Recently, the Comptroller of the Currency (OCC), the Board, and the Federal Deposit Insurance Corporation (FDIC), issued a joint proposal to increase the threshold that prohibits bank directors and other management officials from serving simultaneously as management officials at more than one depository institution or holding company.
In other words, the new proposal would raise the assets prohibition thresholds for management officials in the Depository Institution Management Interlocks Act (DIMIA).
According to the existing threshold, if a depository organization has total assets over $2.5 billion, its directors and other management officials can’t work simultaneously with an unaffiliated depository institution with total assets over $1.5 billion.
The regulatory agencies want to increase the threshold for both depository organizations and unaffiliated depository organizations to $10 billion in total assets.
The agencies propose to increase the assets prohibition thresholds to $10 billion to deal with the changes in the US banking market.
The agencies decided to come up with this proposal after receiving feedback during the recent review of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). EGRPRA is a federal law and the Federal Financial Institutions Examination Council (FFIEC) has to review it every ten years along with its member agencies.
The agencies have come up with three alternatives for raising the thresholds that are based on inflation.
The implementation of the proposed thresholds will relieve some of the depository organizations that are below them from seeking exemption from the agencies for the major assets prohibition.
For example, if a depository organization has less than $10 billion in total consolidated assets then it would be relieved from a specific procedural burden.
According to a report, ” The agencies anticipate that raising the thresholds will facilitate small depository organizations in finding qualified directors by eliminating the need to file a request for an exemption from the major assets prohibition.”
The proposed rule would decrease the number of institutions subject to the major assets prohibition.
DIMIA encourages competition by preventing a bank director or other management officials from serving simultaneously at an unaffiliated depository institution because it can have an anticompetitive effect.
The DIMIA archives this goal through following restrictions.
- The community prohibition
- The relevant metropolitan statistical area (RMSA) prohibition
- The major assets prohibition
The community prohibition and the relevant metropolitan statistical area (RMSA) prohibition talk about the risk of anticompetitive effects between depository organizations.
Reasons for Increasing the Major Assets Prohibition Thresholds
The agencies have not made any adjustments to the existing major assets thresholds since 1996; therefore, they fail to show the growth and consolidation among depository institutions that have taken place over the years.
Having a single asset threshold would not only make it easier for the agencies to implement DIMIA regulations, but it would also help depository institutions figure out whether they are subject to the major assets prohibition or not.
The proposed rule would prevent a large number of depository institutions from being subject to the major assets prohibition. And it would eventually minimize the number of those organizations that need to seek an exemption from a relevant agency.
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