Federal Reserve Board requests comment on a proposal to modernize its rule governing the extension of credit to bank "insiders"—bank executives, board members and major shareholders who could potentially influence a bank's lending decisions

The Federal Reserve Board has announced a request for public comment on a proposal aimed at updating its rule regulating credit extensions to bank insiders, which includes executives, board members, and major shareholders. This update seeks to modernize thresholds while preserving safeguards against favoritism in lending decisions.

Regulation O, which has remained largely unchanged since 1979, specifically addresses a particular challenge faced by community banks. These institutions often have board members and executives who are local business owners and civic leaders, providing valuable insights into the local economy and governance. The new proposal seeks to update dollar-based thresholds, indexing them to economic growth moving forward, and clarify the rule's application to passive interests in companies held by investment funds.

Vice Chair for Supervision Michelle W. Bowman emphasized that the proposal updates outdated thresholds, ensuring their continued relevance, while maintaining necessary safeguards. She highlighted that community banks often struggle to recruit experienced business leaders to serve on their boards and as executives, as many potential candidates possess invaluable expertise in their respective industries.

The Federal Reserve Board invites comments on the proposal, which are due 60 days after its publication in the Federal Register. For media inquiries, interested parties can reach out via email at [email protected] or by calling 202-452-2955. A detailed notice of the Federal Register publication is available at Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Bank Holding Companies (PDF).