Agencies to publish asset threshold increase to $10 billion on management interlocks prohibition

The asset threshold of a prohibition on management officials of banks serving as officials of unaffiliated institutions would be increased to $10 billion – from the current $2.5 billion – under a proposal to be published as soon as Thursday by federal banking regulators.

The proposal – to be issued by the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve and the Office of the Comptroller of the Currency (OCC) for a 60-day comment period – implements the Depository Institution Management Interlocks Act (DIMIA). Under the act’s major assets prohibition, a management official of a depository organization with total assets exceeding $2.5 billion (or any affiliate of such an organization) from serving at the same time as a management official of an unaffiliated depository organization with total assets exceeding $1.5 billion (or any affiliate of such an organization).

However, the law gives the banking regulators power to adjust the thresholds to allow for inflation or market changes. Both thresholds (for banks and unaffiliated institutions) would be increased to $10 billion under the proposal.

“The agencies propose to raise the major assets prohibition thresholds to $10 billion to account for changes in the United States banking market since the current thresholds were established in 1996,” the proposal states.

The agencies also asserted that increasing the major assets prohibition thresholds would relieve banks below the adjusted thresholds from having to ask the agencies for an exemption from the major assets prohibition.

“A $10 billion major assets prohibition threshold would prohibit interlocks between larger depository organizations, which could present a risk of anticompetitive conduct at the national banking market level, while exempting smaller or community-banking organization-sized depository organizations, which do not present the same competitive risks at the national banking market level,” the proposal states.

Going forward, if the proposal is finalized, the agencies also plan that they would make further adjustments to the thresholds to account for inflation through direct final rule without notice and comment (allowed under statute).

However, the agencies are also proposing three alternative approaches for increasing the thresholds based on market changes or inflation:

  • Based on the percentage of the number of banking organizations covered by the prohibition. The agencies would adjust the major assets prohibition thresholds so that approximately the same percentage of the total number of banking organizations covered as of the fourth quarter of 1996 – the year in which the $1.5 billion and $2.5 billion major assets prohibition thresholds were established by statute – would be covered as of fourth quarter 2017. “This approach would increase the current thresholds of $1.5 billion and $2.5 billion to $7.9 billion and $11.8 billion, respectively,” the proposal states.
  • Based on asset growth, so that thresholds would reflect the rate of asset growth for depository organizations over the period between the fourth quarter of 1996 and the fourth quarter of 2017. Under this approach, the current major assets prohibition thresholds would be multiplied by the asset growth rate of 350% (3.5 times), recorded between 1996-2017, to account for market changes for depository organizations. As a result, the current assets thresholds would be raised from $1.5 billion and $2.5 billion to $5.3 billion and $8.8 billion, respectively.
  • Based on inflation, so that thresholds would follow year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Adjusting the asset thresholds based on inflation from the fourth quarter of 1996 to the fourth quarter of 2017 would increase the major assets prohibition thresholds from $1.5 billion and $2.5 billion to $2.3 billion and $3.9 billion, respectively, the agencies said.

(For more details on the proposal, see the listing in our Regulatory Lookup feature; click here)

Thresholds Increase for the Major Assets Prohibition of the Depository Institution Management Interlocks Act Rules

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