By Rose Oswald Poels, WBA president and CEO
In a previous letter, I shared that the Board of Governors of the Federal Reserve System (FRB) would be proposing long-awaited updates to Regulation O, which restricts extensions of credit by banks to their executive officers, directors, principal shareholders, and their related interests (insiders). Since then, the proposal has been published in the Federal Register. There is still time for you to comment.
FRB’s proposal would comprehensively rewrite Regulation O. As outlined in my previous letter, it would raise five key dollar thresholds. These include the board prior-approval threshold, from $500,000 to $2 million, and the “other purpose” exception for executive officers, from $100,000 to $400,000. It would also index those thresholds every five years.
The proposal also revises the home mortgage exception for executive officers, the treatment of loans made to someone before they become a director or officer, and the definition of “extension of credit.”
The Federal Deposit Insurance Corporation (FDIC) has also proposed changes to its part 337, which implements the requirements of Regulation O. FDIC’s proposal is similar but narrower than FRB’s proposal, as FDIC’s thresholds do not update automatically when FRB’s thresholds do. FDIC’s proposal mirrors FRB’s proposal to increase the “other purpose” exception for executive officers, from $100,000 to $400,000, and would increase the board prior-approval threshold, from $500,000 to $2 million. FDIC’s proposal would also eliminate the $25,000 minimum threshold and provide for future indexing.
Both FRB and FDIC have extended the comment deadline from Monday, October 5 to Wednesday, November 4. WBA has already filed its comments with each agency. If you haven’t already, I strongly encourage every member to also comment regarding how the agencies’ proposed changes will positively impact lending to your bank insiders. These are changes many members and I have repeatedly requested the agencies update, and now is the time to share your feedback. In our recent meeting with the Federal Reserve in Washington, D.C., the senior executive suggested that the industry needs to send in more letters on this favorable change.
To assist with this, WBA has created template comment letters for the membership to use. One is for filing with FRB and the other with FDIC. Both are designed to walk the agencies through the areas that most impact your bank and provide a “fill in the blank” format for you to add, from your experience, what aspects will be most beneficial.
National banks and state member banks should submit their comments to FRB. I encourage state nonmember banks and other FDIC-supervised institutions to submit comments to both FRB and FDIC. FDIC’s own rule incorporates most of Regulation O by cross-reference, so FRB’s decisions regarding proposed changes will affect your bank directly; however, FDIC must separately act to raise the two thresholds mentioned above.
While I would encourage you to be as specific and data-driven as possible, even a quick acknowledgement of the threshold changes is significant and worth commenting on. It’s important that the agencies hear directly from you how the current rules affect your bank.
If you have questions, please contact WBA Legal at wbalegal@wisbank.com.
Comments are due to the agencies by Wednesday, November 4. Instructions for filing are included in the templates.
