Fed, FDIC propose Reg O updates

The Federal Reserve proposed modernizing Regulation O, the rule governing the extension of credit to insiders such as bank executives, board members, and major shareholders who could influence a bank's lending decisions. The FDIC issued a related proposal to adjust related thresholds for the banks it supervises.

Reasoning: The agencies said the proposed rules address a unique challenge for community banks, where board members and executives are often local business owners and civic leaders who need access to credit.

Proposed Changes: The FDIC and Fed proposals would make updates including:

• Increasing the dollar threshold of credit that banks may extend to an executive officer for purposes other than those specifically authorized by statute from $100,000 to $400,000.

• Raising the dollar threshold for credit that banks may extend to an insider from $500,000 to $2 million, with any aggregate lending beyond this limit requiring approval by the board of directors.

• Establishing an indexing methodology to automatically adjust such thresholds every five years to reflect economic growth and inflation.

• Simplifying the method for determining the lending limit applicable to a given institution.

ICBA View: ICBA believes raising and indexing overly restrictive thresholds such as those found in Reg O—which has not seen a comprehensive update since the 1970s—is a necessary reform that will better enable community banks to recruit and retain directors, particularly in rural areas.

ICBA Advocacy: ICBA has advocated for the agencies to update Regulation O and related rules, including:

• During the Economic Growth and Regulatory Paperwork Reduction Act review last fall, ICBA recommended simplifying and updating Regulation O.

• Responding to a request for information on deregulation, ICBA last year recommended to the Office of Management and Budget that agencies should issue a Regulation O summary chart to capture the limitations on loans to various types of insiders in a clear, comprehensive way, which will ease the compliance burdens on community banks.