[Federal Register Volume 90, Number 228 (Monday, December 1, 2025)]
[Proposed Rules]
[Pages 55048-55063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-21625]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 90, No. 228 / Monday, December 1, 2025 /
Proposed Rules
[[Page 55048]]
DEPARTMENT OF TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2025-0141]
RIN 1557-AF33
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Docket No. R-1876]
RIN 7100-AH08
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 324
RIN 3064-AG17
Regulatory Capital Rule: Revisions to the Community Bank Leverage
Ratio Framework
AGENCY: Office of the Comptroller of the Currency, Treasury; the
Federal Deposit Insurance Corporation; and the Board of Governors of
the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, and the Federal Deposit
Insurance Corporation are inviting public comment on a notice of
proposed rulemaking (proposal) that would lower the community bank
leverage ratio (CBLR) requirement for certain depository institutions
and depository institution holding companies from 9 percent to 8
percent, consistent with the lower bound provided in section 201 of the
Economic Growth, Regulatory Relief, and Consumer Protection Act. The
proposal would also extend the length of time that certain depository
institutions or depository institution holding companies can remain in
the CBLR framework while not meeting all of the qualifying criteria for
the CBLR framework from two quarters to four quarters, subject to a
limit of eight quarters in any five-year period.
DATES: Comments must be received by January 30, 2026.
ADDRESSES: Comments should be directed to the agencies as follows:
OCC: You may submit comments to the OCC by any of the methods set
forth below. Commenters are encouraged to submit comments through the
Federal eRulemaking Portal. Please use the title ``Regulatory Capital
Rule: Revisions to the Community Bank Leverage Ratio Framework'' to
facilitate the organization and distribution of the comments. You may
submit comments by any of the following methods:
Federal eRulemaking Portal--Regulations.gov:
Go to https://regulations.gov/. Enter Docket ID ``OCC-2025-0141''
in the Search Box and click ``Search.'' Public comments can be
submitted via the ``Comment'' box below the displayed document
information or by clicking on the document title and then clicking the
``Comment'' box on the top-left side of the screen. For help with
submitting effective comments, please click on ``Commenter's
Checklist.'' For assistance with the Regulations.gov site, please call
1-866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. EST, or email
[email protected].
Mail: Chief Counsel's Office, Attention: Comment
Processing, Office of the Comptroller of the Currency, 400 7th Street
SW, Suite 3E-218, Washington, DC 20219.
Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218,
Washington, DC 20219.
Instructions: You must include ``OCC'' as the agency name and
Docket ID ``OCC-2025-0141'' in your comment. In general, the OCC will
enter all comments received into the docket and publish the comments on
the Regulations.gov website without change, including any business or
personal information provided such as name and address information,
email addresses, or phone numbers. Comments received, including
attachments and other supporting materials, are part of the public
record and subject to public disclosure. Do not include any information
in your comment or supporting materials that you consider confidential
or inappropriate for public disclosure.
You may review comments and other related materials that pertain to
this action by the following method:
Viewing Comments Electronically--Regulations.gov:
Go to https://regulations.gov/. Enter Docket ID ``OCC-2025-0141''
in the Search Box and click ``Search.'' Click on the ``Dockets'' tab
and then the document's title. After clicking the document's title,
click the ``Browse All Comments'' tab. Comments can be viewed and
filtered by clicking on the ``Sort By'' drop-down on the right side of
the screen or the ``Refine Comments Results'' options on the left side
of the screen. Supporting materials can be viewed by clicking on the
``Browse Documents'' tab. Click on the ``Sort By'' drop-down on the
right side of the screen or the ``Refine Results'' options on the left
side of the screen checking the ``Supporting & Related Material''
checkbox. For assistance with the Regulations.gov site, please call 1-
866-498-2945 (toll free) Monday-Friday, 9 a.m.-5 p.m. EST, or email
[email protected].
The docket may be viewed after the close of the comment period in
the same manner as during the comment period.
Board: You may submit comments, identified by Docket No. R-1876 and
RIN 7100-AH08, by any of the following methods:
Agency website: https://www.federalreserve.gov/apps/proposals/. Follow the instructions for submitting comments, including
attachments. Preferred Method.
Mail: Benjamin W. McDonough, Deputy Secretary, Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
Hand Delivery/Courier: Same as mailing address.
Other Means: [email protected]. You must include the
docket number in the subject line of the message.
Comments received are subject to public disclosure. In general,
comments received will be made available on the Board's website at
https://www.federalreserve.gov/apps/proposals/ without change and will
not be modified to remove personal or business information including
confidential, contact, or other identifying information. Comments
should not include any information
[[Page 55049]]
such as confidential information that would be not appropriate for
public disclosure. Public comments may also be viewed electronically or
in person in Room M-4365A, 2001 C St. NW, Washington, DC 20551, between
9 a.m. and 5 p.m. during Federal business weekdays.
FDIC: You may submit comments, identified by RIN 3064-AG17, by any
of the following methods:
Agency website: https://www.fdic.gov/federal-register-publications.
Follow instructions for submitting comments on the FDIC's website.
Mail: Jennifer M. Jones, Deputy Executive Secretary, Attention:
Comments/Legal OES RIN 3064-AG17, Federal Deposit Insurance
Corporation, 550 17th Street NW, Washington, DC 20429.
Hand Delivered/Courier: Comments may be hand-delivered to the guard
station at the rear of the 550 17th Street NW, building (located on F
Street NW) on business days between 7 a.m. and 5 p.m. eastern time.
Email: [email protected]. Include the RIN 3064-AG17 on the subject
line of the message.
Public Inspection: Comments received, including any personal
information provided, may be posted without change to https://www.fdic.gov/federal-register-publications. Commenters should submit
only information that the commenter wishes to make available publicly.
The FDIC may review, redact, or refrain from posting all or any portion
of any comment that it may deem to be inappropriate for publication,
such as irrelevant or obscene material. The FDIC may post only a single
representative example of identical or substantially identical
comments, and in such cases will generally identify the number of
identical or substantially identical comments represented by the posted
example. All comments that have been redacted, as well as those that
have not been posted, that contain comments on the merits of this
notice will be retained in the public comment file and will be
considered as required under all applicable laws. All comments may be
accessible under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT:
OCC: Benjamin Pegg, Technical Expert, Capital Policy, (202) 649-
6370; or Carl Kaminski, Assistant Director, Ron Shimabukuro, Senior
Counsel or Daniel Perez, Counsel, Bank Advisory Group, Chief Counsel's
Office, (202) 649-5490, Office of the Comptroller of the Currency, 400
7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing,
or have a speech disability, please dial 7-1-1 to access
telecommunications relay services.
Board: Juan Climent, Deputy Associate Director, (202) 872-7526;
Morgan Lewis, Manager, (202) 407-5093; Missaka Nuwan Warusawitharana,
Manager, (202) 452-3461; Lars Arnesen, Senior Financial Institution
Policy Analyst, (202) 868-0546, Division of Supervision and Regulation;
or Jay Schwarz, Deputy Associate General Counsel, (202) 731-8852; Mark
Buresh, Senior Special Counsel, (202) 499-0261; Jasmin Keskinen,
Counsel, (202) 853-7872, Legal Division, Board of Governors of the
Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
For the hearing impaired only, Telecommunication Device for the Deaf
(TDD), (202) 263-4869.
FDIC: Benedetto Bosco, Chief, Capital Policy Section; Kyle
McCormick, Senior Policy Analyst; Keith Bergstresser, Senior Policy
Analyst; Matthew Park, Financial Analyst; Rachel Romm-Nisson, Risk
Analytics Specialist; Capital Markets and Accounting Policy Branch,
Division of Risk Management Supervision; Catherine Wood, Counsel;
Merritt Pardini, Counsel; Kevin Zhao, Senior Attorney; Nicholas Soyer,
Attorney; Legal Division, [email protected], (202) 898-6888;
Federal Deposit Insurance Corporation, 550 17th Street NW, Washington,
DC 20429.
SUPPLEMENTARY INFORMATION:
I. Background
A. Economic Growth, Regulatory Relief, and Consumer Protection Act
The community bank leverage ratio (CBLR) framework \1\ implements
section 201 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act (EGRRCPA), which requires the Office of the Comptroller
of the Currency (OCC), the Board of Governors of the Federal Reserve
System (Board), and the Federal Deposit Insurance Corporation (FDIC)
(collectively, the agencies) to establish a community bank leverage
ratio (the CBLR requirement) of not less than 8 percent and not more
than 10 percent for qualifying community banking organizations.\2\
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\1\ 12 CFR 3.12 (OCC); 12 CFR 217.12 (Board); 12 CFR 324.12
(FDIC).
\2\ Public Law 115-174, 132 Stat. 1296, 1306-07 (2018) (codified
at 12 U.S.C. 5371 note). The authorizing statute uses the term
``qualifying community bank,'' whereas the agencies' regulations
implementing the statute use the term ``qualifying community banking
organization.'' See, e.g., 12 CFR 3.12(a)(2) (OCC); 12 CFR
217.12(a)(2) (Board); 12 CFR 324.12(a)(2) (FDIC). The terms
generally have the same meaning. Section 201(a)(3) of EGRRCPA
provides that a qualifying community banking organization is a
depository institution or depository institution holding company
with total consolidated assets of less than $10 billion that
satisfies such other factors, based on the banking organization's
risk profile, that the agencies determine are appropriate. Section
201(a)(3) further provides that this determination shall be based on
consideration of off-balance sheet exposures, trading assets and
liabilities, total notional derivatives exposures, and such other
factors that the agencies determine appropriate.
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Under section 201(c) of EGRRCPA, a qualifying community banking
organization that exceeds the CBLR requirement shall be considered to
have met: (i) the generally applicable risk-based and leverage capital
requirements in the capital rule; \3\ (ii) the capital ratio
requirements to be considered well capitalized under the agencies'
prompt corrective action (PCA) framework (in the case of insured
depository institutions); and (iii) any other applicable capital or
leverage requirements. Section 201(b) of EGRRCPA also requires each of
the agencies to establish procedures for the treatment of a qualifying
community banking organization whose leverage ratio falls below the
CBLR requirement as established by each of the agencies.
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\3\ The OCC's capital rule is at 12 CFR part 3. The Board's
capital rule is at 12 CFR part 217. The FDIC's capital rule is at 12
CFR part 324.
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In 2019, the agencies issued a final rule establishing the CBLR
framework, which became effective January 1, 2020 (2019 final rule).\4\
Under the 2019 final rule, each of the agencies established a CBLR
requirement of greater than 9 percent. The CBLR was defined by
reference to the capital rule's existing leverage ratio, equal to tier
1 capital divided by average total consolidated assets.\5\
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\4\ 84 FR 61776 (Nov. 13, 2019).
\5\ See 12 CFR 3.10(b)(4) (OCC); 12 CFR 217.10(b)(4) (Board); 12
CFR 324.10(b)(4) (FDIC).
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Under the 2019 final rule, depository institutions and depository
institution holding companies that have less than $10 billion in total
consolidated assets; leverage ratios of greater than 9 percent; off-
balance sheet exposures (excluding derivatives other than sold credit
derivatives and unconditionally cancelable commitments) of 25 percent
or less of total consolidated assets; and trading assets and
liabilities of 5 percent or less of total consolidated assets
(qualifying community banking organizations) are eligible to opt into
the CBLR framework.\6\ A qualifying community banking organization also
cannot be an advanced approaches banking organization.\7\
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\6\ See 12 CFR 3.12(a)(2) (OCC); 12 CFR 217.12(a)(2) (Board); 12
CFR 324.12(a)(2) (FDIC).
