ABA Urges Agencies to Finalize Revisions to Community Bank Leverage Ratio Framework

The American Bankers Association today urged the federal banking agencies to finalize proposed revisions to the Community Bank Leverage Ratio (CBLR) framework, commending the agencies’ effort to recalibrate the CBLR to strengthen its role as a meaningful, optional compliance pathway for community banks while preserving safety and soundness.

In a comment letter submitted to the Federal Reserve, the FDIC and the OCC, ABA expressed strong support for the agencies’ proposal to lower the CBLR threshold from 9% to 8% and to extend the grace period for returning to compliance with the qualifying criteria from two quarters to four quarters. The association said the proposal is responsive to concerns raised by community banks that the current calibration and short grace period have limited the CBLR’s effectiveness in reducing regulatory burden.

The letter notes that adoption of the CBLR has been limited, citing Federal Reserve Vice Chair for Supervision Michelle Bowman’s comment that the CBLR “underachieved in providing regulatory relief” and that lowering the threshold to 8% would unlock needed regulatory flexibility. The lower threshold will expand eligibility to approximately 95% of community banking organizations, and the agencies’ analysis indicates the recalibration could increase balance sheet capacity for participating institutions by approximately $64 billion, supporting additional lending to households, small businesses, and agricultural borrowers.

ABA also urged that the proposed changes be made permanent, noting: 

“Permanence is essential to give community banking organizations the certainty needed for long-term capital planning and strategic balance sheet decisions. Banks structure asset composition, lending strategies, and capital buffers over multi-year horizons, and uncertainty about future recalibrations would undermine adoption and limit the framework’s effectiveness. Making the 8% threshold and extended grace period permanent would ensure the CBLR remains a stable and reliable option that supports prudent growth and sustained regulatory relief while maintaining safety and soundness.”

The letter outlined further key recommendations including indexing the $10 billion asset threshold to nominal GDP to prevent regulatory drift, avoid burdening institutions not intended to be captured, and preserve incentives for organic growth; reassessing off-balance sheet exposure treatment; recognizing sustained CBLR compliance in CAMELS capital ratings; and the importance of reinforcing through examiner guidance and training that the CBLR is an elective alternative, not a supervisory expectation.

Read the full letter here.