Community Banking: Regulatory Tailoring of CBLR

As part of a broader effort to recalibrate supervision and regulation of community banking in order to reduce “regulatory burden” and reflect the “unique business models, risk profiles, and operational realities” of community banks, the federal bank regulatory agencies (Federal Reserve Board, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation) have finalized their interagency proposal to amend the Community Bank Leverage Ratio (CBLR) framework.

The final rule has been adopted as proposed, without change (see KPMG Regulatory Alert here). Effective July 1, 2026:

• Lower Minimum Ratio: The required minimum CBLR will be lowered from 9 percent to 8 percent.
• Extended Grace Period: Banks falling below the 8 percent threshold will be allowed to remain in the CBLR framework for up to four consecutive quarters (rather than the current two quarters), provided the ratio stays above 7 percent. If the ratio drops to 7 percent or below, the bank must revert to risk-based capital requirements.
• Grace Period Cap: Use of the extended grace period will be permitted no more than eight quarters within any five-year period.
• Applicability: The CBLR framework will continue to apply to banks and holding companies with total consolidated assets under $10 billion that opt into the CBLR and meet specified prudential criteria. Eligibility also requires limited off-balance-sheet exposures and low trading activity, and it excludes institutions subject to the advanced approaches capital framework.