\7\ See 12 CFR 3.100(b) (OCC); 12 CFR 217.100(b) (Board); 12 CFR
324.100(b) (FDIC).
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A qualifying community banking organization that elects to use the
CBLR framework is considered to satisfy the risk-based capital
requirements and any other applicable capital or leverage requirements
and, in the case of an insured depository institution, to meet the
capital ratio requirements for the well capitalized capital category
under the PCA framework.\8\ The agencies adopted the 9 percent
requirement on the basis that this threshold, with complementary
qualifying criteria, would generally maintain the level of regulatory
capital held by qualifying community banking organizations and support
the agencies' goal of reducing regulatory burden while maintaining
safety and soundness.\9\
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\8\ 12 CFR 6.4(b)(1)(ii) (OCC); 12 CFR 208.43(b)(1)(ii) (Board);
12 CFR 324.403(b)(1)(ii) (FDIC). See also 12 CFR 225.2(r)(4)(i)
(Board). In addition to the capital ratio requirements, to be
considered well capitalized under the PCA framework, a bank must
also demonstrate that it is not subject to any written agreement,
order, capital directive, or as applicable, prompt corrective action
directive, to meet and maintain a specific capital level for any
capital measure. 12 CFR 6.4(b)(1)(i)(E) (OCC); 12 CFR
208.43(b)(1)(i)(E) (Board); 12 CFR 324.403(b)(1)(i)(E) (FDIC). See
also 12 CFR 225.2(r)(1)(iii) (Board). These requirements continue to
apply under the community bank leverage ratio framework.
\9\ See 84 FR 61776, 61778, 61780, 61784 (Nov. 13, 2019).
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The 2019 final rule also established a two-quarter grace period
during which a qualifying community banking organization that fails to
meet any of the qualifying criteria, including the 9 percent CBLR
requirement, but maintains a leverage ratio of greater than 8 percent,
would continue to be considered to satisfy the risk-based capital
requirements and any other applicable capital or leverage requirements
and, in the case of an insured depository institution, to meet the
capital ratio requirements for the well capitalized capital category
under the PCA framework. If a community banking organization returns to
compliance with all the qualifying criteria before the conclusion of
the two-quarter grace period, the banking organization could continue
to participate in the CBLR framework. A community banking organization
that either failed to meet all of the qualifying criteria by the end of
the grace period or that, at any time, failed to maintain a leverage
ratio of greater than 8 percent would be required to comply with the
risk-based capital requirements and file the associated information in
its regulatory reports.
B. Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act) was signed into law.\10\ The CARES Act
directed the agencies to make temporary changes to the CBLR framework.
Specifically, section 4012 of the CARES Act directed the agencies to
help mitigate economic strain placed on qualifying community banking
organizations by issuing an interim final rule that would temporarily
lower the CBLR requirement to 8 percent and provide a reasonable grace
period for qualifying community banking organizations that fell below
the 8 percent requirement. Under section 4012 of the CARES Act, the
changes to the CBLR framework were effective during the period
beginning on the date on which the agencies issued the interim final
rule implementing the statute and ending on the sooner of the
termination date of the national emergency concerning the coronavirus
disease (COVID-19) outbreak declared by the President on March 13,
2020, under the National Emergencies Act, or December 31, 2020.
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\10\ Coronavirus Aid, Relief, and Economic Security Act, Public
Law 116-136, 134 Stat. 281.
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The agencies issued an interim final rule implementing the CARES
Act's temporary changes to the CBLR framework on April 23, 2020
(statutory interim final rule).\11\ To provide for a more gradual
return to the initial CBLR calibration, the agencies also issued a
separate interim final rule providing a graduated transition from the
temporary 8 percent CBLR requirement back to the 9 percent requirement
(transition interim final rule).\12\ The agencies intended for this
graduated approach to provide community banking organizations with
sufficient time to meet the 9 percent requirement while they focused on
supporting lending to creditworthy households and businesses through
the economic strain caused by COVID-19.\13\ The interim final rules did
not make any changes to the other qualifying criteria in the CBLR
framework.
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\11\ 85 FR 22924 (Apr. 23, 2020). The threshold for the grace
period under the statutory interim final rule was set at 7 percent,
1 percent less than the CBLR requirement of 8 percent under the
statutory interim final rule.
\12\ 85 FR 22930 (Apr. 23, 2020). The transition interim final
rule extended the 8 percent CBLR requirement through December 31,
2020. Thus, even if the statutory interim final rule had terminated
prior to December 31, 2020, the transition interim final rule
provided that the CBLR requirement would continue to be set at 8
percent for the remainder of 2020. The threshold for the grace
period under the transition interim final rule was set at 1 percent
less than the CBLR requirement as it increased during the transition
period.
\13\ Id., at 22932-22933.
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Consistent with section 201(c) of EGRRCPA, under the transition
interim final rule, a community banking organization that temporarily
failed to meet any of the qualifying criteria, including the applicable
CBLR requirement, generally would have been considered to satisfy the
risk-based capital requirements and any other applicable capital or
leverage requirements and, in the case of an insured depository
institution, to meet the capital ratio requirements for the well
capitalized capital category under the PCA framework during a two-
quarter grace period so long as the community banking organization
maintained a leverage ratio of the following: greater than 7 percent in
the second quarter through fourth quarter of calendar year 2020,
greater than 7.5 percent in calendar year 2021, and greater than 8
percent thereafter.\14\ A community banking organization that failed to
meet the qualifying criteria by the end of the grace period or that
reported a leverage ratio of equal to or less than 7 percent in the
second through fourth quarters of calendar year 2020, equal to or less
than 7.5 percent in calendar year 2021, or equal to or less than 8
percent thereafter, would have been required to comply immediately with
the risk-based capital requirements and file the associated regulatory
reports. Both interim final rules were finalized without change.\15\
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\14\ While the statutory interim final rule was in effect, a
qualifying community banking organization that temporarily failed to
meet any of the qualifying criteria, including the applicable
community bank leverage ratio requirement, generally would still be
deemed well capitalized so long as the banking organization
maintained a leverage ratio of 7 percent or greater during a two-
quarter grace period. Similarly, while the statutory interim final
rule was in effect, a banking organization that failed to meet the
qualifying criteria by the end of the grace period or reported a
leverage ratio of less than 7 percent was required to comply with
the risk-based requirements and file the appropriate regulatory
reports.
\15\ 85 FR 64003 (Oct. 9, 2020).
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On December 21, 2021, the agencies issued a statement confirming
that the CARES Act's temporary changes to the CBLR framework would
expire at the end of 2021.\16\ The CBLR requirement reverted to 9
percent on January 1, 2022.
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\16\ ``Community Bank Leverage Ratio Framework: Interagency
Statement,'' OCC Bulletin 2021-66 (Dec. 21, 2021); ``Interagency
Statement on the Community Bank Leverage Ratio Framework,'' SR
Letter 21-21 (Dec. 21, 2021); ``Interagency Statement on the
Community Bank Leverage Ratio Framework,'' FIL-81-2021 (Dec. 21,
2021).
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II. Experience With the Community Bank Leverage Ratio
As stated in the 2019 final rule, the CBLR framework is intended to
provide a simple measure of capital adequacy for qualifying community
banking organizations. It reduces burden by removing the requirements
for calculating and reporting risk-based capital ratios for qualifying
community banking organizations that opt into the framework, thereby
providing meaningful regulatory relief for qualifying community banking
organizations, while maintaining capital levels that support safety and
soundness.
As of the second quarter of 2025, the agencies estimate that 84
percent of community banking organizations qualify to use the CBLR
framework.\17\ As of the second quarter of 2025, 40 percent of
community banking organizations have adopted the CBLR framework. This
adoption rate has remained relatively constant since the rule was
implemented in 2020. Notably, data show that smaller banking
organizations are more likely to adopt the framework, underscoring the
value of the simplification of the regulatory capital requirements for
those banking organizations. For example, approximately half of
qualifying community banking organizations with less than $1 billion in
assets have opted into the framework, compared to a quarter of
qualifying community banking organizations with more than $1 billion
and less than $10 billion in assets (see section V.A.2. for more
information).
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\17\ Analysis summarized in sections II and III is conducted at
the community banking organization level and includes depository
institutions and depository institution holding companies with less
than $10 billion in total consolidated assets. Specifically,
community banking organization level analysis uses data that
combines FR Y-9C data for top-tier holding companies with Call
Report data for depository institutions that are standalone or do
not have a holding company with less than $10 billion in total
consolidated assets that files an FR Y-9C report. In instances where
consolidated regulatory data are not available at the consolidated
organization level, data are aggregated at the banking organization
level by combining the balance sheets of certain depository
institutions that share the same consolidating parent. Section V
includes additional analysis at the depository institution and
holding company level.
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Since the introduction of the CBLR framework, the overwhelming
majority of qualifying community banking organizations that participate
in the framework have continued to operate in a safe and sound manner
through a range of conditions and most maintain capital levels well in
excess of the CBLR requirement.\18\
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\18\ As of the second quarter of 2025, community banking
organizations that participate in the framework maintain median
leverage ratios of 11.8 percent, reflecting median levels of capital
2.8 percentage points above the current 9 percent requirement.
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Some qualifying community banking organizations that have chosen
not to opt into the CBLR framework have indicated that they do not
believe it provides effective regulatory burden relief. These
organizations have raised concerns about the calibration of the
framework and the two-quarter grace period. As described below, both
factors could discourage broader adoption of the CBLR framework, as
qualifying community banking organizations assess the risk and cost of
reverting quickly to the risk-based capital rule as too great to
provide genuine regulatory relief.
III. Summary of the Proposal
The agencies' experience in implementing the CBLR, including lower-
than-expected participation rates, concerns expressed by community
banking organizations, and sound performance of qualifying community
banking organizations participating in the CBLR framework, demonstrate
opportunities to change the CBLR framework to provide more meaningful
regulatory burden relief, while continuing to achieve the agencies'
safety and soundness objective. Accordingly, the agencies are proposing
to recalibrate the CBLR requirement and to extend the grace period in a
manner consistent with the statutory authority provided in section 201
of the EGRRCPA.
A. Lower Calibration of the CBLR Requirement
The agencies are proposing to lower the CBLR requirement to 8
percent. Such recalibration would allow more community banking
organizations to qualify for the CBLR framework, which is significantly
less burdensome than the risk-based capital requirements. According to
data from the second quarter of 2025, an additional 475 community
banking organizations would qualify to participate in the framework
under the proposed 8 percent requirement, and the agencies estimate
that a total of 95 percent of community banking organizations would
qualify to participate in the CBLR framework (see section V.B.1. for
additional information).
In addition to expanding eligibility, the proposed CBLR
recalibration could encourage community banking organizations that are
currently eligible, but which are not participating in the framework,
to opt in by providing a larger buffer between the amount of regulatory
capital held and the CBLR requirement. A larger buffer would decrease
the likelihood that qualifying community banking organizations that
participate in the CBLR framework would be required to revert to the
risk-based capital requirements due to unexpected fluctuations in
regulatory capital ratios. For example, during periods of stress,
banking organizations can face increased credit losses, which in turn
cause leverage ratios to decline. Reducing the CBLR requirement to 8
percent could encourage greater adoption of the CBLR framework by
qualifying community banking organizations, as it would decrease the
likelihood that stress losses would cause them to fall below the CBLR
requirement.
