FRB and FDIC Unveil Modernized Regulation O Proposal
The Federal Reserve (FRB) and Federal Deposit Insurance Corporation (FDIC) have jointly proposed modernizing Regulation O, a rule that governs loans to bank executives, directors, and major shareholders. The proposal aims to retain the regulation's core safeguards while updating dollar thresholds and addressing its sometimes inconsistent application.
The most significant change would be quadrupling several dollar thresholds that have remained unchanged since 1979. For example, the limit for credit-card debt excluded from 'extension of credit' would increase from $15,000 to $60,000, while the permissible amount of an inadvertent overdraft by an executive officer or director would rise from $1,000 to $4,000.
The public-disclosure threshold for loans to executives and principal shareholders would also increase from $500,000 to $2 million. The FRB proposes adjusting these amounts every five years based on nominal GDP growth since the preceding adjustment.
The proposal addresses an awkward application of Regulation O to large investment managers, which has been temporarily relieved through supervisory relief since 2019. It would generally exclude portfolio companies where the fund group remains a passive bank investor and maintains specified ownership thresholds.