The threshold that forces a bank board to vote on a loan to one of its own directors has stood at $500,000 since 1994, and the Fed proposes $2,000,000
Five hundred thousand dollars. That is the point at which a member bank must obtain prior approval from its own board of directors before lending to an insider, and it has been that figure since 1994.
The Federal Reserve Board proposed on Friday morning to make it $2,000,000.
The notice of proposed rulemaking, docket R-1896, is the first comprehensive rewrite of Regulation O since 1979. It runs to 166 pages, and the part that will be read first is a six-row table.
The table
Regulation O governs loans by member banks to their insiders, meaning executive officers, directors and principal shareholders, and to the insiders of their affiliates. Six dollar thresholds sit inside it. The Board last touched any of them in 1994, when it raised the credit card figure and declined to raise the rest.
The proposal moves all six at once:
| Threshold | 1994 value | Proposed |
|---|---|---|
| Credit card exception | $15,000 | $60,000 |
| Overdrafts with credit plan exception | $5,000 | $20,000 |
| Inadvertent overdrafts exception | $1,000 | $4,000 |
| Credit to executive officers, no other exception | $100,000 | $400,000 |
| Prior approval by board of directors | $500,000 | $2,000,000 |
| Public disclosure requirement | $500,000 | $2,000,000 |
Every one is a fourfold rise, which is not a coincidence. Board staff scaled the existing figures by seasonally adjusted nominal gross domestic product from the fourth quarter of 1994 to the fourth quarter of 2025, then rounded down to whole multiples of what was already there. The rounding is why the numbers are tidy.
The method is the contested part
Going forward the Board proposes to stop legislating the figures altogether. Every five years it would publish a scalar equal to five years of cumulative nominal GDP growth, apply it, and print the new thresholds in the Federal Register. Where that cumulative growth is negative, the thresholds would not move, which the notice says reduces the potential for procyclicality during a prolonged contraction. The Board expects the first scalar to be 1.
Governor Michael S. Barr voted to release the proposal and used his statement to ask whether the index is right.
"I am interested in views on whether nominal gross domestic product is the most relevant variable to use for indexing the regulation's lending limits, or whether the consumer price index would be more appropriate," he wrote.
The Board's own economic analysis contains a figure that bears on the question. Normalising five series to 100 as of 1994, it finds that household debt has grown faster than nominal GDP across the period, and that median household income has grown more slowly. An insider borrows as a household. Which yardstick is chosen decides how much of that gap the rule absorbs.
Passive funds, and the second question
The other substantive change concerns banks that lend to companies which large asset managers are presumed to control through passive investment funds. The proposal would carve those relationships out through what it calls a qualifying fund complex exemption, on the reasoning set out in the notice that the current treatment restricts more lending than Congress intended.
Barr flagged this one too, asking for a range of views on the treatment of loans to corporate borrowers where a passive manager holds equity in both the bank and the borrower.
What the Board says it is doing
Vice Chair for Supervision Michelle W. Bowman framed the proposal around community bank governance, where directors are frequently local business owners.
"This rule recognizes that value by providing clearer, more straightforward standards that protect against potential conflicts of interest while supporting effective governance," she said in the Board's statement.
Comments are due 60 days after the notice appears in the Federal Register. It has not appeared yet, so no closing date exists.
