Fed Proposes Update to 1979 Rule on Loans to Bank Insiders
The Federal Reserve Board asked for public comment on July 31, 2026, on a proposal to rewrite Regulation O, the rule that governs how banks extend credit to their own insiders. The rule has not been comprehensively updated since 1979.
Regulation O covers loans banks make to their own executives, board members and major shareholders, along with related companies those people control. The idea behind the rule is straightforward: a bank should not give its own leadership better loan terms than it gives everyone else, and executives with lending authority should not be able to steer credit to themselves or their friends. The rule dates to a period before many current dollar-based thresholds in banking law were adjusted for how much the economy has grown since then.
What the Fed says is outdated
According to the Federal Reserve’s press release, the current version of Regulation O relies on dollar-based thresholds that have not kept pace with economic growth. The proposal would update those thresholds and, going forward, index them to economic growth so they do not become outdated again. The release does not specify the current or proposed dollar figures; those details are contained in the Federal Register notice referenced by the Board.
The proposal also addresses what the Fed describes as unnecessary applications of the rule to passive interests in companies held by investment funds. It codifies other statutory requirements, incorporates what the release calls “long-standing regulatory interpretations,” and aims to simplify how the rule is applied in practice.
Why community banks are central to this
The press release frames the rule change around a specific issue facing smaller banks: recruiting board members and executives. At community banks, according to the Fed, directors and executives are often local business owners and civic leaders who bring knowledge of the local economy and business expertise to bank governance. The release states that Regulation O “addresses a unique challenge for community banks” in this respect.
Vice Chair for Supervision Michelle W. Bowman is quoted in the release saying the proposal “modernizes Regulation O by updating outdated dollar-based thresholds and ensuring their future relevance, while preserving necessary safeguards.” She added that community banks “often face challenges recruiting experienced business leaders to serve as members of bank boards and as bank executives” and that “many potential board members are business owners whose expertise is invaluable.” She said the rule “recognizes that value by providing clearer, more straightforward standards that protect against potential conflicts of interest while supporting effective governance.”
Who this affects, and who it does not
Regulation O applies directly to banks, bank holding companies, and the individuals who sit on their boards or hold executive posts or large ownership stakes. It is not a rule that changes terms on an ordinary customer’s mortgage, auto loan or credit card. Its purpose is to prevent bank insiders from receiving credit on more favorable terms than are available to the general public, and to prevent conflicts of interest in lending decisions.
For most bank customers, the direct effect of this proposal is limited. The relevance to ordinary depositors and borrowers is indirect: Regulation O exists to support confidence that a bank’s lending decisions are not being distorted by insider relationships, which is part of the broader system of bank safety and soundness that federal regulators oversee.
What happens next
The Federal Reserve Board is accepting public comment on the proposal. Comments are due 60 days after the proposal is published in the Federal Register. The Board’s memo on the proposal and a separate statement by Governor Barr are referenced in the release alongside the formal Federal Register notice, titled “Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Bank Holding Companies.”
Readers who want the specific proposed dollar thresholds, the indexing mechanism tied to economic growth, and the exact treatment of passive fund interests should consult the Federal Register notice directly, since the Board’s press release summarizes the changes without listing the numeric details. The full release is available from the Federal Reserve Board’s press release page.
Anyone who wants to weigh in on the proposal, including community bankers, board members, or members of the public with views on bank governance, can submit a comment through the Federal Register docket before the 60-day comment window closes.
This is a News-lane report. It was drafted automatically from the linked primary source and published after automated checks that every figure appears in that source. It is summarised regulatory news, not evergreen guidance and not financial advice. See our AI content disclosure and disclaimer.
