Community banks have spent years adapting to regulatory expectations that were not always proportional to their size, complexity, or actual risk. Several developments in 2026 are beginning to move in a different direction.
Updated guidance around model risk management, the Community Bank Leverage Ratio (CBLR) and BSA/AML examinations generally give institutions more room to apply judgment based on their own risk profiles. Other proposed changes could provide additional relief in areas such as CRA and Regulation O.
For management teams, the opportunity is not simply to do less. It is to look at policies and processes built under previous requirements and ask whether they still make sense today.
How Has Model Risk Management Changed for Community Banks?
Updated model risk management guidance issued in 2026 recognizes that not every model creates the same level of risk and that smaller, less complex institutions should not automatically be held to the same model governance practices as larger institutions.
For community banks, that creates an opportunity to revisit both the model inventory and the policies surrounding validation.
Management may want to consider:
- Which models have a material impact on lending, capital, financial reporting or other significant decisions
- Whether lower-risk tools truly require the same model treatment
- Whether validation frequency still makes sense based on the model’s risk and complexity
- Whether appropriate internal validation procedures can be used between external validations
- Whether existing policies reflect current regulatory expectations
The objective is not to reduce oversight for the sake of reducing work. It is to pay the most attention to the models that could create meaningful risk for the institution.
Should Banks Reconsider the Community Bank Leverage Ratio?
Changes to the CBLR framework took effect July 1, 2026, and made the framework more flexible for qualifying institutions.
Among the most significant changes:
- The minimum required leverage ratio decreased from 9% to 8%
- The grace period increased from two quarters to four
- The minimum leverage ratio during the grace period decreased from 8% to 7%
- A new limit allows the grace period to be used for up to eight of the prior 20 quarters
The changes are meaningful because many banks evaluated CBLR when the requirements looked quite different. Nearly 98% of institutions under $10 billion currently have leverage ratios that could qualify them for CBLR, yet utilization remains relatively modest across much of the Mid-Atlantic.
That does not mean every eligible institution should opt in. Growth plans, capital needs, risk profile and other considerations still matter. But a bank that decided against CBLR several years ago should not assume that the original decision still holds.
The framework has changed. It may be worth running the analysis again.
What Is Changing With BSA/AML Examinations?
The OCC’s Community Bank Minimum BSA/AML Examination Procedures became effective February 1, 2026. The broader direction is toward a more risk-focused examination rather than proving completion of every possible procedure.
One particularly important change is greater reliance on satisfactory independent testing. Examiners also have more discretion around transaction testing, analytical reviews, and other examination techniques based on the institution’s risk.
That puts more weight on the quality of a bank’s own independent testing.
Community banks should consider whether their internal audit or independent review:
- Focuses on the institution’s actual BSA/AML risks
- Provides useful information to management and the board
- Identifies meaningful program deficiencies
- Supports the institution’s risk assessment
- Goes beyond simply documenting that required procedures were completed
A more risk-based examination environment does not make independent testing less important. In many cases, it makes strong, independent testing more valuable.
Have Beneficial Ownership Requirements Changed for Banks?
Yes, but there is an important distinction that employees and customers may not immediately understand.
Changes to Corporate Transparency Act reporting requirements have exempted U.S.-created companies from the federal beneficial ownership reporting regime. That does not mean banks have stopped collecting beneficial ownership information as part of customer due diligence when required.
Banks still have obligations to obtain information in circumstances such as initial account opening and certain ongoing risk-based due diligence situations.
That creates a potential customer service issue. A business owner may have heard that beneficial ownership reporting is no longer required and reasonably wonder why the bank is still asking for similar information.
Frontline employees should be prepared to explain the difference clearly. Reviewing procedures, customer communications, and employee training now may prevent unnecessary confusion later.
What Other Regulatory Relief Could Be Coming?
Several additional changes remain in proposals, which means institutions should monitor them rather than change policies prematurely.
Two are particularly relevant for community banks.
Community Reinvestment Act: Proposed changes would substantially increase the asset of thresholds used to classify small, intermediate small and large institutions. Banks between $1.65 billion and $10 billion could see a meaningful reduction in CRA data collection and reporting requirements if the proposal is finalized.
Regulation O: Proposed modernization would increase and index several dollar thresholds that have not kept pace with current conditions. The changes could reduce some technical violations and board oversight associated with smaller extensions of credit.
Both could eventually reduce administrative burden. Until final rules are issued, however, existing requirements remain with the requirements.
Management can still use this time to understand where a final rule would affect the institution so that policies and procedures can be updated efficiently if the proposals move forward.
What Should Community Banks Review Now?
The common thread across these developments is greater room for institutions to focus on resources according to risk.
That makes 2026 a reasonable time to revisit:
- Model inventories and validation requirements
- Previous CBLR opt-in decisions
- BSA/AML independent testing and risk assessments
- Beneficial ownership procedures and employee training
- Policies connected to regulations currently being modernized
Some institutions may conclude that their existing approach still makes sense. Others may find that a policy, validation schedule, or compliance process exists primarily because an older regulatory environment requires it.
Regulatory relief should not automatically lead to fewer controls. It should create an opportunity to ask whether the controls you have are addressing the risks that matter most today.
If you have reviewed an existing policy or approach, talk with your YHB advisor. We can help you work through what has changed, what remains proposed, and where a different approach may make sense for your institution.