What Is Considered a Small Bank by Regulators?
Explore the nuanced regulatory definitions that classify financial institutions as "small banks" and the operational implications.
Banks are categorized by size, which influences their regulation and operations. Understanding these classifications is important for grasping the regulatory landscape. This categorization helps regulators apply appropriate oversight, recognizing the varying capacities and systemic impacts of different institutions.
Primary Classification by Asset Size
Banks are primarily classified by total asset size, a straightforward benchmark for categorization. Regulators use asset thresholds to define a “small bank,” as asset size correlates with an institution’s complexity, risk profile, and compliance resources. A community bank, for instance, is characterized by its smaller asset base and its focus on local markets.
The Federal Reserve defines community banking organizations as those with less than $10 billion in assets. This broad classification helps differentiate them from larger regional or national institutions. Using total assets is a widely adopted standard for tailoring supervision, recognizing that institutions with fewer assets have simpler operations and a more localized footprint.
Varying Regulatory Thresholds
While asset size is a primary classifier, there isn’t a single, universal definition of a “small bank” across all regulatory bodies or for all purposes. Different federal agencies, such as the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve, and the Office of the Comptroller of the Currency (OCC), employ specific asset thresholds that can vary depending on the regulation or supervisory context. These thresholds are often adjusted annually to account for inflation, based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
Under the Community Reinvestment Act (CRA) regulations for 2025, the FDIC and Federal Reserve define a “small bank” as an institution with assets of less than $1.609 billion as of December 31 of either of the prior two calendar years. An “intermediate small bank” for CRA purposes is defined as having assets of at least $402 million but less than $1.609 billion. The OCC also aligns with these specific thresholds for its CRA regulations.
Other regulatory frameworks apply different asset-based distinctions. The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) of 2018, for example, raised the asset threshold for enhanced prudential standards under the Dodd-Frank Act from $50 billion to $250 billion, effectively exempting many regional institutions from more stringent oversight. This legislation also provided relief by exempting banking entities with less than $10 billion in total consolidated assets from the Volcker Rule’s prohibitions on proprietary trading.
Implications of Classification
The classification of a bank as “small” carries practical consequences, affecting the scope and intensity of regulatory oversight and reporting requirements. Regulatory agencies tailor their supervisory approaches based on an institution’s size, recognizing that smaller banks present less systemic risk to the broader financial system. This tailoring aims to make compliance less burdensome for institutions with fewer resources, allowing them to focus on their core functions.
Regulatory reporting obligations differ significantly. Banks with less than $5 billion in consolidated assets may submit short-form call reports for certain quarters, reducing their administrative burden. The frequency of on-site examinations can be adjusted for smaller institutions, with banks under $3 billion potentially qualifying for an 18-month examination cycle instead of a more frequent one. These adjustments acknowledge that fixed compliance costs can disproportionately impact smaller banks, potentially affecting their profitability and growth.
The “small bank” classification can influence eligibility for certain regulatory frameworks designed to simplify compliance. The Community Bank Leverage Ratio (CBLR) framework, for instance, offers a simplified capital calculation for qualifying institutions, those with less than $10 billion in assets, provided they meet other criteria. This allows them to avoid more complex risk-based capital requirements. Tailored regulatory treatment enables smaller institutions to direct more resources toward serving their communities and supporting local economic development.