The Federal Deposit Insurance Corporation (FDIC) has approved a final rule to increase asset-size thresholds in several parts of Title 12 in the Code of Federal Regulations. Notably, thresholds have been increased under 12 CFR Part 363 — Annual Independent Audits and Reporting Requirements, including an increase in the asset size for institutions subject to internal control over financial reporting (ICFR) requirements.
The final rule is effective January 1, 2026; however, banks will not be required to comply with the applicable Part 363 requirements as of December 31, 2025, if the bank will not be subject to the requirements under the updated thresholds as of January 1, 2026.
Key Provisions of the Final Rule
1. Increased Threshold: $500M to $1B
The asset-size threshold for the following requirements of Part 363 is increasing from $500 million to $1 billion:
- Annual reporting requirement (including audited comparative financial statements and a management report to the FDIC on management’s responsibilities for preparing the financial statements, establishing and maintaining an adequate internal control structure over financial reporting, and complying with applicable laws and regulations).
- Must have an independent audit committee of the board of directors.
- The independent auditor must meet the independence requirements and interpretations of the Securities and Exchange Commission (SEC).
2. Increased Threshold: $1B to $5B
The asset-size threshold for the following requirements of Part 363 is increasing from $1 billion to $5 billion:
- Management report must include assessments by management of:
- The effectiveness of ICFR, as of the end of the fiscal year.
- The bank’s compliance with applicable laws and regulations during the year.
- The independent auditor’s report on the effectiveness of ICFR as of the end of the fiscal year.
3. Indexing Thresholds for Inflation
Provides for future threshold adjustments pursuant to an indexing methodology.
What This Means for Community Banks
1. Significant Reduction in Compliance Costs
The new threshold more closely aligns FDICIA requirements with reporting burdens appropriate for community banks. Institutions in the $500 million to $5 billion asset range will see meaningful reductions in annual audit and documentation expenses.
2. Operational Flexibility and Resource Reallocation
Institutions can redirect time, budget, and personnel toward strategic growth initiatives, customer experience improvements, and investments in technology, cybersecurity, and product innovation.
3. Competitive Benefits
The change narrows the regulatory divide between smaller and mid-sized banks, potentially improving competitiveness in markets where compliance burden can be a limiting factor.
Summary of Key Changes
|
Requirement |
Old Asset-size Threshold (Pre-rule) |
New Asset-size Threshold (Final Rule) |
Impact on Institutions $500M – $1B |
Impact on Institutions $1B – $5B |
| Management Report | $500 million | $1 billion | No longer required | No longer required to include annual ICFR or compliance assessments in the management report |
| Independent Audit of Financial Statements | $500 million | $1 billion | External audit no longer mandated under Part 363, however external audits are required by state banking laws in some states and highly encouraged for all others | No change |
| Independent Audit of ICFR | $1 billion | $5 billion | N/A | No longer required |
| SEC Independence for Independent Auditors | $500 million | $1 billion | No longer required | No change |
| Independent Audit Committee | $500 million | $1 billion | No longer required | Audit committee of outside directors, the majority must be independent of management |
Continued Need for Robust Controls
Many institutions have been looking forward to this final ruling and will welcome the regulatory relief, but the need for robust controls should remain a priority for all banks. Even without the Part 363 mandate, institutions under $5 billion should maintain a strong internal control environment and comprehensive internal audit program. Regulators will continue to evaluate controls under general safety-and-soundness standards, and boards will want assurance that financial reporting remains reliable.
Your Guide Forward
If you have any questions regarding the FDIC final rule and its potential impact on your institution, Cherry Bekaert’s dedicated Financial Institutions practice is here to support you as a trusted advisor. Our team brings deep industry insight and technical experience to help you navigate the evolving regulatory landscape with confidence.
