Key Insights
- Eligible community financial institutions under $6B could now qualify for an extended 18-month on-site exam cycle, easing overall compliance burdens.
- Tailored OCC supervision shifts focus toward material risk profiles rather than rigid, one-size-fits-all examination requirements.
- Proposed legislation may simplify liquidity access and lower barriers for de novo community financial institutions.
In Formula 1 Racing, a pit stop is a calculated interruption. A team sacrifices precious seconds to inspect the car, change tires and prevent a far more costly failure later in the race. Stop too often, and the driver loses ground; wait too long, and worn tires or a mechanical issue can end the race altogether.
Regulators have made a similar calibration decision for well-managed, lower-risk community financial institutions (CFIs). Some may now go 18 months, rather than 12, between full on-site examinationsFor banks approaching or below $6B in assets,
For banks approaching or below $6B in assets, the change makes exam eligibility a strategic question, not simply a scheduling change. Is your bank now eligible or close to it?
Expanded Exam Relief for Eligible CFIs
In September, regulators issued a joint interim final rule, now effective, that increased the total asset threshold from $3B to $6B billion for certain insured depository institutions to qualify for an extended 18-month on-site exam cycle. The extended cycle applies to small CFIs with relatively low-risk profiles, but the agencies will continue the current supervisory practice of offsite monitoring between scheduled exams.
“While extending the examination cycle has the potential to delay an agency's ability to detect deterioration in an [insured depository institution's] financial condition, the agencies do not expect that extending the examination cycle by six months for these small, well-rated [insured depository institutions] with relatively simple risk profiles and no outstanding enforcement action or order would appreciably increase their risk of financial deterioration or failure,” regulators wrote.
While first proposed within the Main Street Capital Access Act that we outlined in February, the requirement for regulators was ultimately included in The 21st Century ROAD to Housing Act that became law in July.
Assess Eligibility and Plan for Examination Timing
To qualify, CFIs must have a composite CAMELS rating of “1” or “2,” corresponding to ratings of “outstanding” and “good,” and meet the applicable ‘well managed’ standard. For national banks and federal savings associations, this includes a management-component rating of 1 or 2.
That designation requires a management-component rating of “1” or “2” at the institution’s most recent examination. CFIs must be well capitalized; not be subject to a formal enforcement proceeding or regulatory order; and must not have undergone a change in control during the previous 12-month period in which a full-scope, on-site examination otherwise would have been required.
Any CFI near the $3B–$6B band right now should consider checking their CAMELS rating, capital position, and enforcement history against these criteria, whether they clear the threshold today or in a year. This gives CFIs time to prepare as they grow, as well as time to improve their position to be considered a well-managed CFI.
The decision to participate itself is a strategic angle, not just a compliance note. Some CFIs may prefer to stay on the 12-month cycle for reasons where more frequent examiner engagement is actually useful. That could include if they’ve recently increased their assets, if they’re planning to acquire another CFI or if they’re experiencing volatility in their credit quality.
Part of a Bigger Deregulatory Pattern
This is but the latest example of legislators and regulators putting actions to words and easing burdens for CFIs. Here's the running tally of what's changed and what's still pending:
- Regulators are moving toward tailored supervisory oversight. In October 2025, the OCC announced a fundamental shift in supervision of banks with $30B or less in assets that is aimed at lightening their regulatory load. OCC examiners will now tailor their examinations based on the bank’s “size, complexity, and risk profile, with heightened focus on material financial risks.” Community banks will no longer face fixed examination requirements.
- Pending legislation aims to right-size uniform regulatory rules. The Main Street Capital Access Act passed the House in July and is awaiting Senate consideration. While some legislation and guidelines have already been adjusted to exempt CFIs from some regulations originally designed for the largest, systemically important financial institutions, the Main Street Act seeks to amend certain outstanding rules that apply uniformly across institutions, regardless of their asset class. In severe cases, this could result in less local lending, limited economic growth, and accelerated consolidation.
- Key provisions focus on capital access and structural flexibility. Another bill provision would increase capital access by helping CFIs access funding more easily by simplifying common, low-risk sources of liquidity. If enacted, the Main Street Act would also lower barriers to entry for de novo financial institutions — phasing in capital requirements, allowing temporary leverage flexibility under the Community Bank Leverage Ratio framework during early years, and providing clearer timelines around regulatory approval for mergers and acquisitions.
Institutions may want to assess their eligibility under the newly effective $6B threshold and track ongoing developments with the Main Street Capital Access Act in the Senate. Evaluating how these changes affect compliance workflows and capital planning can help ensure leadership teams are well positioned to leverage regulatory flexibility as it unfolds.