The proposal would remain broadly consistent with the current well
capitalized standard. Specifically, the CBLR framework would remain
comparable to and, in most cases, materially more stringent than, the
corresponding requirements under the PCA framework.\19\ The proposed 8
percent requirement would be more stringent than the corresponding 8
percent tier 1 risk-based capital requirement to be considered well
capitalized under the PCA framework for all newly eligible community
banking organizations and for nearly all community banking
organizations that are currently eligible but do not participate in the
CBLR framework (see section V.B.1 for more information).\20\ Similarly,
an 8 percent CBLR requirement would be substantially higher than the 5
percent tier 1 leverage ratio required to be considered well-
capitalized. As of the second quarter of 2025, all community banking
organizations that would be newly
[[Page 55052]]
eligible under the proposed 8 percent CBLR requirement are currently
well capitalized under the PCA framework.\21\
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\19\ This analysis compares the proposed 8 percent CBLR
requirement relative to the 8 percent tier 1 risk-based capital
requirement to be considered well capitalized under the PCA
framework for all community banking organizations that would qualify
under the proposal, but which are not currently participating in the
CBLR framework, in order to demonstrate the stringency of the CBLR
relative to risk-based capital requirements. The PCA framework
applies only to insured depository institutions. The definitions of
well capitalized for bank holding companies and savings and loan
holding companies can be found at 12 CFR 225.2(r) and 12 CFR
238.2(s), respectively.
\20\ The agencies also compared required capital under the
proposal to other risk-based capital requirements including the
total capital requirement and found that the 8 percent CBLR
requirement would broadly require similar or more capital for the
vast majority of depository institutions that would be eligible
under the proposal.
\21\ To be considered well capitalized under the agencies' PCA
framework, depository institutions must meet or exceed a 6.5 percent
common equity tier 1 capital risk-based ratio, 8 percent tier 1
capital risk-based ratio, and 10 percent total capital risk-based
ratio.
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As further discussed in the economic analysis in section V.C.2,
lowering the calibration to 8 percent would provide additional balance
sheet capacity for lending by community banking organizations that are
currently participating in the CBLR framework. Community banking
organizations serve a vital function in the economy through their
relatively outsized lending to agricultural and commercial
borrowers.\22\ In addition, rural communities rely heavily on community
banking organizations for lending and financial services.\23\
Additional lending by community banking organizations supports the
economic activity of the communities and industries that they serve.
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\22\ See Hanauer, M., Lytle, B., Summers, C., & Ziadeh, S.
(2021). Community banks' ongoing role in the US economy. Federal
Reserve Bank of Kansas City, Economic Review, 106(2), 37-81.
\23\ See Id.
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B. Extension of the Grace Period
Under the proposal, a qualifying community banking organization
that fails to meet the qualifying criteria after opting into the CBLR
framework would have four reporting periods to meet the qualifying
criteria again under the CBLR framework or satisfy risk-based capital
requirements.
Supervisory experience indicates that, since the adoption of the
CBLR framework, about half of community banking organizations that fell
out of compliance with the CBLR requirement returned to compliance
within the two-quarter grace period. The remaining community banking
organizations transitioned back to the risk-based capital requirements.
Under a four-quarter grace period, more community banking organizations
could return to compliance and remain in the CBLR framework. For
additional grace period analysis, see section V.C.1.
While a majority of community banking organizations were able to
return to compliance within two quarters, doing so may have incurred
unnecessary costs or been operationally challenging in certain
circumstances. For example, in part because community banking
organizations generally have reduced access to capital markets compared
to larger banking organizations, they tend to rely more heavily on
retained earnings for regulatory capital. As a result, community
banking organizations may face challenges increasing capital quickly,
particularly in environments in which bank profitability is
constrained.\24\
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\24\ For an analysis of the impact of a low interest rate
environment on small banking organizations, see Genay, H., &
Podjasek, R. (2014). What is the impact of a low interest rate
environment on bank profitability. Chicago Fed Letter, 324(1).
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The agencies believe the grace period should ensure that a banking
organization that ceases to meet the criteria for a qualifying
community banking organization has sufficient time to make appropriate
changes to its activities and build up its regulatory capital levels as
necessary, or to begin reporting risk-based capital consistent with the
risk-based capital rule. When the agencies initially adopted the CBLR
framework, they did not require community banking organizations to
comply simultaneously with the risk-based capital reporting
requirements after opting into the CBLR framework. Since the adoption
of the CBLR framework, it has not been the agencies' policy to require
qualifying community banking organizations to hold a minimum amount of
common equity tier 1 capital or to demonstrate, from a supervisory
perspective, that they have a readiness plan to comply with risk-based
capital requirements in the event they become ineligible to use the
CBLR framework.
A longer grace period would provide community banking organizations
that fail to meet the qualifying criteria with additional time to
satisfy the definition of a qualifying community banking organization
under the CBLR framework, or to achieve compliance with risk-based
capital requirements. By reducing the risk of a rapid requirement to
implement the risk-based capital framework, the proposed changes could
incentivize greater adoption of the less burdensome CBLR framework.
Under the proposal, a community banking organization that has opted
into the CBLR framework and no longer meets the qualifying criteria
would have a four-quarter grace period to remain in the CBLR framework
provided it maintains a leverage ratio above 7 percent. This 7 percent
minimum would ensure that community banking organizations with capital
levels that have declined significantly would be subject to the risk-
based capital framework, which more accurately accounts for a banking
organization's risk profile.
For example, if a qualifying community banking organization that
has opted into the CBLR framework no longer meets one of the qualifying
criteria as of February 15 and still does not meet the criteria as of
the end of that quarter, the grace period for such a banking
organization will begin as of the end of the quarter ending March 31.
The banking organization may continue to use the CBLR framework as of
June 30, September 30, and December 31 but will need to comply fully
with the risk-based capital framework (including the associated
reporting requirements) as of March 31 of the following calendar year,
unless by that date the banking organization once again meets all
qualifying criteria of the CBLR framework, including a leverage ratio
above 8 percent.\25\
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\25\ Qualifying community banking organizations would continue
to opt in to and out of the CBLR framework through their regulatory
reports.
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Consistent with the current rule, a banking organization that no
longer meets the definition of a qualifying community banking
organization as a result of a merger or acquisition would not be able
to use the grace period as of the quarter in which the merger or
acquisition occurs. A banking organization that plans to grow or
materially expand its activities due to a merger or acquisition should
develop systems to calculate and report risk-based capital commensurate
with those plans.
A qualifying community banking organization that has elected to use
the CBLR framework and that expects to no longer meet the qualifying
criteria as a result of a business combination generally would be
expected to provide its pro forma risk-based capital ratios to its
appropriate regulator as part of its merger application, if applicable,
and fully comply with risk-based capital requirements for the
regulatory reporting period during which the transaction is completed.
C. Additional Limitation Relating to Usage of the Grace Period
The CBLR framework is an optional, burden-reducing framework for
qualifying community banking organizations. To ensure that the proposed
recalibration of the CBLR and the extended grace period continue to
support prudent levels of capitalization, the agencies are proposing a
limitation regarding the use of the grace period. Specifically,
although a qualifying community banking organization may use the grace
period for up to four quarters at a time, it would only be allowed to
use the grace period if it had not used the grace period for more than
eight of the prior twenty quarters. If a banking organization that has
used the
[[Page 55053]]
grace period for eight of the previous 20 quarters subsequently ceases
to meet the definition of a qualifying community banking organization,
it must immediately comply with the minimum risk-based capital
requirements and report the required risk-based capital ratios.
For example, if a community banking organization were to use the
grace period for each of the eight quarters in calendar year 2026 and
calendar year 2028, without using the grace period in calendar year
2027, it would not be able to use the grace period during calendar
years 2029 or 2030. If it ceases meeting the definition of a qualifying
community banking organization in the second quarter of 2029, it would
be required to comply immediately with the risk-based capital
requirements. If, instead, the community banking organization does not
use the grace period in calendar year 2029 or 2030, but ceases meeting
the definition of a qualifying community banking organization in the
second quarter of 2031, it would be able to use the grace period in
that quarter because, in the twenty quarters prior (the second quarter
of 2026 through first quarter of 2031), it would have used the grace
period for seven quarters (the second, third and fourth quarters of
2026 and all four quarters of 2028). This limitation would help ensure
that the proposed longer grace period is not used to allow a community
banking organization with a leverage ratio below the required level to
remain within the CBLR framework for an extended period and would
encourage appropriate long-term capital planning by community banking
organizations.
The agencies intend to monitor usage of the grace period to
determine whether it is functioning as intended. If unique or unusual
circumstances warrant a further extension of the grace period, or if
application of different regulatory capital requirements becomes
necessary, the agencies continue to reserve the authority to apply
different risk-based or leverage capital requirements as appropriate
and commensurate with the relevant risks and circumstances of a banking
organization.\26\
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\26\ 12 CFR 3.1(d) (OCC); 12 CFR 217.1(d) (Board); 12 CFR
324.1(d) (FDIC).
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D. Removal of Temporary CARES Act Provisions
The agencies are also proposing to remove the provisions under the
CBLR framework that provided temporary relief for qualifying community
banking organizations during the COVID-19 outbreak, including
provisions required by the CARES Act.\27\ Because this temporary burden
relief expired on December 31, 2021, removal of these provisions would
have no substantive impact.
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\27\ 12 CFR 3.12(a)(4) (OCC); 12 CFR 3.303 (OCC); 12 CFR
217.12(a)(4) (Board); 12 CFR 217.304 (Board); 12 CFR 324.12(a)(4)
(FDIC); 12 CFR 324.303 (FDIC).
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IV. Request for Comment
The agencies invite commenters' views on all aspects of the
proposal, including the proposed CBLR calibration and grace period.
Question 1: What other factors should the agencies consider in
calibrating the CBLR requirement and why?
Question 2: Under what facts and circumstances might the
appropriate grace period for returning to compliance with the CBLR
qualifying criteria vary? What alternative regulatory requirements
should the agencies consider with respect to a community banking
organization that no longer meets the definition of a qualifying
community banking organization and why?
Question 3: What factors should the agencies consider in
determining whether to impose limits on the number of times during a
fixed time horizon that a community banking organization can enter the
grace period and remain in the CBLR framework? What are the advantages
and disadvantages of the proposed limitation to ensure that community
banking organizations maintain appropriate levels of capitalization
while using the CBLR framework, and what other options should the
agencies consider to achieve this goal? For example, what are the
advantages and disadvantages of an alternative limitation that would
allow for the proposed four quarter grace period, but would temporarily
(for example, for 5 years) limit its subsequent use to two quarters if
a qualifying community banking organization were to fail to meet the
qualifying criteria due to a leverage ratio of eight percent or less?
Question 4: What changes, if any, to the numerator of the CBLR
requirement should the agencies consider? What are the advantages and
disadvantages of requiring the numerator of the CBLR to be
predominantly common equity? What would be the benefits and drawbacks
of using tangible GAAP equity, excluding accumulated other
comprehensive income, as the numerator of the CBLR?
V. Economic Analysis
This section outlines the expected economic effects of the
proposal, including both its benefits and costs, on community banking
organizations. The proposal would modify the CBLR framework for
qualifying community banking organizations along two key dimensions.
First, it reduces the calibration of the CBLR requirement, from 9
percent to 8 percent. Second, a qualifying community banking
organization that fails to meet the qualifying criteria after opting
into the CBLR framework would have four quarters, rather than two
quarters,\28\ to meet the qualifying criteria under the CBLR framework
or to comply with the risk-based capital requirements. The analysis
compares outcomes under the proposal to a baseline scenario in which
the current framework remains unchanged; specifically, the baseline
assumes a 9 percent CBLR requirement with a two-quarter grace period
for electing community banking organizations.
