The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) of 2018 initially imposed broad regulatory burdens on all large and community banks, even though many community banks do not engage in the risky lending that caused the 2008 financial crisis. Recognizing this mismatch, regulators introduced the optional Community Bank Leverage Capital Ratio (CBLR) Framework in 2020 to simplify reporting for well‑capitalized, low‑risk community banks.
Under the CBLR, "eligible" banks can bypass complex risk‑weighted capital reporting if they meet a minimum leverage ratio. That minimum is being lowered from 9% to 8% effective July 1, which will allow most community banks to benefit from streamlined reporting.
While Bauer supports this change for healthy local lenders—especially higher‑rated banks with strong performance—it cautions against applying it too broadly. Bauer emphasizes that depositor protection—not convenience—remains the priority.
Jumbo Rate News JRN 43:18
Deregulation is Not a 4-Letter Word, Neither is Regulation
The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), enacted in May 2018, penalized community banks along with Big Banks for the risky and careless lending that led to both the housing bubble crash and the Great Recession of 2008.
Bauer wrote, “Logically speaking, if a bank does NOT engage in risky lending and is ‘Well-Capitalized’, it can be a waste of resources to require them to fill out the associated paperwork.” (JRN 37:32)
Regulators agreed and in 2020 they came out with a new optional Community Bank Leverage Capital Ratio (CBLR) Framework. In general, the CBLR option is available to community banks with:
- A leverage ratio greater than 9% (Tier 1 Capital / Average total consolidated assets)
- Total assets < $10 billion;
- Off-balance sheet exposure not more than 25% of total assets; &
- Trading assets and liabilities not more than 5% of total assets.
Community banks meeting these requirements may opt-in to simpler reporting methods bypassing risk-weighted capital to assets ratios.
Effective July 1st, the 9% leverage ratio requirement will be lowered to 8%, and that’s okay… for most community banks. Those in the business of lending in their local communities are far less likely to get involved in risky assets.
Sadly, some do go astray. Bauer never likes to use such a broad stroke to define any group of banks though. There are simply too many variables to be considered that can eat away at capital (including delinquencies, losses & enforcement actions).
The community banks on page 5 are all rated less than 4-Stars and currently have a leverage capital ratio between 8% and 9%. As a rule, we have no misgivings about the banks rated 3½-Stars. In fact, some, like 3½-Star First Southeast Bank, Harmony, MN (10576), have no delinquent loans and are profitable. We see no reason why this bank should not be allowed to use the new CBLR of 8%.
However, there are some banks on the list rated less than 3½-Stars and, although they are considered “Well-Capitalized” by regulatory standards, Bauer would prefer to see risk-weighted information reported to have a more complete picture of the overall health.
1-Star Grand Rivers Community Bank, Grand Chain, IL (10816), for example, is a tiny bank with average tangible assets of $17.027 million and tier 1 capital of just $1.461 million. Its leverage CR is 8.58% (down from 9.24% 2 years ago) and total risk-based CR is 11.44% (down from 14.12% 2 years ago). You can see how continual losses and delinquent loans are eating away at its capital. Bauer sees no tourniquet to stop the bleeding.
While 3-Star Union County Savings Bank, Elizabeth, NJ (12013) has reported six consecutive quarterly losses and four consecutive annual losses, it is another story altogether. At the close of 2025, Union County SB had average tangible assets of $1.697 billion and tier 1 capital of $141.257 million for a leverage capital ratio of 8.32%.
However, to make money Union County SB relies much more on securities investments than it does on loans. (Its loan-to-deposit ratio is less than 21%.) All of its securities are available-for-sale and therefore reported at market value, which is currently much lower than book value. As a result, Union County SB has a negative GAAP Net Worth. Its GAAP CR, (currently -0.47) had been negative for four years but improved in 2025.
Reporting available-for-sale securities at market value was a huge issue, impacting hundreds of banks, when the market tanked during COVID. Interestingly, Union County SB was not one of them. Yet, it is one of the few banks struggling with it today.
This bank will not be allowed to take advantage of the new 8% Leverage CR because of both the second and third bullet points (page 2). Both off balance sheet exposure and trading assets are well above the thresholds.
The new CBLR framework has another caveat that we did not bullet point: What happens if a CBLR bank’s leverage ratio drops below 8%?For example, 2-Star One American Bank, Centreville, SD (6078), got a boost from a profitable quarter and reduced assets that brought its leverage CR from 6.71% to 8.29% during the fourth quarter of 2024. A year later, that ratio was 8.08%, barely making the new 8% cut-off. In fact, a sneak peek at its March numbers indicates One American Bank has once again dropped below the 8% mark.
Under the revised CBLR framework, if a CBLR bank’s Leverage CR drops below 8%, it will have four quarters to bring it back up—as long as it does not drop below 7%.
Assuming One American Bank’s leverage CR is below 8% on July 1, it would not be eligible for CBLR filing. But, according to the Federal register (April 29, 2026 using second quarter 2025 data), approximately 84% of community banks qualified for the streamlined reporting (only about half had opted in). With the new framework, they estimate that 95% will qualify.
Two out of three of our examples will not qualify for the new, streamlined reporting. As for the third, Bauer has your back. Bauer’s ratings are for the depositor, not the bank.
