Federal banking regulators, including the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, are planning to propose a reduction in the community bank leverage ratio from 9% to 8%. This change aims to ease capital requirements and encourage small banks to lend more, thereby supporting local economies. The proposed reduction is the lowest amount allowed by law and is intended to provide regulatory relief to community banks.
The idea of reducing the community bank leverage ratio has been gaining traction, with Federal Reserve Vice Chair for Supervision Michelle Bowman advocating for modifications to the framework. In a speech on August 9, Bowman suggested that reducing the ratio from 9% to 8% could allow more community banks to adopt the framework and increase their balance sheet capacity for lending. Treasury Secretary Scott Bessent also expressed support for revisiting the community bank leverage ratio, stating that he expects a proposed reduction to be announced soon.
The regulators’ plan to reduce the community bank leverage ratio is part of a broader effort to reduce regulatory burden on community banks. The OCC has announced actions to simplify compliance with the Community Reinvestment Act and has indicated that adjusting the community bank leverage ratio framework is a priority. The proposed reduction is seen as a way to help community banks compete and thrive, particularly in the face of increasing competition from larger banks and fintech companies.
The proposal is expected to be announced soon, and the regulators will request public comment on the change. While the FDIC declined to comment on the report, the Fed and OCC have not yet responded to requests for comment. The reduction in the community bank leverage ratio is expected to have a positive impact on small banks and local economies, allowing them to lend more and support economic growth. Overall, the proposed change is seen as a step towards providing regulatory relief to community banks and promoting their competitiveness in the banking industry.