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\28\ Subject to a maximum of eight quarters within any given
five-year (20 quarter) period.
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The analysis is based on data from recent Reports of Condition and
Income (Call Reports) for depository institutions and Consolidated
Financial Statements for Holding Companies (FR Y-9C) data for holding
companies. Core statistics are reported at the depository institution,
community bank holding company, and community banking organization
levels, with the latter using consolidated organization data aggregated
at the top-tier consolidated organization level. While some supporting
analysis is conducted at either the depository institution level or the
community banking organization level, the agencies expect the
conclusions to be broadly applicable across these entity types.
A. Baseline
According to Call Reports for the quarter ending June 30, 2025,
there are 4,477 depository institutions.\29\ Of these, 4,240 meet the
size and simplicity thresholds for CBLR eligibility: total consolidated
assets of less than $10 billion, off-balance sheet exposures of no more
than 25 percent of total consolidated assets, total trading assets and
trading liabilities of no more than 5 percent of total consolidated
assets, and are not an advanced approaches banking organization.
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\29\ Not including nine insured branches of foreign banks or
eight noninsured depository institutions that do not report
regulatory capital. Of the 4,477 depository institutions, 4,421 have
their deposits insured by the FDIC.
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[[Page 55054]]
According to FR Y-9C data for the quarter ending June 30, 2025,
there are 238 community bank holding companies subject to the capital
rule.\30\ Of these, 228 meet the size and simplicity thresholds for
CBLR eligibility.
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\30\ Depository institution holding companies with less than $3
billion in total consolidated assets and which meet certain
additional criteria qualify for the Board's small bank holding
company policy statement and are not subject to the capital rule.
See 12 CFR 217.1(c)(1)(ii) and (iii); 12 CFR part 225, appendix C;
12 CFR 238.9.
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Taking a consolidated perspective, these depository institutions
and holding companies together compose 4,101 unique community banking
organizations as of June 30, 2025. Of these, 4,030 meet the size and
simplicity thresholds for CBLR eligibility.
1. Community Banking Organizations and CBLR Framework Participation
Of the 4,240 depository institutions that meet the size and
simplicity thresholds for CBLR eligibility, 3,641 report a leverage
ratio greater than 9 percent and therefore meet all requirements to
qualify for the CBLR framework. Of the 3,641 qualifying depository
institutions, 1,694 currently participate in the CBLR framework. That
is, 47 percent of eligible depository institutions have adopted the
CBLR framework, and this participation rate has remained relatively
constant since the CBLR framework was implemented in 2020. Another 20
depository institutions, although not presently meeting the CBLR
requirement, remain in the framework under the current two quarter
grace period.\31\ Table 1 reports counts of these depository
institutions, including a breakdown by discrete leverage ratio:
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\31\ An additional three depository institutions have leverage
ratios greater than 9 percent but do not meet one of the qualifying
criteria.
Table 1--Current Counts of Depository Institutions, Partitioned by Leverage Ratios
--------------------------------------------------------------------------------------------------------------------------------------------------------
Range of leverage ratio (percent) *
------------------------------------------------------------------------------------------- Total
<= 7 7-8 8-9 9-10 10-11 11-12 > 12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Excess leverage ratio * *....................... <= -2 -2--1 -1-0 0-1 1-2 2-3 > 3 ...........
Depository institutions that meet CBLR size and 20 101 478 871 754 546 1,470 4,240
simplicity requirements * * *..................
Participating depository institutions * * * *... 0 0 20 274 322 261 837 1,714
% Participating depository institutions......... 0% 0% 4% 31% 43% 48% 57% 40%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Call Report Data, June 30, 2025.
* Each range excludes the lower end and includes the upper end.
* * ``Excess leverage ratio'' is equal to leverage ratio minus the CBLR requirement of 9 percent.
* * * * ``Participating depository institutions'' are those qualifying depository institutions that had elected to use the CBLR framework as of June 30,
2025.
* * * These counts include only depository institutions that meet the qualifying community banking organization criteria involving advanced approaches,
total consolidated assets, off-balance sheet exposures, and trading assets and liabilities.
As Table 1 shows, the fraction of participating depository
institutions increases with the depository institutions' excess
leverage ratio. This tendency suggests that, by decreasing the CBLR
requirement to 8 percent, the proposal could encourage some currently
eligible depository institutions to opt into the framework.
Turning to community bank holding companies, 165 report a leverage
ratio greater than 9 percent and therefore meet all requirements to be
considered qualifying community banking organizations. Of the 165
qualifying community bank holding companies, 26 currently opt into the
CBLR framework. That is, 16 percent of community bank holding companies
are participating in the CBLR framework.
Taking a consolidated perspective, 3,430 community banking
organizations meet all requirements to be considered qualifying
community banking organizations. Of the 3,430 qualifying community
banking organizations, 1,659 currently opt in to the CBLR framework.
That is, 48 percent of qualifying community banking organizations
participate in the CBLR framework.
2. CBLR Framework Adoption Among Small Community Banking Organizations
The smallest community banking organizations tend to opt into the
CBLR framework at the highest rates. Fifty-two percent of qualifying
community banking organizations with assets less than $1 billion are
participating in the framework as of June 30, 2025, compared to 26
percent of community banking organizations with assets above $1
billion. Of community banking organizations with less than $500 million
in assets, 56 percent are currently participating in the framework.
Viewed another way, 89 percent of community banking organizations that
are currently participating in the CBLR framework have total assets of
less than $1 billion.\32\
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\32\ See section VI.A for a further analysis of entities with
less than $850 million in assets for the Regulatory Flexibility Act
(RFA).
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B. Effects of the Proposal
1. CBLR Framework Eligibility and Adoption Under the Proposed
Calibration
As shown above in Table 1, 478 depository institutions have
leverage ratios between 8 and 9 percent while meeting all other
qualifying criteria for the CBLR framework. Under the proposal, these
478 depository institutions would be eligible for the CBLR framework,
in addition to the 3,641 depository institutions that currently
qualify, which would represent a 13 percent increase in the population
of eligible depository institutions. As such, under the proposal, more
depository institutions would become eligible for the CBLR framework.
While the proposal would increase the number of qualifying
depository institutions, historical experience indicates that not all
qualifying depository institutions opt into the CBLR framework. To
provide a broad estimate of the number of depository institutions that
could opt into the framework under the proposal, the agencies assume
that the likelihood of adoption depends primarily on a depository
institution's buffer of tier 1 capital in excess of the CBLR
requirement. This assumption implies that the relationship between
adoption rates and capital buffers will remain consistent with that
observed under the baseline. Based on this approach, the agencies
estimate that 2,034 depository institutions would adopt the CBLR under
the expanded scope, representing an increase of 320 depository
[[Page 55055]]
institutions relative to the current rule. See Appendix for details.
This estimate is imprecise because it is based on a simple model, which
does not take into account the potential impact of the grace period
extension on CBLR adoption.\33\
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\33\ The estimate of 320 additional participating depository
institutions could be undercounted because the benefits of the
proposal, as later discussed in this section, would make the CBLR
framework more attractive to depository institutions and could
result in greater adoption of the CBLR framework among organizations
that currently qualify, but have not elected, to use the CBLR. On
the other hand, historical patterns show a smaller change in
adoption rate when the CBLR requirement was temporarily lowered:
when the statutory interim final rule reduced the CBLR requirement
from 9 percent to 8 percent between the first and second quarters of
2020, 131 additional organizations elected to use the CBLR
framework. Later on, there was a decrease of 245 electing
organizations between the fourth quarter of 2020 (the last quarter
for which the CBLR requirement was 8 percent) and the first quarter
of 2022 (the first quarter for which the CBLR requirement reverted
to 9 percent). Confounding factors such as the COVID-19 pandemic,
the initial rollout of CBLR, and the temporary nature of the
decrease make this comparison difficult.
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For community bank holding companies, 46 have leverage ratios
between 8 and 9 percent while meeting all other criteria for the CBLR
framework, which would represent a 28 percent increase in the
population of eligible community bank holding companies relative to the
165 that currently qualify.
Considering the depository institutions and holding companies
together from a consolidated perspective, 475 community banking
organizations have leverage ratios between 8 and 9 percent while
meeting all other qualifying criteria, which would represent a 14
percent increase in the population of eligible community banking
organizations relative to the 3,430 community banking organizations
that currently qualify.\34\
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\34\ For the consolidated organization analysis, CBLR
participation and eligibility are assessed at the highest tier
entity in a banking organization. In cases where multiple depository
institutions belong to the same organization, and one that does not
have a top-tier community bank holding company subject to the
capital rule, CBLR eligibility for the consolidated organization is
defined based on the total assets of these depository institutions.
If eligible depository institutions account for at least 50 percent
of the consolidated organizations' assets, the community banking
organization is considered to be CBLR eligible. The consolidated
community banking organization in these instances is considered to
be a CBLR organization if at least one of its depository
institutions participate in the CBLR framework.
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The agencies assess the stringency of the CBLR framework by
comparing the 8 percent risk-based tier 1 capital requirement to be
considered well-capitalized under the PCA framework directly with the
CBLR requirement for community banking organizations that are not
participating in the CBLR framework and would be eligible under the
proposal.\35\ The proposed 8 percent CBLR requirement is less stringent
than the tier 1 risk-based capital requirement for two currently
eligible banking organizations that are not participating in the
framework. No newly eligible community banking organizations would face
a less stringent tier 1 capital requirement under the proposed CBLR
requirement.
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\35\ The PCA framework applies only to insured depository
institutions. The definitions of well capitalized for bank holding
companies and savings and loan holding companies can be found at 12
CFR 225.2(r) and 12 CFR 238.2(s), respectively.
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C. Expected Benefits of the Proposal
The agencies identify two main benefits for the proposed changes to
the CBLR framework. First, by expanding eligibility and extending the
grace period, the proposal would enable more community banking
organizations to benefit from the regulatory cost savings provided by
the CBLR framework. Second, the reduced CBLR requirement would provide
community banking organizations that are currently participating in the
CBLR framework with the capacity to expand their balance sheets, which
could lead to increased lending to the communities served by these
banking organizations.
1. Regulatory Cost Savings
All participating community banking organizations under the
proposal would benefit by avoiding the costs associated with gathering,
recording, and reporting various risk-based capital measures. While the
agencies do not have sufficient information to quantify all aspects of
these savings,\36\ participating community banking organizations that
operate internal recordkeeping systems to comply with risk-based
capital regulations may discontinue or simplify these systems. Other
participating community banking organizations that rely on third party
vendors to operate the relevant compliance systems could experience
reductions in outsourcing costs.\37\
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\36\ According to agency estimates published in January 2020,
per-response Paperwork Reduction Act (PRA) burden hours for
preparing Call Reports, which is only one component of risk-based
capital compliance costs, would decrease by approximately 3.5 hours
between 2019 and 2020, with the change in burden ``predominantly due
to changes associated with the community bank leverage ratio final
rule.'' See 85 FR 4780 at 4782. This estimated change in PRA burden
also includes various other changes to the Call Reports that were
implemented in the first quarter of 2020 and assumed a 60 percent
CBLR adoption rate.
\37\ These cost savings could be partially offset by one-time
costs of adoption incurred by electing banking organizations.
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Some participating community banking organizations currently
maintain parallel record keeping systems to comply with both the CBLR
framework and the risk-based capital requirements to minimize the cost
of falling out of compliance with the CBLR framework. The proposal
would reduce the risk of falling out of compliance by providing
additional time to adjust systems in the event that a community banking
organization no longer meets the qualifying criteria. As such, the
proposal could enable some participating community banking
organizations to decide to discontinue these systems and realize
meaningful cost savings.
