BPI Comments on Fed and FDIC Regulation O Proposals

Ladies and Gentlemen:

The Bank Policy Institute^[1] appreciates the opportunity to comment on the notice of proposed rulemaking issued by the Federal Reserve to modernize Regulation O, which governs extensions of credit by member banks to their insiders (the "Federal Reserve Proposal"),^[2] and the related notice of proposed rulemaking issued by the FDIC to make conforming adjustments to its regulations on extensions of credit to insiders (the "FDIC Proposal,"^[3] and, together with the Federal Reserve Proposal, the "Proposals").

Sections 22(g) and 22(h) of the Federal Reserve Act and their implementing regulation, Regulation O, provide safeguards for banks against insider self-dealing and related risk by imposing limitations and conditions on extensions of credit by banks to their executive officers, directors, principal shareholders, and related interests. These restrictions serve the important purpose of minimizing risks to banks from conflicted insider transactions. Regulation O's general framework and various thresholds, however, have not been comprehensively updated in over three decades and therefore fail to take into account developments in stock ownership patterns in banking organizations. The passage of time has led to the unnecessary capture of passive share ownership and numerous transactions that do not advance the objective of the rule, and has made compliance unduly burdensome. It is both timely and appropriate for the agencies to revisit a regulatory framework whose requirements were last substantially revised when the economic and stock ownership landscape was markedly different.

The Bank Policy Institute supports the Federal Reserve's effort to modernize Regulation O and the FDIC's companion proposal to update its parallel insider-lending requirements. Modernization should appropriately calibrate important insider-lending safeguards to reflect current economic and stock ownership conditions, market practices, and the evolving structure of the banking industry without limiting productive credit arrangements that do not create the risks that Regulation O is designed to avoid or imposing unnecessary compliance burdens that divert institutional resources from the banking industry's core mission of serving customers and communities. It should also avoid the prohibition or restriction of transactions that do not create a realistic risk of the dangers at which the statute is directed. Updating and indexing Regulation O's dollar-based thresholds and providing permanent relief permitting banks to extend credit to portfolio companies the securities of which are held by certain companies that sponsor, manage, and advise passive investment funds ("Fund Complexes") are sensible reforms.

The Bank Policy Institute appreciates the efforts of the Federal Reserve and FDIC, as well as the OCC, to reduce unnecessary regulatory burden. Those efforts enable banks to direct their compliance programs and personnel to the areas of real need and, by reducing unnecessary expense, enable banks to operate more efficiently. In that context, we note that certain proposed changes, as described below, would increase regulatory burden by imposing new requirements. As a general matter, the Bank Policy Institute submits that new requirements that increase regulatory burden should only be imposed if there is a demonstrable need for such a change. Moreover, such new requirements should not be adopted unless that demonstrable need has been described in the rulemaking process so that there is sufficient opportunity for notice and comment.

Although the Bank Policy Institute welcomes the overall direction of the Proposals, the Bank Policy Institute submits that certain aspects would benefit from modifications to achieve the stated goals more effectively and efficiently. In particular, some of the Federal Reserve Proposal's changes would create operational burdens that outweigh any incremental reduction in risk, introduce unnecessary complexity into the Regulation O compliance framework, and increase compliance costs. The Bank Policy Institute believes that certain adjustments would strengthen the final rules while preserving the core protections that Sections 22(g) and 22(h) are intended to provide.

In addition to this letter, the Bank Policy Institute has provided further comments on the Federal Reserve Proposal in a companion letter. That companion letter discusses certain Regulation W aspects of the proposal and considerations related to the valuation of derivative exposures for both Regulation O and Regulation W.

To read the full comment letter, please click here, or click on the download button below.

[1] The Bank Policy Institute is a nonpartisan public policy, research, and advocacy group that represents universal banks, regional banks, and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud, and other information security issues.

[2] Federal Reserve, Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Bank Holding Companies, 91 Fed. Reg. 49526 (Aug. 4, 2026) (hereinafter, the "Federal Reserve Proposal").

[3] FDIC, Extensions of Credit to Insiders, 91 Fed. Reg. 50730 (Aug. 6, 2026) (hereinafter, the "FDIC Proposal").