Regulators finalize rule to help community banks hold on to talent

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WASHINGTON — Board directors and senior managers at community banks will have greater flexibility to work for multiple institutions under a final regulation issued Wednesday.

The three federal banking agencies completed a rule, first proposed in 2018, that raises asset thresholds for institutions subject to restrictions on so-called management interlocks. Those thresholds were first introduced in 1996.

Previously, managers primarily employed at banks with more than $2.5 billion of assets were barred from also serving at an unaffiliated bank with more than $1.5 billion of assets.

Under the new rule, officials will be allowed to work for another bank so long as both institutions have fewer than $10 billion of assets.

The update was designed to help smaller community banks that have struggled to attract talent over the years. The final rule — issued jointly by the Federal Reserve Board, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency — was unchanged from the proposal issued in late 2018.

In April, the American Bankers Association asked regulators to consider doing away with a hard threshold altogether and replace it with a threshold based on a share of total banking industry assets.

The agencies completed the rule as part of the Economic Growth and Regulatory Paperwork Reduction Act. The 1996 law requires regulators to undertake a review every 10 years to identify outdated or unnecessary rules.

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