Interim final rules apply 18-month exam cycle to banks under $3 billion

Increase in extended exam cycle threshold set under S. 2155

An extended, 18-month examination cycle will apply to more banks under joint interim final rules issued Thursday by federal banking regulators and set to take effect upon publication in the Federal Register.

The rules implement a provision of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155), which won final passage in Congress and was signed by the president in May. The act applies an 18-month exam cycle to banks with less than $3 billion in assets, up from the current $1 billion threshold.

The regulators – Federal Reserve Board, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp. (FDIC) – issued a joint release Thursday on the interim final rules, which will also be out for a 60-day comment period.

Like the current requirement, the extended cycle under this interim final rule provides that an exam will be conducted for a qualified institution with less than $3 billion in assets “not less than once” during an 18-month period (instead of not less than once in a 12-month period). A “qualified” bank generally is well capitalized and well managed, the agencies note.

Currently, a bank under $1 billion must have an “outstanding” composite rating to qualify for an extended, 18-month exam cycle. Under the interim rule, and through the exercise of the agencies’ current, discretionary statutory authority, qualifying banks under $3 billion that have an “outstanding” or “good” composite rating will be eligible for the extended cycle.

The agencies also note that, in order to qualify for an 18-month examination cycle, any insured depository institution with total assets under $3 billion – including one with a composite rating of “good” – must meet other capital, managerial, and supervisory criteria (set forth in section 10(d) of the Federal Deposit Insurance Act and the agencies’ implementing regulations).

The agencies say an estimated 420 banks and savings associations could qualify for the extended cycle under the interim final rule, which would bring the total number eligible to 4,798. About 33 U.S. branches and agencies of foreign banks would also be eligible, they said.

Agencies issue interim final rules expanding examination cycles for qualifying small banks and U.S. branches and agencies of foreign banks

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