register.

Agencies issue proposal to enhance community banks’ ability to serve their communities while maintaining strong capital requirements