FRB and FDIC Propose Increases to Insider Lending Thresholds

The Federal Reserve Board and the FDIC proposed updates to their insider lending rules that would index dollar-based thresholds to economic growth and narrow the rules' application to passive interests held through investment funds.

The proposal would raise several dollar limits in Regulation O ("Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks"): (i) the credit card debt exemption threshold would rise from $15,000 to $60,000, (ii) the interest-bearing overdraft credit plan threshold would increase from $5,000 to $20,000, and (iii) the threshold requiring prior board approval for an extension of credit would rise from $500,000 to $2 million. The agencies would also automatically adjust these thresholds every five years based on nominal GDP growth.

The proposal would exempt portfolio companies of qualifying passive fund complexes from the presumption of control, easing compliance for banks lending to companies in which passive index funds hold significant stakes (see prior coverage). It would also set valuation methodologies for credit exposures from derivatives and securities financing transactions, implementing requirements of the Dodd-Frank Act ("Wall Street Reform and Consumer Protection"). Additionally, it would bar a depository institution from buying or selling an asset from or to an insider unless the deal is on market terms and pre-approved by a majority of the board when it exceeds 10 percent of capital stock and surplus.