Regulators move on insider lending, new bank charters and fintech vendor standards

Bank regulators have opened several files at once this month, with consequences that fall unevenly across large incumbents, new entrants and their technology suppliers.

The Federal Reserve published proposed amendments to Regulation O on August 4, aimed at modernizing the rules governing loans to bank insiders. The proposal would raise dollar-based thresholds that have not kept pace with economic growth, index them to future growth so they do not erode again, and clarify the treatment of passive investment funds that hold bank shares without exercising control. Comments are due October 5, under Docket No. R–1896.

Separately, the Federal Deposit Insurance Corporation approved a two-phase process for de novo deposit insurance applications. Under the revised approach, an applicant can receive interim contingent authorization within 120 days, with final approval to follow within a year for those granted contingent authorization after August 15, 2026.

The change addresses a long-standing complaint from bank organizers. Raising capital for a new institution has been difficult without a credible signal that insurance will ultimately be granted, while regulators have been reluctant to grant approval before capital is committed. Contingent authorization is designed to break that sequencing problem.

The FDIC is also in preliminary discussions about a voluntary standards-setting body that would certify technology vendors serving banks. Third-party risk management has become a supervisory focus as core processing, lending and compliance functions have moved to a concentrated group of providers, and a certification regime would shift some diligence burden away from individual institutions.

In litigation, a group of states has sued the Office of the Comptroller of the Currency over pre-emption of state requirements that lenders pay interest on mortgage escrow balances. The case revisits the boundary between federal banking charters and state consumer protection law, an issue that has produced conflicting outcomes across circuits.