Washington Moves to Ease Capital Rules for Small Banks in Bid to Boost Lending

U.S. regulators are preparing a proposal aimed at giving community banks more room to lend by easing existing capital requirements. The move comes as part of a broader effort to support smaller lenders and stimulate credit flow to local economies.

The plan would lower the community bank leverage ratio — a simplified capital measure for small institutions — from 9% to 8%, which is the lowest level permitted by law. This adjustment would effectively reduce the amount of capital that qualifying banks are required to hold against their assets, freeing up funds that could be directed toward lending to small businesses and households.

The initiative is expected to be introduced jointly by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC). Before any changes take effect, the proposal will undergo a public consultation period to allow industry and community feedback.

Community banks, which play a vital role in financing local businesses and rural economies, have long pushed for such relief. Trade associations have argued that current regulations place smaller institutions at a disadvantage compared with larger, more complex banks that use risk-based models to calculate their capital needs.

Regulators have been reviewing the rule for several months, with discussions reportedly taking place at the White House level. The Federal Reserve’s leadership has previously acknowledged that while the existing approach was designed to simplify compliance for community lenders, it has fallen short of delivering meaningful relief.

As of early 2025, the U.S. had more than 4,000 community banks, but fewer than half had chosen to participate in the leverage ratio framework. Analysts say that reducing the requirement could encourage more banks to opt in and expand lending at a time when credit growth has been uneven across regions.

If adopted, the proposal would mark one of the most significant regulatory adjustments for small U.S. banks in recent years — signaling Washington’s intent to balance financial stability with economic support for local communities.