Earlier this month, the Federal Reserve Board (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (the “FDIC”) each issued a notice of proposed rulemaking (collectively, the “Proposed Rules”) that would modernize and revise regulations governing extensions of credit by banking organizations to executive officers, directors, principal shareholders, and their related interests, commonly referred to as Reg O lending requirements. These Proposed Rules from the Federal Reserve and the FDIC would, among other things, substantially increase several longstanding dollar thresholds, provide for periodic adjustments to those thresholds, and clarify and modernize certain existing regulatory provisions and interpretations. The last time meaningful updates to insider lending requirements took place was in 1979.
Key Proposed Changes
1. Increased Dollar Thresholds. The Proposed Rules would increase several dollar thresholds that have remained unchanged for many years as show below:
| Requirement / Exception | Current | Proposed |
|---|---|---|
| Credit card indebtedness excluded from “extension of credit” | $15,000 | $60,000 |
| Interest-bearing overdraft credit plan exception | $5,000 | $20,000 |
| Inadvertent overdraft exception | $1,000 | $4,000 |
| Executive officer loans for “other purposes” | $100,000 | Lesser of (i) $400,000 or (ii) 2.5% of unimpaired capital and surplus |
| Insider credit threshold requiring prior board approval | $500,000 | Lesser of (i) $2,000,000 or (ii) 5% of unimpaired capital and surplus |
| Public disclosure threshold | $500,000 | $2,000,000 |
2. Periodic Adjustment of Dollar Thresholds. Rather than allowing these thresholds to remain static, the Proposed Rules would also provide for their adjustment every five years based on cumulative growth in nominal gross domestic product. This mechanism is intended to prevent the thresholds from becoming outdated as the economy grows.
3. Modernization of Definitions and Clarification of Existing Interpretations. The Federal Reserve’s proposal would make a number of additional changes intended to modernize Regulation O and conform the regulation to statutory requirements and existing regulatory interpretations. These include revisions to certain definitions and other technical and clarifying amendments.
Impact of the Proposed Rules
If adopted, the Proposed Rules could meaningfully reduce the compliance and administrative burdens associated with insider lending, particularly for community banks. In its proposal, the FDIC noted that existing prior-approval requirements may divert a bank board’s attention from other important responsibilities, including oversight of material financial risks. The FDIC also observed that the existing thresholds may disproportionately affect community banks operating in areas with limited banking alternatives, where directors and other insiders may have fewer options for obtaining credit from another institution.
At the same time, the Proposed Rules would leave the fundamental framework governing insider lending largely intact, including restrictions on preferential terms, lending limits, and prior board approval requirements for larger extensions of credit.
Comments on both Proposed Rules are due October 5, 2026.
For questions about the proposed amendments on insider lending, how the same may impact your organization, or assistance with submitting comments, feel free to connect with any member of Winthrop & Weinstine’s Community Banking team.
