More small banks to qualify for 18-month exam cycle

Federal banking agencies have issued interagency final rules increasing the number of small banks and savings associations eligible for an 18-month examination cycle rather than a 12-month cycle.

The rules are designed to reduce regulatory compliance costs for smaller institutions, while maintaining safety and soundness protections, according to a joint news release by the Federal Deposit Insurance Corporation, Federal Reserve Board and Office of the Comptroller of the Currency. The rules have been in effect since Feb. 29, pursuant to  interim final rules that were previously adopted by the agencies, the release stated. The final rules are identical to the interim final rules.

Under the final rules, qualifying well-capitalized and well-managed banks and savings associations with less than $1 billion in total assets are eligible for an 18-month examination cycle, according to the release. Qualifying U.S. branches and agencies of foreign banks with less than $1 billion in total assets also are eligible. Previously, only firms with less than $500 million in total assets were eligible for the extended examination cycle, the release stated.

The final rules increase the number of institutions that may qualify for an 18-month examination cycle by more than 600 to approximately 4,800 banks and savings associations. The rules also increase the number of U.S. branches and agencies of foreign banks that may qualify for an 18-month examination cycle by 30 to 89, according to the release.

Industry trade groups, including the American Bankers Association, have voiced support for the rule changes, saying they will reduce the regulatory burden on many small to mid-sized banks.

“This regulatory change — long advocated as part of ABA’s Agenda for America’s Hometown Banks — was included in a spending bill at the end of 2015 as a result of strong advocacy efforts by ABA and the state associations,” according to a Dec. 12 statement in the ABA Banking Journal. “The measure will qualify an estimated 611 institutions for the extended exam cycle.”