Community banks in the U.S. may soon experience a reduction in regulatory reporting burdens, thanks to a recent proposal from the Federal Deposit Insurance Corporation (FDIC). The proposal, unanimously approved by the FDIC Board on July 15, seeks to raise the asset thresholds for certain non-statutory FDIC regulations concerning audits, internal controls and audit committees.
Key Proposed Changes
1. Increased Thresholds
The proposal aims to increase the current asset thresholds for annual independent audits and related reporting requirements, as defined in 12 CFR Part 363. This includes:
- Raising the $500 million threshold for annual reports (including financial statements, independent public accountant reports and management reports) to $1 billion.
- Increasing the internal controls over Financial Reporting (ICFR) reporting threshold from $1 billion to $5 billion.
- Adjusting various audit committee composition requirements from $500 million and $1 billion to $1 billion and $5 billion, respectively.
2. Inflation Adjustment
The initial threshold updates would reflect historical inflation data and be subsequently adjusted every two years, or sooner if inflation exceeds 8%. The inflation measure used would be the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
3. Effective Dates
Initial threshold adjustments would take effect at the start of the first calendar quarter following the adoption of the final rule. Future adjustments would become effective on April 1 of the adjustment year.
Rationale for the Proposal
The FDIC's primary goal is to provide regulatory relief for community banks and ensure that regulatory requirements remain proportionate to an institution's size and complexity, according to their press release.
As explained by Acting Chairman Travis Hill, static thresholds decrease in real terms over time due to inflation, leading to an unintended expansion of the applicability of regulatory requirements to smaller institutions. This proposal aims to counteract that effect by indexing thresholds to inflation, keeping them constant in real terms.
The FDIC is seeking public input on the proposal for 60 days after publication in the Federal Register.
Impact on Banks
The FDIC estimates this proposal could potentially lighten regulatory burdens for over 1,500 community banks. Specifically, 774 banks with assets between $500 million and $1 billion, and another 752 banks with assets between $1 billion and $5 billion could be affected by these changes.
|
March 31, 2005 |
March 31, |
% |
|
|
Total Number of Banks |
8,943 | 4,471 | -50.01% |
|
<$500 Million in Assets |
7,770 (86.88%) | 2,652 (59.32%) | -27.57% |
|
$500 Million – $1 Billion in Assets |
577 (6.45%) | 774 (17.31%) | 10.86% |
|
$1 – $5 Billion in Assets |
411 (4.60%) | 752 (16.82%) | 12.22% |
|
$5 – $10 Billion in Assets |
72 (0.81%) | 133 (2.97%) | 2.17% |
|
>$10 Billion in Assets |
113 (1.26%) | 160 (3.58%) | 2.32% |
|
Largest Bank |
$983,049,000,000 | $3,643,099,000,000 | 271% |
|
Smallest Bank |
$525,000 | $3,287,000 | 526% |
Multi-phase Effort
This proposal represents the initial phase of a broader FDIC initiative to reassess and adjust regulatory thresholds. Future phases may involve additional threshold-related proposals and potential coordination with other regulatory agencies.
Your Guide Forward
If you have any questions regarding the FDIC proposal 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.
