On November 25, 2025, the U.S. Banking Agencies advanced a proposal to revise the Community Bank Leverage Ratio (CBLR) framework. According to FDIC Acting Chairman Travis Hill, the revisions are intended to encourage broader adoption of the CBLR by both lowering the ratio requirement and doubling the grace period for community banks that may fall out of compliance. Community bankers should take Acting Chairman Hill’s encouragement to heart since, as a Senate staffer, he was instrumental in the development of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), which introduced a range of community banking relief, including the CBLR.
Under the current framework, a community bank generally may opt into the CBLR framework if it meets all of the following qualifying criteria:
- Less than $10 billion in total consolidated assets;
- Leverage ratios of greater than 9%;
- Off-balance sheet exposures (excluding derivatives other than sold credit derivatives and unconditionally cancelable commitments) of 25% or less of total consolidated assets; and
- Trading assets and liabilities of 5% or less of total consolidated assets.
In addition, if a community bank opts into the current CBLR framework, it would have a two-quarter grace period. During this time, a community bank that fails to meet any of the qualifying criteria, including the 9% CBLR requirement, but maintains a leverage ratio of greater than 8%, would continue to be considered to satisfy the risk-based capital requirements. If the community bank either failed to meet all of the qualifying criteria by the end of the grace period or failed to maintain a leverage ratio of greater than 8%, it would be required to comply with the risk-based capital requirements and file the associated information in its regulatory reports.
Viewing the current calibration of the CBLR requirement and the two-quarter grace period as impediments to CBLR framework acceptance, the agencies propose the following key revisions:
- Lower Calibration of the CBLR Requirement: The agencies are proposing to lower the CBLR requirement from 9% to 8%.
- Extension of the Grace Period: Community banks that fail to meet the qualifying criteria after opting into the CBLR framework would now have four reporting periods, up from two reporting periods, to meet the qualifying criteria again, provided they maintain a leverage ratio above 7% and has not used the grace period for more than eight of the prior 20 quarters.
In addition, the agencies propose removing the provisions under the CBLR framework that provided temporary relief for qualifying community banking organizations during the COVID-19 outbreak. Signaling the potential for further relief, the agencies posed several questions regarding whether additional changes or adjustments to the qualifying criteria should be made. Public comments are requested no later than 60 days after publication in the Federal Register.
It should be noted that the EGRRCPA limits the application of the CBLR framework to community banks with total consolidated assets of less than $10 billion and requires that the CBLR ratio requirement be no lower than 8%. Several legislative proposals, such as H.R.5276, the Community Bank LIFT Act, would raise the CBLR framework, index the threshold to inflation, or lower the CBLR ratio requirements.
Participation in the CBLR Framework
While there has been significant adoption of the CBLR framework, only approximately 40% of eligible community banks have opted in, based on the data provided in the agencies’ proposal. Currently, there are 4,240 depository institutions that meet the eligibility criteria for participation in the CBLR framework without regard to the ratio requirement. Of these, 1,714 institutions are actively participating, with 1,694 maintaining above the current 9% leverage ratio requirement. An additional 20 institutions are presently operating within the 8-9% grace period. Beyond the current participants, 478 institutions meet the eligibility requirements and are operating in the 8-9% leverage ratio range.
The banking agencies estimate that 2,034 institutions would adopt the CBLR framework under the expanded scope, representing an increase of 320 institutions. This expansion underscores the broader applicability of the framework and highlights the potential for greater participation among qualifying community banks.
Grace Period Considerations
Between the Q2 2022 and Q4 2024, 2,010 participating institutions entered grace periods for one or more quarters. Within this timeframe, 28 institutions were required to exit the CBLR framework because they did not regain eligibility within the existing two-quarter limit, although they subsequently regained eligibility within four quarters. If the grace period had been extended to four quarters, these institutions could have remained within the framework and avoided the costs associated with temporarily returning to the risk-based capital regime. This experience suggests that a similar population of institutions would benefit from the proposed extension of the grace period, aligning regulatory flexibility with the operational realities faced by community banks.
For community banks, these revisions carry several important implications, including but not limited to:
- Expanded eligibility: lowering the threshold to 8% would allow an estimated 95% of community banking organizations to qualify for the simplified framework, compared to approximately 84% today.
- Reduced volatility risk: a lower capital requirement provides a larger buffer between actual capital levels and the regulatory minimum, decreasing the likelihood that temporary stress or credit losses force banks back into the more complex risk-based capital framework.
- Operational relief: By opting into the CBLR framework, qualifying banks avoid the need to calculate and report risk-based capital ratios, reducing compliance costs and freeing resources to be allocated elsewhere throughout the organization.
- Strategic flexibility: The extended grace period offers banks more time to manage potential capital fluctuations without immediate reversion back to risk-based requirements, supporting stability during periods of stress.
Next Steps
The proposed revisions to the CBLR framework represent a significant shift in regulatory policy, aiming to expand eligibility, reduce operational burdens, and provide greater flexibility for community banks. These changes not only offer immediate benefits but also present strategic opportunities for banks to better manage capital planning and adapt to evolving market conditions.
As the industry responds to these proposals and prepares for potential implementation, community banks should carefully assess how the revised framework may impact their operations and long-term objectives. This is an opportune time to evaluate your institution’s readiness and determine the best course of action to optimize capital strategies and regulatory compliance.
In the heavily regulated banking industry, leaders face more challenges than ever, from striving to meet shareholder and regulatory expectations to pursuing digital innovation. Forvis Mazars can help your financial institution tackle issues inherent to the industry, including market growth, internal control threats, industry consolidation, and compliance. We have the skills and experience in financial services that you can trust, combining a focus on Unmatched Client Experience® with the resources of a global firm. Serving you is our passion and privilege.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars and let us be a resource for your institution.