Federal Reserve Updates Leverage Ratio and Proposes Asset Threshold Revisions for Community Banks

The Federal Reserve has reset the community-bank leverage ratio to the statutory level of 8 percent and eliminated the Novel Activities Supervision Program, which the Board said had acted as a barrier to innovation. In conjunction with the OCC and FDIC, the agencies also issued a new compliance guide for third-party risk-management tailored to community banks.

In July the Board proposed its first comprehensive revision to Regulation O since 1979, seeking to reduce administrative burdens tied to insider credit limits. Later this year the Board will consider a rule to raise fixed-dollar asset thresholds and embed a five-year update mechanism, preserving the original policy intent while accounting for inflation and economic growth. A parallel proposal will address broader structural reforms to the large-bank tailoring framework and the definition of a community bank, currently set at assets of less than $10 billion.

The FFIEC issued a request for information on call-report streamlining in December 2025 and, in June, reaffirmed support for de novo bank formation, urging agencies to clarify approval standards and processing timelines. The Board's Statement of Supervisory Operating Principles, released one year ago, refocuses supervision on risks that could cause material financial harm, and recent LISCC examination manuals and third-party risk-management guidance reinforce transparency and risk-based expectations.

Together, these actions aim to align regulatory and supervisory requirements with the size, complexity, business model, and risk profile of each institution, ensuring that community banks receive proportionate oversight while maintaining safety and soundness across the banking system.