Bank Insider-Lending Limits Have Not Been Rewritten Since 1979. Regulators Want to Raise Them and Index Them to GDP.
The Federal Reserve and the FDIC have proposed lifting the cap on loans to a bank's own executive officers from $100,000 to $400,000, and the figure that triggers full board approval from $500,000 to $2 million. Comments close October 5.
The short answer
- The Federal Reserve Board proposed a comprehensive modernization of Regulation O on July 31, 2026. The rule, which governs credit a bank extends to its own insiders, has not been comprehensively revised since 1979.
- The FDIC's parallel proposal, published in the Federal Register on August 6, 2026, would raise the limit on loans to executive officers for non-authorized purposes from $100,000 to $400,000, and the threshold requiring prior board approval from $500,000 to $2 million.
- Each threshold would apply as the lower of the dollar figure or a share of unimpaired capital and surplus - 2.5% for the executive-officer limit and 5% for the board-approval trigger.
- Thresholds would be adjusted every five years by nominal GDP growth measured from a fourth-quarter 2025 baseline, with no adjustment in a period when nominal GDP falls. The comment period closes October 5, 2026.
Regulation O is the rule that limits how much a bank may lend to the people who run it. It applies to executive officers, directors and principal shareholders, and it sets both a percentage-of-capital ceiling and a set of flat dollar figures. The dollar figures were written in 1979 and have largely stayed there. On July 31, 2026, the Federal Reserve Board proposed the first comprehensive rewrite since then, and the FDIC issued a parallel proposal for the banks it supervises.
What Regulation O restricts
The rule exists because a loan from a bank to its own decision-makers is a conflict of interest. Regulation O responds with three kinds of constraint: terms must be comparable to those offered to outsiders, aggregate exposure to insiders is capped against the bank's capital, and certain loans require an affirmative vote of the board with the interested party abstaining. The dollar thresholds decide which loans fall into that last category.
The numbers on the table
- Loans to executive officers for purposes other than those specifically authorized by statute: current limit $100,000, proposed $400,000
- Insider credit requiring prior approval by the board of directors: current trigger $500,000, proposed $2,000,000
- Each would apply as the lower of the dollar amount or a percentage of unimpaired capital and surplus - 2.5% and 5% respectively
- The existing $25,000 minimum threshold floor would be eliminated
Indexing replaces the standing still
The more durable change is not the new figures but the mechanism attached to them. Under the FDIC proposal, thresholds would be recalculated every five years using the ratio of current nominal GDP to a fourth-quarter 2025 baseline, then rounded for simplicity. If nominal GDP declines across a five-year period, no adjustment is made - the thresholds do not fall. The Federal Reserve describes its own approach the same way: update the outdated figures, then index them to economic growth going forward.
What else the Federal Reserve proposal does
Beyond the dollar amounts, the Board's proposal removes the rule's application to passive interests held by investment funds, codifies requirements that already exist in statute, and folds in long-standing supervisory interpretations that firms have had to track separately. The stated aim is simplification rather than a change in the underlying prohibition on preferential lending to insiders.
Why it matters
A threshold written in 1979 and never moved becomes stricter every year that prices rise. That is the agencies' argument: a $100,000 executive loan limit captured a different kind of transaction in 1979 than it does now, and the board-approval trigger increasingly catches routine credit rather than the unusual kind it was meant to flag. The counter-argument, which the comment file will test, is that insider lending is exactly the place where a ceiling that tightens over time is a feature rather than a defect.
Sources
- Federal Reserve Board requests comment on a proposal to modernize its rule governing the extension of credit to bank insiders — Board of Governors of the Federal Reserve System
- Extensions of Credit to Insiders (proposed rule, RIN 3064-AG26) — Federal Register / FDIC
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