Federal bank regulators have announced a proposal to change the community bank leverage ratio framework, aiming to reduce regulatory burden and give community banks more flexibility in managing their capital. The agencies are seeking public comment on these changes, which are designed to better reflect the specific business models and risks faced by community banks.
The community bank leverage ratio, introduced in 2019, was intended to simplify how small banks measure their capital adequacy. Banks that choose this option do not have to calculate or report risk-based capital ratios.
Under the new proposal, the required leverage ratio for community banks would be reduced from nine percent to eight percent. In addition, the period for a bank that falls out of compliance with the ratio to return to compliance would be extended from two quarters to four quarters.
According to the agencies, these changes would still ensure that community banks hold enough capital for safety and soundness. The proposed ratio remains at least double what is required for those banks not using this simplified framework.
The statement from regulators emphasized ongoing support for community banks: “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 proposed modifications provide community banks with enhanced options to manage their regulatory obligations while maintaining their ability to serve their communities.”
Further details about the proposal can be found in official documents including a board memo and a Federal Register notice titled “Regulatory Capital Rule: Revisions to the Community Bank Leverage Ratio Framework (PDF)”.
