The Trump administration is rolling back red tape for community banks to try to boost lending in the economy.

The Office of the Comptroller of the Currency is updating a regulation known as the Community Bank Leverage Ratio framework to reduce the regulatory burden on the country's smallest banks.

The move is expected to free up as much as $64 billion for community lending, with 95% of all community banks eligible for the change in the rule.

There are more than 4,200 FDIC-insured banking institutions in the US, and over 4,000 of them have $10 billion in assets or less, according to FDIC data.

Even though this guidance applies only to banks with $10 billion in assets or less, the OCC and FDIC have expanded the definition of a community bank to include depository institutions with up to $30 billion for essential regulatory functions such as licensing, merger applications, and regulatory exams.

Since 2010, the US has lost 3,600 community banks, a reduction of over 45%. Community banks' share of bank assets has fallen from 23% to 15%, while their share of outstanding bank loans has fallen from 27% to 20%. Their share of commercial real estate loans has fallen from 52% to 41%.

Since 2010, only six community banks have been formed per year on average, compared with more than 100 annually before 2008, according to the US Treasury.

The rule lowers the CBLR requirement from 9% to 8% and extends the grace period for banks that temporarily fall out of compliance from two quarters to four quarters. The new rule is optional for a community bank to opt into.

To qualify, the bank must have less than $10 billion in assets and have a leverage ratio of more than 8%, meaning the amount of debt a bank carries compared to its assets must be $8 of capital for every $100 of exposure to debt. The bank also cannot be a subsidiary of a larger global bank.

Treasury Secretary Scott Bessent argued in a speech last fall that regulations post-financial crisis ended up creating a "too small to succeed" effect while trying to end "too big to fail."

The OCC has taken a series of actions this year to help community banks grow, including tailoring supervision and increasing the upper asset range of community banks to allow them to grow without facing the increased supervision scrutiny that applies to larger or more complex banks.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on X at @DsHollers.

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