The proposed extension of the CBLR grace period would provide
benefits to community banking organizations participating in the
framework who enter the grace period due to a drop in their leverage
ratios or a failure to meet any of the other qualifying criteria and
which are capable of meeting the criteria within a four-quarter period
but not a two-quarter period. Between the second quarter of 2022 and
fourth quarter of 2024, 210 participating depository institutions have
entered grace periods for one or more quarters.\38\ Within these two
years, there were 28 depository institutions that were required to
leave the CBLR framework at least once because they did not regain CBLR
eligibility within two quarters, and subsequently regained CBLR
eligibility within four quarters.\39\ Thus,
[[Page 55056]]
if the grace period had been four quarters, these 28 depository
institutions would have been able to remain in the CBLR framework and
avoid any costs incurred by returning to the risk-based capital
framework. This suggests that there is a similar population of
depository institutions that would benefit from the proposed extension
of the grace period.
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\38\ The agencies' analysis of the CBLR grace period uses data
starting in 2022, when the CBLR requirement was returned to 9
percent under the transition interim final rule. The agencies'
analysis only includes depository institutions that entered the
grace period by the fourth quarter of 2024, because that is the last
date for which the agencies have two subsequent quarters of Call
Report data, which are necessary to determine whether the DIs
regained eligibility within the two-quarter grace period. Some
depository institutions experienced multiple instances of entering
the grace period; the agencies find 261 such instances between the
second quarter of 2022 and the fourth quarter of 2024, involving 210
distinct depository institutions. As eligibility for the grace
period applies at the individual institution level, the analysis
focuses on depository institutions, without taking into account
consolidation among institutions with joint ownership.
\39\ Of the 210 grace period depository institutions: 78
depository institutions had at least one instance in which they
entered the grace period and subsequently did not regain CBLR
eligibility within the grace period (including the 28 that did not
regain eligibility within two quarters but did within four
quarters); 13 depository institutions regained CBLR eligibility in
all the instances where they entered the grace period but still
chose to leave the CBLR framework in at least one of the instances;
and 119 depository institutions regained CBLR eligibility within the
two-quarter grace period and continued within the CBLR framework (in
all the instances where they entered the grace period). Three
depository institutions entered the grace period between the second
quarter of 2022 and the fourth quarter of 2024, but ceased reporting
Call Reports at some point in this time period and were not included
in the previously listed population counts.
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An increase in CBLR framework adoption is expected to especially
benefit the smaller banking organizations that participate by reducing
their costs of compliance with the risk-based capital framework. Such
fixed costs can have greater salience for smaller banking
organizations. This benefit is consistent with the finding in section
V.A.2 that a greater fraction of smaller banking organizations
participate in the CBLR framework.
2. Increased Balance Sheet Capacity To Support Lending
The agencies examine how the proposed calibration could expand the
balance sheet capacity of community banking organizations that
currently participate in the CBLR framework using a two-step process.
First, the agencies estimate the potential reduction in community
banking organizations' tier 1 leverage ratios due to the proposed
change in the CBLR requirement from 9 percent to 8 percent. The
analysis assumes that community banking organizations participating in
the CBLR framework could reduce their tier 1 leverage ratios by the
proposed change of 1 percentage point of average consolidated assets,
except for those community banking organizations with a leverage ratio
less than 10 percent. The latter are assumed to reduce their tier 1
leverage ratio to 9 percent (that is, maintain an excess leverage ratio
of 1 percentage point).
In the second step, the analysis computes the growth in each
participating community banking organization's total consolidated
assets that would reduce its tier 1 leverage ratio to the ratio derived
in step one, while holding tier 1 capital fixed. The estimated asset
growth rate is then multiplied by the community banking organization's
average consolidated assets to obtain its expanded asset base under the
proposal, with the provision that community banking organizations do
not grow above $10 billion in total assets.
The agencies estimate that the reduced CBLR requirement under the
proposal could provide currently participating community banking
organizations with the capacity to expand their balance sheets by $64
billion in aggregate. This would represent an 8.1 percent expansion of
participating community banking organizations' assets or a 1.8 percent
expansion relative to the total assets of all community banking
organizations. This increase in balance sheet capacity could facilitate
additional lending by community banking organizations participating in
the CBLR framework and support the economic activity of the communities
they serve.\40\ However, community banking organizations may not
utilize this capacity in full and the agencies acknowledge uncertainty
regarding the extent to which such an increase in lending by these
banking organizations would occur.\41\
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\40\ For perspective from the academic literature on the
relationship between bank capital requirements and lending, see,
among others: J. S. M[eacute]sonnier, and A. Monk, Heightened bank
capital requirements and bank credit in a crisis: the case of the
2011 EBA Capital Exercise in the euro area, Rue de la Banque, (08)
(2015); M. Behn, R. Haselmann, and P. Wachtel, Procyclical capital
regulation and lending, The Journal of Finance, 71(2) (2016); C.
Mendicino, K. Nikolov, J. Suarez, and D. Supera, Bank capital in the
short and in the long run, Journal of Monetary Economics, 115
(2020); S. Firestone, A. Lorenc, and B. Ranish, An empirical
economic assessment of the costs and benefits of bank capital in the
United States, SSRN 349416 (2019); D. Corbae, and P. D'Erasmo,
Capital buffers in a quantitative model of banking industry
dynamics, Econometrica, 89(6) (2021); V. Elenev, T. Landvoigt, and
S. Van Nieuwerburgh, A macroeconomic model with financially
constrained producers and intermediaries, Econometrica, 89(3)
(2021).
\41\ Section V.D discusses the agencies' experience with
temporary changes in the CBLR requirement.
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Many newly eligible community banking organizations that opt into
the CBLR framework could also increase their lending relative to total
assets. Historical evidence provides support: between 2020 and 2025,
participating depository institutions increased the fraction of loans
and leases \42\ in their total assets by about 6.5 percent, on average,
in the year after adopting the CBLR framework.\43\ This average
increase only occurs after adoption of the CBLR framework--it is not
present in analogous year-over-year differences ending four quarters
prior, one quarter prior, or one quarter after the election,\44\ which
suggests that the proposed rule could result in an increase in lending
by newly eligible community banking organizations that opt into the
CBLR framework.
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\42\ As reported on schedule RC-C of the Call Report.
\43\ The agencies obtain a 95 percent confidence interval of 5.3
to 7.8 percent across approximately 2,100 electing banking
organizations between the first quarter of 2020 and the second
quarter of 2025.
\44\ The average year-over-year changes ending four quarters
prior, one quarter prior, and one quarter after CBLR election were
1.3 percent,-0.2 percent, and-0.2 percent, respectively. Only the
first of these three measures were statistically different from
zero.
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In summary, the expected benefits of the proposal accrue to both
community banking organizations participating under the current
requirements and to community banking organizations that would adopt
the framework under the proposed requirements. Although the agencies
cannot precisely quantify these benefits, the fact that fewer than half
of qualifying community banking organizations currently opt into the
CBLR framework suggests that the potential benefits could be material.
D. Expected Costs of the Proposal
The proposal would broadly maintain the current standard for
designating community banking organizations as well capitalized. It
may, however, impose costs on banking organizations and the banking
industry in that it could encourage community banking organizations
currently participating in the CBLR framework to operate with lower
capital ratios or newly eligible community banking organizations that
opt into the CBLR framework to take on riskier loans. For example, the
increase in balance sheet capacity presented above in section V.C.2
assumes banking organizations currently participating in the CBLR
framework would grow their balance sheets while maintaining the amount
of capital fixed. While such changes may increase the risk of bank
failure, these costs are expected to be modest.
The evidence on potential balance sheet adjustments is mixed. Some
studies evaluating the initial creation of the CBLR framework suggest
that participating community banking organizations increased their
share of relatively higher-yielding assets, including unsecured loans,
and experienced modest increases in non-performing loans, charge-offs,
or subordinate mortgage exposures.\45\ However, the extent of these
changes appears heterogeneous across organizations and the overall
effect on risk-taking seems muted. This also suggests that, while the
proposal may result in changes to the composition, in addition to the
level, of bank lending,
[[Page 55057]]
the compositional shift would likely be minimal.
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\45\ See Liu, Ruinan, 2025, ``Leverage Without Risk Weights: A
Double-Edged Sword for Community Banks,'' Working paper; and Lu,
George, 2024, ``The Effect of Capital Modification on Community
Banking: Evidence from the Community Bank Leverage Ratio
Framework,'' Working paper.
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In addition, the agencies could not find evidence that previous
temporary changes in the CBLR requirement substantially affected the
amount of tier 1 capital maintained by depository institutions: between
the fourth quarter of 2020, when the CBLR requirement was above 8
percent, and the fourth quarter of 2022, when the CBLR requirement was
above 9 percent, the aggregate leverage ratio for a balanced panel of
1,172 electing depository institutions decreased by 4 basis points,
from 12.37 to 12.33, suggesting that the aggregate tier 1 capital at
electing depository institutions did not react in aggregate to the
increase in the CBLR requirement.\46\ The agencies acknowledge this
observation is over a relatively short period of time and likely
inconclusive. Moreover, depository institutions participating in the
CBLR framework currently maintain high levels of tier 1 capital, with a
median excess capital of 2.9 percent of average total consolidated
assets.
---------------------------------------------------------------------------
\46\ Call Report Data for the quarters ending December 2020 and
2022. During the same period, the leverage ratios for qualifying
community banking organizations that did not elect to use the CBLR
framework decreased a similar amount: from 11.13 percent of 11.08
percent.
---------------------------------------------------------------------------
The proposed extension of the grace period from two quarters to
four quarters could entail additional costs if community banking
organizations approaching the CBLR requirement delay timely capital
adjustments. A longer grace period may allow some community banking
organizations to operate temporarily below the CBLR requirement while
remaining in the CBLR framework, potentially increasing supervisory
monitoring needs. However, the additional grace period limitation (a
qualifying community banking organization would only be allowed to use
the grace period for up to four quarters at a time if it had not used
the grace period for more than eight of the prior twenty quarters) is
expected to mitigate these potential costs. In addition, the proposed
extension could produce regulatory cost savings for community banking
organizations by limiting unnecessary exits and re-entries into the
framework due to short-term fluctuations in their leverage ratios.
Overall, the agencies anticipate that the benefits of the proposal
justify the costs.
Question 5: The agencies invite comments on all aspects of the
economic analysis provided in this supplemental information. What, if
any, additional significant benefits or costs should the agencies
consider and why?
E. Reasonable Alternatives
The agencies considered several alternatives to the proposal that
could meet the objectives of this rulemaking. For the reasons
described, the agencies view the proposal as the most appropriate and
effective means of achieving the policy objectives described in section
III.
The agencies considered not promulgating any regulatory action to
amend the CBLR framework. However, as previously discussed, the CBLR
framework has a low adoption rate. As discussed above, the proposed
rule would provide clear cost savings and other benefits, over this no-
action alternative.
The agencies also considered lowering the CBLR requirement to above
8 percent but keeping the grace period to two quarters. This
alternative would provide some relief to community banking
organizations; however, as described above, the proposed extension of
the grace period would provide substantial regulatory relief that meets
the objectives of the EGRRCPA and the stated objectives of the proposal
without entailing significant costs.
The agencies invite comments on possible alternatives to the
proposal.
