Federal banking regulators are reportedly set to propose reducing leverage ratios for community banks from the existing 9% to the minimum legal required level of 8%.
According to a report from Bloomberg, the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency are planning to make this change and will be seeking public comments. The news surfaced on October 15, citing unnamed sources.
The FDIC, when approached for comment, chose not to respond. Similarly, neither the Fed nor the OCC provided immediate comments on the inquiry.
The goal behind this regulatory shift is to ease capital requirements, thereby encouraging smaller banks to expand their lending activities, as reported by Bloomberg.
During a speech on August 9, Fed Vice Chairman for Supervision, Michelle Bowman, expressed the need to rethink the community bank leverage ratio framework. She emphasized that changes could promote wider adoption among banks and better align with Congress’s intention of providing regulatory relief.
“By lowering the CBLR requirement from 9% to 8%, it could not only attract more regional banks to join this framework but could also enhance the financial capacity of all CBLR institutions, which would likely make it simpler for them to strengthen local economies through increased lending,” Bowman remarked.
Scott Bessent, representative from the Ministry of Finance, reiterated during an October 9 address that he’s long been an advocate for re-evaluating community bank leverage ratios. His statement anticipated the proposal for reduced leverage ratios.
On October 6, as the OCC announced its plans to lighten the regulatory load for community banks, the topic of the Community Bank Leverage Ratio Framework emerged as part of their agenda.
In a release dated October 6, the OCC expressed its commitment to prioritize reforms geared specifically towards community banks rather than the broader banking industry. They indicated ongoing initiatives to adjust the leverage ratio framework and refine the strategic planning processes in compliance with the Community Reinvestment Act.
PYMNTS noted that Bessent, Bowman, and Fed Governor Michael S. Barr discussed this further during a conference, where they highlighted that advancements in technology, transparency, and tailored regulations could help community banks succeed in today’s competitive landscape.
