On July 31, the Fed announced a proposed rule, amending Regulation O, that would raise the dollar-based thresholds governing extensions of credit by banks to their “insiders” and would index those thresholds going forward to account for economic growth and inflation. The FDIC separately announced that it proposed amendments to align its own regulations with the Fed’s proposed thresholds. Under the proposals, the threshold for extensions of credit to executive officers that are not otherwise specifically authorized by statute would increase from $100,000 to $400,000, and the threshold for extensions of credit to insiders requiring prior approval by a bank’s board of directors would increase from $500,000 to $2 million. The Fed’s proposal would also increase the threshold for certain credit card debt exempt from the definition of “extension of credit” from $15,000 to $60,000, the threshold for indebtedness arising from certain interest-bearing overdrafts from $5,000 to $20,000, the exception for certain inadvertent overdrafts from $1,000 to $4,000, and the threshold for public disclosure of loans to executive officers and principal shareholders from $500,000 to $2 million.

The agencies asserted that the current thresholds fail to reflect current market realities and impose unnecessary regulatory burden on banks, particularly community banks. The Fed’s proposal would also establish an exception addressing the “unintended” application of the insider lending restrictions to portfolio companies of certain investment fund complexes that hold a stake in a bank, an issue the Fed said was not contemplated when Congress adopted the underlying insider lending restrictions in 1933 and 1978, before the growth of index funds. Comments on both proposals must be submitted by October 5.