Appendix: CBLR-Election Projection
Table 2 calculates the fraction of depository institutions that
adopt the CBLR framework by groups of tier 1 capital buffers split in 1
percentage point increments. For example, 31 percent of depository
institutions with an excess leverage ratio between 0 and 1 percent of
average total consolidated assets adopted the CBLR framework as of June
30, 2025. Assuming that these observed adoption rates remain unchanged
for each group of capital buffer under the proposed calibration, the
agencies estimate the number of depository institutions that will join
the framework.
The agencies estimate that 2,034 depository institutions could
adopt the CBLR framework under the proposed calibration, representing
an increase of 320 depository institutions relative to the current
rule. Under this projection, 130 of the newly electing depository
institutions have a leverage ratio between 8 and 9 percent and would be
newly eligible, while 186 depository institutions are currently
eligible and would decide to join under the new calibration.\47\
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\47\ In addition, 4 depository institutions are projected to be
in the grace period.
Table 2--Estimated Counts of Electing Depository Institutions Under the Proposal, Partitioned by Leverage Ratios
--------------------------------------------------------------------------------------------------------------------------------------------------------
Range of leverage ratio (percent) *
------------------------------------------------------------------------------------------- Total
<=7 7-8 8-9 9-10 10-11 11-12 >12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Excess leverage ratio **........................ <=-1 -1-0 0-1 1-2 2-3 3-4 >4 ...........
Depository institutions that meet CBLR size and 20 101 478 871 754 546 1,470 4,240
simplicity requirements ***....................
% Electing depository institutions (proposed) 0% 4% 31% 43% 48% 57% 57% ...........
***............................................
# Electing depository institutions (proposed) 0 4 150 372 360 311 837 2,034
***............................................
# Electing depository institutions (current) *** 0 0 20 274 322 261 837 1,714
[Delta] Electing depository institutions 0 4 130 98 38 50 0 320
(proposed-current) ***.........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Call Report Data, June 30, 2025.
* Each range excludes the lower end and includes the upper end.
** ``Excess leverage ratio'' is equal to leverage ratio minus the CBLR requirement of 8 percent. ``% Electing depository institutions (proposed)'' is
the estimated percent of those that would choose to elect into the CBLR. ``# Electing depository institutions (proposed)'' equals the product of the
number of all depository institutions that meet CBLR size and simplicity requirements and ``% Electing depository institutions (proposed).'' ``[Delta]
Electing depository institutions (proposed-current)'' is the difference between ``# Electing depository institutions (proposed)'' and the current
number of electing depository institutions (``# Electing banks (current)'').
*** These counts include only depository institutions that meet the qualifying community banking organization criteria involving advanced approaches,
total consolidated assets, off-balance sheet exposures, and total trading assets and liabilities.
[[Page 55058]]
VI. Regulatory Analysis
A. Paperwork Reduction Act
This notice of proposed rulemaking has been reviewed for compliance
with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.). In accordance with the PRA, the agencies may not conduct or
sponsor, and a respondent is not required to respond to, an information
collection unless the information collection displays a currently valid
Office of Management and Budget (OMB) control number. The agencies have
reviewed the notice of proposed rulemaking and determined that it would
not introduce any new collection of information pursuant to the PRA.
Therefore, no submission will be made to OMB for review.
The proposal, however, may necessitate clarification of the
instructions to the Financial Statements for Holding Companies (FR Y-9;
OMB No. 7100-0128). In such event, the Board would address such
clarifications separately. This proposal may also necessitate
clarification of the instructions to reporting for depository
institutions. The agencies, under the auspices of the Federal Financial
Institutions Examination Council (FFIEC), may separately address such
clarifications to the instructions to the Consolidated Reports of
Condition and Income (Call Report) (FFIEC 031, FFIEC 041, and FFIEC
051; OMB Nos. 1557-0081; 3064-0052, and 7100-0036).
B. Regulatory Flexibility Act
OCC
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.,
requires an agency, in connection with a proposed rule, to prepare an
Initial Regulatory Flexibility Analysis describing the impact of the
rule on small entities (defined by the Small Business Administration
(SBA) for purposes of the RFA to include commercial banks and savings
institutions with total assets of $850 million or less and trust
companies with total assets of $47 million or less) or to certify that
the proposed rule would not have a significant economic impact on a
substantial number of small entities.
To measure whether a rule would impact a ``substantial number of
small entities'' the OCC focused on the potential costs of the rule on
OCC-supervised small entities, consistent with guidance on the RFA
published by the Office of Advocacy of the Small Business
Administration.\48\ As of December 31, 2024, the OCC supervised
approximately 609 small entities, of which 579 will be impacted by the
proposal.49 50 Thus, a substantial number of small entities
will be impacted by the proposed rule.
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\48\ See, ``A Guide for Government Agencies; How to Comply with
the Regulatory Flexibility Act,'' (pp. 18-20), available at: https://advocacy.sba.gov/wp-content/uploads/2019/07/How-to-Comply-with-the-RFA-WEB.pdf.
\49\ The OCC based its estimate of the number of small entities
on the Small Business Administration's size thresholds for
commercial banks and savings institutions (NAICS Code: 522110), and
trust companies (NAICS Code: 523991), which are $850 million and $47
million, respectively. Consistent with the General Principles of
Affiliation 13 CFR 121.103(a), the OCC counted the assets of
affiliated financial institutions when determining whether to
classify an OCC-supervised institution as a small entity. The OCC
used December 31, 2024, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
See, footnote 8 of the U.S. Small Business Administration's Table of
Size Requirements.
\50\ The OCC included all OCC-supervised small entities that
qualify for the CBLR framework in the proposal. Not all qualifying
national banks and federal savings associations will choose to adopt
the CBLR framework, but all qualifying national banks and federal
savings associations will have the option.
---------------------------------------------------------------------------
The OCC also considered whether the proposed rule would result in a
significant economic impact on affected small entities. The total
impact associated with the proposal is the estimated annual tax benefit
or cost. In general, the OCC classifies the economic impact of expected
cost (to comply with a rule) on an individual bank as significant if
the total estimated monetized costs in one year are greater than (1) 5
percent of the bank's total annual salaries and benefits \51\ or (2)
2.5 percent of the bank's total annual non-interest expense.\52\ Based
on the above criteria, the estimated cost of the rule could impose a
significant economic impact at 2 of the 579 small entities if they
elected to opt into the CBLR framework. The OCC uses 5 percent to
determine a substantial number, and less than 1 percent (2/609=.33%) of
small entities could be significantly impacted by the rule.
Furthermore, the CBLR framework is voluntary, and small national banks
and federal savings associations can choose to remain in the current
risk-based capital framework. Thus, the OCC concludes that the proposal
would not have a significant economic impact on a substantial number of
OCC-supervised small entities.
---------------------------------------------------------------------------
\51\ Call report schedule RI, Item 7.a., Salaries and employee
benefits.
\52\ Call report schedule RI, Item 7.e., Total noninterest
expense.
---------------------------------------------------------------------------
Board
The Board is providing an initial regulatory flexibility analysis
with respect to this proposed rule. The Regulatory Flexibility Act \53\
(RFA) requires an agency to consider whether the rules it proposes will
have a significant economic impact on a substantial number of small
entities.\54\ In connection with a proposed rule, the RFA requires an
agency to prepare and invite public comment on an initial regulatory
flexibility analysis describing the impact of the rule on small
entities, unless the agency certifies that the proposed rule, if
promulgated, would not have a significant economic impact on a
substantial number of small entities. An initial regulatory flexibility
analysis must contain: (1) a description of the reasons why action by
the agency is being considered; (2) a succinct statement of the
objectives of, and legal basis for, the proposed rule; (3) a
description of, and, where feasible, an estimate of the number of small
entities to which the proposed rule will apply; (4) a description of
the projected reporting, recordkeeping, and other compliance
requirements of the proposed rule, including an estimate of the classes
of small entities that will be subject to the requirement and the type
of professional skills necessary for preparation of the report or
record; (5) an identification, to the extent practicable, of all
relevant Federal rules which may duplicate, overlap with, or conflict
with the proposed rule; and (6) a description of any significant
alternatives to the proposed rule which accomplish its stated
objectives and minimize any significant economic impact of the proposed
rule on small entities.\55\
---------------------------------------------------------------------------
\53\ 5 U.S.C. 601 et seq.
\54\ Under regulations issued by the U.S. Small Business
Administration (SBA), a small entity includes a depository
institution, bank holding company, or savings and loan holding
company with total assets of $850 million or less. See 13 CFR
121.201. Consistent with the SBA's General Principles of
Affiliation, the Board includes the assets of all domestic and
foreign affiliates toward the applicable size threshold when
determining whether to classify a particular entity as a small
entity. See 13 CFR 121.103. As of the second quarter of 2025, there
were approximately 2,796 small bank holding companies and
approximately 157 small savings and loan holding companies, and
approximately 443 small state member banks.
\55\ 5 U.S.C. 603(b)-(c).
---------------------------------------------------------------------------
The Board has considered the potential impact of the proposed rule
on small entities in accordance with the RFA. Based on its analysis and
for the reasons stated below, the Board believes that this proposed
rule will not have a significant economic impact on a substantial
number of small entities. Nevertheless, the Board is publishing and
inviting comment on this initial regulatory flexibility analysis.
[[Page 55059]]
As discussed in detail above, the proposed rule would amend the
community bank leverage ratio framework. The community bank leverage
ratio framework is available on an elective basis to qualifying
community banking organizations, which consist of insured depository
institutions, bank holding companies, and savings and loan holding
companies with total consolidated assets of less than $10 billion that
also satisfy certain qualifying criteria. The proposed rule would lower
the community bank leverage ratio requirement for these organizations
from greater than 9 percent to greater than 8 percent, consistent with
the lower bound provided in section 201 of the Economic Growth,
Regulatory Relief, and Consumer Protection Act. The proposal would also
extend the length of time that a qualifying community banking
organization can remain in the community bank leverage ratio framework
while being below the community bank leverage ratio requirement from
two quarters to four quarters subject to a limit of eight quarters in
any five-year period. The proposed changes would increase the number of
qualifying community banking organizations eligible to elect, and to
continue, to use the framework.
The Board has broad authority under the International Lending
Supervision Act of 1983 (ILSA) \56\ and the Prompt Corrective Action
(PCA) provisions of the Federal Deposit Insurance Act \57\ to establish
regulatory capital requirements for the institutions it regulates. For
example, ILSA directs each Federal banking agency to cause banking
institutions to achieve and maintain adequate capital by establishing
minimum capital requirements as well as by other means that the agency
deems appropriate.\58\ The PCA provisions of the Federal Deposit
Insurance Act direct each Federal banking agency to specify, for each
relevant capital measure, the level at which an IDI subsidiary is well
capitalized, adequately capitalized, undercapitalized, and
significantly undercapitalized.\59\ In addition, the Board has broad
authority to establish regulatory capital standards for bank holding
companies, savings and loan holding companies, and U.S. intermediate
holding companies of foreign banking organizations under the Bank
Holding Company Act, the Home Owners' Loan Act, and the Dodd-Frank
Act.\60\
---------------------------------------------------------------------------
\56\ 12 U.S.C. 3901-3911.
\57\ 12 U.S.C. 1831o.
\58\ 12 U.S.C. 3907(a)(1).
\59\ 12 U.S.C. 1831o(c)(2).
\60\ See 12 U.S.C. 1467a, 1844, 5365, 5371.
