Federal banking regulators jointly finalized a rule to modify the community bank leverage ratio consistent with existing statutory authority.
The change will afford community banks greater flexibility to use a simpler measure of capital adequacy while reducing the regulatory burden. The final rule takes into account the unique business models and risk profiles of community banks.
The final rule will lower the community bank leverage ratio from 9 percent to 8 percent, which will provide more flexibility for community banks to opt into the framework. The rule also extends the grace period from two quarters to four quarters for a community bank that temporarily falls out of compliance.
The framework also simplifies the regulatory capital requirements for community banks by allowing them to adopt a relatively simple leverage ratio to measure capital adequacy instead of calculating and reporting risk-based capital ratios.
Under the framework, banks must maintain a leverage ratio that is significantly higher than the leverage ratio standard otherwise applicable to community banks.
The final rile was jointly approved by the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency.
“Providing the option to use simplified capital standards gives community banks meaningful and necessary regulatory flexibility while advancing the OCC’s support for the long-term health and vitality of these indispensable institutions,” Comptroller of the Currency Jonathan Gould said. “The OCC remains committed to targeted regulatory reforms that ease the burden on community banks and foster local economic growth. I look forward to the implementation of this final rule and the impact it will have on consumers and communities while preserving safe and sound operations.”
The changes will take effect on July 1, 2026.