Federal regulators launched a comprehensive capital rule overhaul reducing aggregate requirements by 7.8% for smaller banks. The proposal lowers the community bank leverage ratio threshold from 9% to 8% and replaces the flat 50% mortgage risk-weight with an LTV-based scale (35% at 80% LTV). Comments are due June 18. The relief sounds good, but the rule was designed around large banks’ trading books, not community bank balance sheets. Mortgage servicing assets still carry a 250% risk-weight while the underlying loans get 35%. The lower CBLR threshold does not fix the underlying mismatch between the CBLR calculation and community bank balance sheets. Banks with CRE or construction concentrations still cannot use it.
What you should do: Run the numbers on the lower 8% CBLR threshold and revised mortgage risk-weights. That is real capital relief for residential lending. Submit a comment letter by June 18 flagging specific issues that treat community banks unfairly.