---------------------------------------------------------------------------
The proposed rule amends an optional framework that qualifying
community banking organizations could choose to apply instead of the
Board's current capital rule. A qualifying community banking
organization would be able to remain subject to the capital rule if it
chose to do so. The proposed rule would increase the number of
qualifying community banking organizations eligible to elect to use the
framework. The proposed rule, therefore, would not impose mandatory
requirements on any small entities. Eligible small entities that are
subject to the Board's capital rule could make such an election, which
would require immediate changes to reporting, recordkeeping, and
compliance systems.
Further, as discussed previously in the Paperwork Reduction Act
section, the proposal would not make changes to the projected
reporting, recordkeeping, and other compliance requirements of the
community bank leverage ratio framework. Although the proposed changes
in eligibility requirements of the proposal could impact the reporting,
recordkeeping, and other compliance requirements for small entities
that elect to use the community bank leverage ratio framework, the
impact would be a reduction in reporting and recordkeeping for these
entities. Therefore, the Board does not expect that the compliance,
recordkeeping, and reporting updates from this proposal would impose a
significant cost on small Board-regulated institutions. The Board is
aware of no other federal rules that duplicate, overlap, or conflict
with the proposal. Although the Board considered several alternatives,
as discussed in more detail in section V.E. of this SUPPLEMENTARY
INFORMATION, the proposal would provide greater cost savings and
regulatory relief than these alternatives. Accordingly, the Board
believes that there are no significant alternatives to the proposal
that would accomplish the stated objectives and minimize the economic
impact of the proposal on small entities.
Therefore, the Board believes that the proposed rule will not have
a significant economic impact on substantial number of small entities
supervised by the Board.
The Board welcomes comment on all aspects of its analysis. In
particular, the Board requests that commenters describe the nature of
any impact on small entities and provide empirical data to illustrate
and support the extent of the impact.
FDIC
The Regulatory Flexibility Act (RFA) generally requires an agency,
in connection with a proposed rule, to prepare and make available for
public comment an initial regulatory flexibility analysis that
describes the impact of the proposed rule on small entities.\61\
However, an initial regulatory flexibility analysis is not required if
the agency certifies that the proposed rule will not, if promulgated,
have a significant economic impact on a substantial number of small
entities. The Small Business Administration (SBA) has defined ``small
entities'' to include banking organizations with total assets of less
than or equal to $850 million.\62\ Generally, the FDIC considers a
significant economic impact to be a quantified effect in excess of 5
percent of total annual salaries and benefits or 2.5 percent of total
noninterest expenses. The FDIC believes that effects in excess of one
or more of these thresholds typically represent significant economic
impacts for FDIC-supervised institutions. For the reasons described
below, the FDIC certifies that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------
\61\ 5 U.S.C. 601 et seq.
\62\ The SBA defines a small banking organization as having $850
million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' See 13 CFR 121.201
(as amended by 87 FR 69118, effective December 19, 2022). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' See 13 CFR 121.103. Following
these regulations, the FDIC uses an insured depository institution's
affiliated and acquired assets, averaged over the preceding four
quarters, to determine whether the insured depository institution is
``small'' for the purposes of RFA.
---------------------------------------------------------------------------
The proposed rule, if promulgated, would amend the CBLR framework.
To determine whether the proposal would have a significant economic
impact, the FDIC compared expected outcomes under the proposal to a
baseline scenario in which the current regulations remain unchanged;
specifically, the CBLR requirement of 9 percent with a two-quarter
grace period.
As described in section V, Economic Analysis, of this document, the
proposed rule could potentially affect all community banking
organizations, including many FDIC-supervised insured depository
institutions (IDIs). According to recent Call Reports, the FDIC
supervises 2,085 IDIs that are considered small entities for the
purposes of the RFA (small entity
[[Page 55060]]
IDIs).\63\ Of these IDIs, 2,057 meet the size and simplicity
requirements of the CBLR framework by having total consolidated assets
of less than $10 billion, off-balance sheet exposures of no more than
25 percent of total consolidated assets, and total trading assets and
trading liabilities of no more than 5 percent of total consolidated
assets. Within that cohort, 1,755 small entity IDIs also report
leverage ratios greater than 9 percent, making them eligible to
participate in the CBLR framework. Further, 990 of these eligible small
entity IDIs currently elect into the framework.\64\ Finally, 14 are in
the CBLR grace period--13 because their leverage ratios are below 9
percent and one because it did not meet the off-balance sheet
criterion. Table 3 reports counts of these FDIC-supervised small entity
IDIs, including a breakdown by discrete leverage ratio:
---------------------------------------------------------------------------
\63\ Excluding branches of foreign banks. FDIC Call Reports,
June 30, 2025.
\64\ Ibid.
Table 3--Current Counts of Small Entity IDIs, Partitioned by Leverage Ratios
--------------------------------------------------------------------------------------------------------------------------------------------------------
Range of leverage ratio (percent) *
------------------------------------------------------------------------------------------- Total
<=7 7-8 8-9 9-10 10-11 11-12 >12
--------------------------------------------------------------------------------------------------------------------------------------------------------
Excess leverage ratio **........................ <=-2 -2--1 -1-0 0-1 1-2 2-3 >3 ...........
IDIs that meet CBLR size and simplicity 13 52 237 367 353 259 776 2,057
requirements ***...............................
Participating IDIs **........................... ........... ........... 13 161 190 145 494 1,003
% Participating IDIs............................ ........... ........... 5% 44% 54% 56% 64% 49%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Call Report Data, June 30, 2025.
* Each range excludes the lower end and includes the upper end.
** ``Excess leverage ratio'' is equal to leverage ratio minus the CBLR requirement of above 9 percent. ``Participating IDIs'' are those qualifying small
entity IDIs that elect to use the CBLR framework as of June 30, 2025.
*** These counts include only FDIC-supervised insured depository institutions (IDIs) that are considered small entities by the Regulatory Flexibility
Act and that meet the qualifying community banking organization criteria involving advanced approaches, total consolidated assets, off-balance sheet
exposures, and trading assets and liabilities. These counts do not include one IDI that does not currently meet off-balance sheet criterion but are in
the CBLR grace period.
The proposal would modify the CBLR framework for qualifying
community banking organizations in two ways. First, it would reduce the
CBLR requirement from 9 percent to 8 percent. This reduction would
result in a 237 (14 percent) increase in the population of IDIs
eligible for the CBLR framework, as compared to the baseline population
of 1,755. However, as discussed in section V and presented in Table 3,
many banks that qualify for the CBLR choose not to elect. Using the
same methodology as in section V, the FDIC estimates that approximately
159 additional small entity IDIs would elect into the CBLR framework
under the proposal. These electing IDIs would benefit by avoiding the
costs associated with gathering, recording, and reporting various risk-
based capital measures. Those that operate internal recordkeeping
systems to comply with risk-based capital regulations may discontinue
or simplify these systems. Others that rely on third party vendors to
operate the relevant compliance systems could experience reductions in
outsourcing costs. The FDIC does not have the data necessary to
quantify these benefits. However, for purposes of this RFA analysis,
the FDIC notes that the 159 additional electing IDIs make up less than
8 percent of the total number of small entity IDIs supervised by the
FDIC.
The proposed reduction in the CBLR requirement would lower capital
requirements for all small entity IDIs that participate in the CBLR
framework. Some IDIs may benefit by expanding their balance sheets.
However, as discussed in section V, the agencies acknowledge
uncertainty regarding the extent to which this expansion may occur;
empirical results do not provide any strong evidence that participating
banks would adjust their balance sheet composition or tier 1 capital
holdings, relative to the baseline. Specifically, leverage ratios for
participating CBLR banks did not increase between 2020 and 2022, when
the requirement increased from 8 to 9 percent.\65\ As such, for
purposes of this RFA analysis, the FDIC expects most small entity IDIs
would not significantly adjust their leverage ratios in response to the
proposal.
---------------------------------------------------------------------------
\65\ Call Report Data for the quarters ending December 30, 2020
and 2022.
---------------------------------------------------------------------------
The second proposed modification to the CBLR framework is the
extension of the grace period from two quarters to four quarters. As
noted in section V., of the 210 depository institutions that entered
the grace period in recent years, 28 (13 percent) would have benefited
from a four-quarter grace period. Given that there are 14 FDIC-
supervised small entity IDIs that are currently under the grace period,
the FDIC estimates that 2 (13 percent) of these IDIs would benefit
under the proposal relative to the baseline. These banks would avoid
any costs incurred by returning to the generally applicable capital
rules. The FDIC does not have the data necessary to quantify these
benefits; for purposes of this RFA analysis, the FDIC notes that the 2
IDIs make up less than half of a percent of the total number of small
entity IDIs supervised by the FDIC.
The proposed rule may result in indirect costs on small entity IDIs
that voluntarily participate in the CBLR framework. Depending on the
behaviors of electing banks, such costs may include the increased risk
of bank failures; however, Section V notes that empirical evidence for
such costs are mixed, muted, and/or modest. For purposes of this RFA
analysis, the FDIC notes that the proposed rule would not impose direct
mandatory costs on any small entity IDIs.
In summary, the FDIC estimates that an additional 159 IDIs would
accrue benefits from CBLR election and 2 IDIs would accrue benefits
from the grace period extension under the proposed rule. While the FDIC
does not have data to quantify the benefits to these IDIs, these 161
IDIs make up less than eight percent of all FDIC-supervised small
entity IDIs. The FDIC does not consider eight percent to be a
substantial number of small entities. In other words, even if all 161
IDIs accrued significant benefits, the proposed rule would not
significantly affect a substantial number of small entities. Other
aspects of the proposed rule, while potentially affecting all small
entity IDIs that participate in the CBLR framework, are indirect
effects and/or are not expected to be significant based on empirical
evidence.
Given the analysis above, the FDIC certifies that the proposed rule
would not have a significant economic impact on a substantial number of
small entities.
[[Page 55061]]
The FDIC invites comments on all aspects of the supporting
information provided in this RFA section. The FDIC is particularly
interested in comments on any significant effects on small entities
that the agency has not identified.
C. Plain Language
Section 722 of the Gramm-Leach Bliley Act \66\ requires the Federal
banking agencies \67\ to use plain language in all proposed and final
rules published after January 1, 2000. The agencies have sought to
present the proposed rule in a simple and straightforward manner and
invite comments on the use of plain language and whether any part of
the proposed rule could be more clearly stated. For example:
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\66\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 (1999).
\67\ The Federal banking agencies are the OCC, Board, and FDIC.
---------------------------------------------------------------------------
Have the agencies presented the material in an organized
manner that meets your needs? If not, how could this material be better
organized?
Are the requirements in the notice of proposed rulemaking
clearly stated? If not, how could the proposal be more clearly stated?
Does the proposal contain language that is not clear? If
so, which language requires clarification?
Would a different format (grouping and order of sections,
use of headings, paragraphing) make the proposed rule easier to
understand? If so, what changes to the format would make the proposal
easier to understand?
What else could the agencies do to make the proposal
easier to understand?
D. OCC Unfunded Mandates Reform Act of 1995
The OCC analyzed the proposed rule under the factors set forth in
the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under
this analysis, the OCC considered whether the proposed rule includes a
Federal mandate that may result in the expenditure by State, local, and
Tribal governments, in the aggregate, or by the private sector, of $100
million or more in any one year (adjusted for inflation). Because the
proposed rule would not specifically require banks to modify their
policies and procedures, the OCC has determined that there are no
expenditures for the purposes of UMRA. Therefore, the OCC concludes
that the proposed rule would not result in an expenditure of $100
million or more annually by state, local, and tribal governments, or by
the private sector.
E. Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act (RCDRIA),\68\ in determining the effective
date and administrative compliance requirements for new regulations
that impose additional reporting, disclosure, or other requirements on
insured depository institutions, each Federal banking agency must
consider, consistent with principles of safety and soundness and the
public interest, any administrative burdens that such regulations would
place on depository institutions, including small depository
institutions, and customers of depository institutions, as well as the
benefits of such regulations. In addition, section 302(b) of RCDRIA
requires new regulations and amendments to regulations that impose
additional reporting, disclosures, or other new requirements on insured
depository institutions generally to take effect on the first day of a
calendar quarter that begins on or after the date on which the
regulations are published in final form, with certain exceptions.\69\
---------------------------------------------------------------------------
\68\ 12 U.S.C. 4802(a).
\69\ 12 U.S.C. 4802(b).
---------------------------------------------------------------------------
The agencies note that comment on these matters has been requested
in other sections of this Supplementary Information section, and that
the requirements of RCDRIA will be considered as part of the overall
rulemaking process. In addition, the agencies also invite any other
comments that further will inform their consideration of RCDRIA.
F. Executive Orders 12866, 13563 and 14192
Executive Order 12866 (Regulatory Planning and Review) \70\ and
Executive Order 13563 (Improving Regulation and Regulatory Review) \71\
direct agencies to assess the costs and benefits of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits. This proposed rule
was drafted and reviewed in accordance with Executive Order 12866 and
Executive Order 13563. Within OMB, the Office of Information and
Regulatory Affairs (OIRA) has determined that this rulemaking is a
``significant regulatory action'' under section 3(f) Executive Order
12866. The proposal, if finalized as proposed, is not expected to be an
Executive Order 14192 regulatory action.
---------------------------------------------------------------------------
\70\ E.O. 12866, 58 FR 51735.
\71\ E.O. 13563, 76 FR 3821.
---------------------------------------------------------------------------
G. Providing Accountability Through Transparency Act of 2023
The Providing Accountability Through Transparency Act of 2023
requires that a notice of proposed rulemaking include the internet
address of a summary of not more than 100 words in length of a proposed
rule, in plain language, that shall be posted on the internet website
under section 206(d) of the E-Government Act of 2002.\72\
---------------------------------------------------------------------------
\72\ 44 U.S.C. 3501 note.
---------------------------------------------------------------------------
The agencies are proposing to lower the community bank leverage
ratio requirement from above 9 percent to above 8 percent. The proposal
would also extend the length of the ``grace period'' afforded to
qualifying community banking organizations that fall out of compliance
with the community bank leverage ratio from two quarters to four
quarters, with a reservation of authority to provide further extensions
if deemed appropriate. The proposal would also include a limitation
that would allow a qualifying community banking organization a grace
period of up to four quarters at a time if it had not used the grace
period for more than eight of the prior twenty quarters.
The proposal and the required summary can be found at https://www.regulations.gov by searching for Docket ID OCC-2025-0141, https://occ.gov/topics/laws-and-regulations/occ-regulations/proposed-issuances/index-proposed-issuances.html, and at https://www.federalreserve.gov/supervisionreg/reglisting.htm and https://www.fdic.gov/federal-register-publications.
List of Subjects
12 CFR Part 3
Administrative practice and procedure, Banks, Banking, Federal
Reserve System, Federal savings associations, Investments, National
banks, Reporting and recordkeeping requirements.
12 CFR Part 217
Administrative practice and procedures, Banks, Banking, Capital,
Federal Reserve System, Holding companies, Reporting and recordkeeping
requirements, Risk, Securities.
12 CFR Part 324
Administrative practice and procedure, Banks, Banking, Capital,
Capital adequacy, Confidential business information, Investments,
Reporting and
[[Page 55062]]
recordkeeping requirements, Savings associations, State non-member
banks.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the preamble, the Office of the
Comptroller of the Currency proposes to amend part 3 of chapter I of
Title 12 of the Code of Federal Regulations as follows:
PART 3--CAPITAL ADEQUACY STANDARDS
0
1. The authority citation for part 3 is revised to read as follows:
Authority: 12 U.S.C. 93a, 161, 1462, 1462a, 1463, 1464, 1818,
1828(n), 1828 note, 1831n note, 1835, 3907, 3909, 5371, 5371 note,
5412(b)(2)(B), and Pub. L. 116-136, 134 Stat. 281.
0
2. In Sec. 3.12:
0
a. Amend paragraphs (a)(1) and (a)(2)(i) by removing the text ``9
percent'' wherever it appears and adding in its place the text ``8
percent'';
0
b. Remove paragraph (a)(4);
0
c. Revise paragraph (c)(1);
0
d. Amend paragraph (c)(2) by removing the word ``second'' and adding in
its place the word ``fourth'';
0
e. Amend paragraph (c)(6) by removing the text ``8 percent'' wherever
it appears and adding in its place the text ``7 percent''; and
0
f. Add paragraph (c)(7).
The revision and addition read as follows:
Sec. 3.12 Community bank leverage ratio framework.
* * * * *
(c) * * *
(1) Except as provided in paragraphs (c)(5) through (7) of this
section, if a national bank or Federal savings association ceases to
meet the definition of a qualifying community banking organization, the
national bank or Federal savings association has a grace period (grace
period) of four reporting periods under its Call Report either to
satisfy the requirements to be a qualifying community banking
organization or to comply with Sec. 3.10(a)(1) and report the required
capital measures under Sec. 3.10(a)(1) on its Call Report.
* * * * *
(7) Notwithstanding paragraphs (c)(1) through (4) of this section,
a national bank or Federal savings association that has spent eight or
more of the previous twenty quarters within the grace period, may not
use the grace period in the current quarter. If the national bank or
Federal savings association does not meet the definition of a
qualifying community banking organization in the current quarter, the
national bank or Federal savings association must immediately comply
with the minimum capital requirements under Sec. 3.10(a)(1) and must
report the required capital measures under Sec. 3.10(a)(1).
Sec. 3.303 [Removed and Reserved]
0
3. Remove and reserve Sec. 3.303.
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
amend part 217 of chapter II of Title 12 of the Code of Federal
Regulations as follows:
PART 217--CAPITAL ADEQUACY OF BANK HOLDING COMPANIES, SAVINGS AND
LOAN HOLDING COMPANIES, AND STATE MEMBER BANKS (REGULATION Q)
0
4. The authority citation for part 217 continues to read as follows:
Authority: 12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a,
1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904,
3906-3909, 4808, 5365, 5368, 5371, 5371 note, and sec. 4012, Pub. L.
116-136, 134 Stat. 281.
0
5. In Sec. 217.12:
0
a. Amend paragraphs (a)(1) and (a)(2)(i) by removing the text ``9
percent'' wherever it appears and adding in its place the text ``8
percent'';
0
b. Remove paragraph (a)(4);
0
c. Revise paragraph (c)(1);
0
d. Amend paragraph (c)(2) by removing the word ``second'' and adding in
its place the word ``fourth'';
0
e. Amend paragraph (c)(6) by removing the text ``8 percent'' wherever
it appears and adding in its place the text ``7 percent''; and
0
f. Add paragraph (c)(7).
The revision and addition read as follows:
Sec. 217.12 Community bank leverage ratio framework.
* * * * *
(c) * * *
(1) Except as provided in paragraphs (c)(5) through (7) of this
section, if a Board-regulated institution ceases to meet the definition
of a qualifying community banking organization, the Board-regulated
institution has a grace period (grace period) of four reporting periods
under its Call Report or Form FR Y-9C, as applicable, either to satisfy
the requirements to be a qualifying community banking organization or
to comply with Sec. 217.10(a)(1) and report the required capital
measures under Sec. 217.10(a)(1) on its Call Report or its Form FR Y-
9C, as applicable.
* * * * *
(7) Notwithstanding paragraphs (c)(1) through (4) of this section,
a Board-regulated institution that has spent eight or more of the
previous twenty quarters within the grace period, may not use the grace
period in the current quarter. If the Board-regulated institution does
not meet the definition of a qualifying community banking organization
in the current quarter, the Board-regulated institution must
immediately comply with the minimum capital requirements under Sec.
217.10(a)(1) and must report the required capital measures under Sec.
217.10(a)(1).
* * * * *
Sec. 217.304 [Removed and Reserved]
0
6. Remove and reserve Sec. 217.304.
* * * * *
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons stated in the joint preamble, the Board of
Directors of the Federal Deposit Insurance Corporation proposes to
amend 12 CFR part 324 as follows:
PART 324--CAPITAL ADEQUACY OF FDIC-SUPERVISED INSTITUTIONS
0
7. The authority citation for part 324 continues to read as follows:
Authority: 12 U.S.C. 1815(a), 1815(b), 1816, 1818(a), 1818(b),
1818(c), 1818(t), 1819(Tenth), 1828(c), 1828(d), 1828(i), 1828(n),
1828(o), 1831o, 1835, 3907, 3909, 4808; 5371; 5412; Pub. L. 102-233,
105 Stat. 1761, 1789, 1790 (12 U.S.C. 1831n note); Pub. L. 102-242,
105 Stat. 2236, 2355, as amended by Pub. L. 103-325, 108 Stat. 2160,
2233 (12 U.S.C. 1828 note); Pub. L. 102-242, 105 Stat. 2236, 2386,
as amended by Pub. L. 102-550, 106 Stat. 3672, 4089 (12 U.S.C. 1828
note); Pub. L. 111-203, 124 Stat. 1376, 1887 (15 U.S.C. 78o-7 note),
Pub. L. 115-174; section 4014 Sec. 201, Pub. L. 116-136, 134 Stat.
281 (15 U.S.C. 9052).
0
8. In Sec. 324.12:
0
a. Amend paragraphs (a)(1) and (a)(2)(i) by removing the text ``9
percent'' wherever it appears and adding in its place the text ``8
percent'';
0
b. Remove paragraph (a)(4);
0
c. Revise paragraph (c)(1);
0
d. Amend paragraph (c)(2) by removing the word ``second'' and adding in
its place the word ``fourth'';
0
e. Amend paragraph (c)(6) by removing the text ``8 percent'' wherever
it appears and adding in its place the text ``7 percent''; and
[[Page 55063]]
0
f. Add a new paragraph (c)(7).
The revision and addition read as follows:
Sec. 324.12 Community bank leverage ratio framework.
* * * * *
(c) * * *
(1) Except as provided in paragraphs (c)(5) through (7) of this
section, if an FDIC-supervised institution ceases to meet the
definition of a qualifying community banking organization, the FDIC-
supervised institution has a grace period (grace period) of four
reporting periods under its Call Report either to satisfy the
requirements to be a qualifying community banking organization or to
comply with Sec. 324.10(a)(1) and report the required capital measures
under Sec. 324.10(a)(1) on its Call Report.
* * * * *
(7) Notwithstanding paragraphs (c)(1) through (4) of this section,
an FDIC-supervised institution that has spent eight or more of the
previous twenty quarters within the grace period, may not use the grace
period in the current quarter. If the FDIC-supervised institution does
not meet the definition of a qualifying community banking organization
in the current quarter, the FDIC-supervised institution must
immediately comply with the minimum capital requirements under Sec.
324.10(a)(1) and must report the required capital measures under Sec.
324.10(a)(1).
Sec. 324.303 [Removed and Reserved]
0
9. Remove and reserve Sec. 324.303.
Jonathan V. Gould,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Benjamin W. McDonough,
Deputy Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors,
Dated at Washington, DC, on November 25, 2025.
Jennifer M. Jones,
Deputy Executive Secretary.
[FR Doc. 2025-21625 Filed 11-28-25; 8:45 am]
BILLING CODE 4810-33-6210-01-6714-01-P