I. BACKGROUND
The federal banking agencies recently revised its framework for capital rule simplification applicable to qualifying community banking organizations (Community Bank Leverage Ratio or CBLR). The CBLR rule implements section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA). The CBLR became effective July 1, 2026.
II. Overview
Section 201 of EGRRCPA requires the agencies to establish a new CBLR of 8 percent to 10 percent for qualifying banking organizations. Under the CBLR rule, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and maintain a leverage ratio of 8 percent or greater and meet certain other criteria would be considered “qualifying community banking organizations” eligible to use the CBLR framework.
A qualifying community banking organization that elects to use the CBLR framework would not be subject to risk-based or other leverage capital requirements and, in the case of an insured depository institution, would be considered to have met the well capitalized ratio requirements for purposes of the agencies’ Prompt Corrective Action (PCA) framework.
Community Bank Leverage Ratio Framework
Qualifying Community Banking Organization
• Leverage ratio greater than 8 percent
• Less than $10 billion in average total consolidated assets
• Off-balance-sheet exposures of 25 percent or less of total consolidated assets
• Trading assets plus trading liabilities of 5 percent or less of total consolidated assets
• Not an advanced approaches banking organization
Calculation of the Leverage Ratio
Tier 1 capital
Average total consolidated assets
Leverage Ratio Requirement
Greater than 8 percent
Grace Period
A four-quarter grace period (which begins as of the end of the calendar quarter in which the electing banking organization ceases to satisfy any of the qualifying criteria) to either meet the qualifying criteria again or to comply with the generally applicable capital rule, subject to a limit of eight quarter in the previous 5 year period.
• Grace period applies when a banking organization’s leverage ratio is 8 percent or less but greater than 7 percent.
• A banking organization that fails to maintain a leverage ratio greater than 8 percent would not be permitted to use the grace period and must comply with the generally applicable capital rule and file the appropriate regulatory reports.
• Grace period does not apply in the case of a merger or acquisition.
III. Calculation of the Leverage Ratio
The leverage ratio required for purposes of the community bank leverage ratio framework is calculated as Tier 1 capital divided by average total consolidated assets, consistent with how banking organizations calculate their leverage ratio under the generally applicable capital rule.
The calculation of Tier 1 capital includes the modifications made in relation to the capital simplifications final rule and current expected credit losses methodology (CECL) transitions final rule. (Banking organizations electing to use the community bank leverage ratio framework would incorporate the changes made by the capital simplifications final rule when calculating Tier 1 capital, which include an increase in the individual regulatory limit for mortgage servicing assets and certain deferred tax assets from 10 percent to 25 percent of a non-advanced approaches banking organization’s common equity Tier 1 capital. In addition, the capital simplifications final rule removed the aggregate 15 percent common equity Tier 1 capital threshold deduction, streamlined the treatment for investments in the capital of unconsolidated financial institutions, and simplified the calculation for minority interest limitations for non-advanced approaches banking organizations.)
NOTE: The generally applicable capital rule requires deductions from Tier 2 capital related to investments in capital instruments of unconsolidated financial institutions when such investments exceed certain limits; such deductions can affect the calculation of Tier 1 capital. The community bank leverage ratio framework does not have a total capital requirement; therefore, an electing banking organization is not required to calculate Tier 2 capital or make any Tier 2 capital deductions under the generally applicable capital rule.
IV. Qualifying Community Banking Organization
The community bank leverage ratio framework is optional for a banking organization that meets the following qualifying criteria:
V. Opting Into and out of the community bank leverage ratio framework
A qualifying community banking organization may opt into the community bank leverage ratio framework by completing the associated reporting line items that are required for such firms on its Call Report and/or Form FR Y–9C, as applicable. A qualifying community banking organization becomes subject to the community bank leverage ratio framework when it makes an election.
A banking organization may opt out of the community bank leverage ratio framework and become subject to the generally applicable capital rule by completing the associated reporting requirements on its Call Report and/or Form FR Y–9C, as applicable. A banking organization can opt out of the community bank leverage ratio framework between reporting periods by providing its capital ratios under the generally applicable capital rule to its appropriate regulators at that time.
A banking organization that opts out of the community bank leverage ratio framework can subsequently opt back into the community bank leverage ratio framework if it meets the qualifying criteria listed above.
VI. Grace Period
If an electing banking organization fails to satisfy one or more of the qualifying criteria but maintains a leverage ratio of greater than 7 percent, that banking organization would have a “grace period” of up to four quarters during which it could continue to use the community bank leverage ratio framework and be deemed to meet the “well capitalized” capital ratio requirements, subject to a limit of eight quarters in the previous five-year period. As long as the banking organization is able to return to compliance with all the qualifying criteria within two quarters, it continues to be deemed to meet the “well capitalized” ratio requirements and be in compliance with the generally applicable capital rule.
A banking organization is required to comply with and report under the generally applicable capital rule and file the relevant regulatory reports if the banking organization (i) is unable to restore compliance with all qualifying criteria during the four-quarter grace period (including reporting a leverage ratio greater than 8 percent), (ii) has a leverage ratio of 7 percent or less, or (iii) ceases to satisfy the qualifying criteria due to consummation of a merger transaction.