Fed extends deadline for Regulation O comments

• Key takeaway: Based on industry feedback the Federal Reserve pushed back the commentary deadline from Oct. 5 to Nov. 4. 
• Expert quote: "The Board extended the comment period to allow interested parties more time to analyze the issues and prepare their comments." —Federal Reserve notice
• What's at stake: The proposal would increase the credit limit for bank insiders for the first time since 1979 and establish an indexing system to keep the threshold aligned with broader economic growth.

The Federal Reserve announced Friday that it is giving the banking industry an additional month to comment on a proposal to modernize Regulation O, a nearly 50-year-old rule that restricts how much credit banks can extend to their own senior officials.

The central bank extended the comment period to Nov. 4 based on industry feedback, according to the announcement. Comments on the proposal originally were due Oct. 5.

"The Board extended the comment period to allow interested parties more time to analyze the issues and prepare their comments," the Fed said.

Proposed changes to the regulation would allow banks to lend nearly $2 million to their own executives, major shareholders and other "insiders" without board approval or public disclosure.

The proposal also would raise the threshold at which an extension of credit or loan to an insider requires approval from a bank's board of directors and triggers a public disclosure requirement from $500,000 to $2 million. The thresholds would be updated automatically every five years based on economic growth.

Fed Vice Chair for Supervision Michelle Bowman said in July that the changes were necessary to help community banks recruit board members.

"Today's proposal modernizes Regulation O by updating outdated dollar-based thresholds and ensuring their future relevance, while preserving necessary safeguards," Bowman said in a statement released alongside the proposal. "Community banks often face challenges recruiting experienced business leaders to serve as members of bank boards and as bank executives. Many potential board members are business owners whose expertise is invaluable. This rule recognizes that value by providing clearer, more straightforward standards that protect against potential conflicts of interest while supporting effective governance."

The Fed's Board of Governors voted unanimously to issue the proposal for comment. Fed Gov. Michael Barr, the former vice chair for supervision who has regularly voted against many of the central bank's policy reforms over the past year, supported seeking comment on the change but said he would consider the comments carefully before deciding whether to support a final rule.

Barr said he was not convinced that indexing the thresholds to nominal gross domestic product growth, rather than inflation, was the best approach. He also said he would consider public comments on the treatment of fund-owned banks and their relationships with portfolio companies.

Regulation O was created in 1978 after Congress passed the Financial Institutions Regulatory and Interest Rate Control Act, which directed the Fed to address self-dealing within banks and limit the ability of bank insiders to jeopardize the stability of their institutions for their own gain.

The limits imposed by the rule have not been amended since it was first adopted in 1979.