Fed Proposes Update to Regulation O for Bank Insiders

The Federal Reserve Board has proposed an update to Regulation O, which governs credit extensions to bank insiders. The rule, last comprehensively updated in 1979, addresses a unique challenge for community banks where board members and executives are often local business owners.

According to Vice Chair for Supervision Michelle W. Bowman, the proposal modernizes Regulation O by updating outdated dollar-based thresholds and ensuring their future relevance. The rule addresses unnecessary applications of the rule to passive interests in companies held by investment funds, codifies other statutory requirements, incorporates long-standing regulatory interpretations, and simplifies the application of the rule.

The proposal updates dollar-based thresholds and indexes them to economic growth going forward. It aims to provide clearer, more straightforward standards that protect against potential conflicts of interest while supporting effective governance.