FDIC Proposes Regulatory Relief for Community Banks

Hundreds of community banks across the country could soon see regulatory relief under a new proposal from the Federal Deposit Insurance Corporation (FDIC).

On July 15, 2025, the FDIC Board unanimously approved a proposal to update supervisory asset thresholds used in its regulations. This move marks a significant step in the federal regulators’ deregulation agenda.

The proposed changes would impact various regulatory requirements, particularly those under 12 CFR Part 363, which governs:

• Annual independent audit and reporting requirements
• Internal control attestation
• Audit Committee composition

Most thresholds in Part 363 have remained unchanged for over 30 years. The FDIC’s proposal would:

• Increase the general applicability threshold from $500 million to $1 billion
• Raise the Internal Control over Financial Reporting (ICFR) threshold from $1 billion to $5 billion

• Update Audit Committee composition thresholds: f

  rom $500 million to $1 billion and from $1 billion and $3 billion to $5 billion

These changes support the original intent of Part 363: to ensure sound financial management at institutions posing the greatest risk to the Deposit Insurance Fund.

Impact on Community Banks

The proposed changes aim to reduce regulatory burden on smaller institutions, many of which will:

• No longer be subject to certain reporting and internal control assessment requirements

• Avoid compliance challenges related to Audit Committee composition, which smaller and rural banks often find difficult due to l

  imited local talent pools and challenges in attracting and retaining qualified Audit Committee members

Scope of Affected Institution

• 774 banks currently hold between $500 million and $1 billion in assets
• 752 banks have between $1 billion and $5 billion in assets

The new thresholds would maintain the scope of Part 363 to approximately 1,000 institutions, consistent with its application:

• At inception in 1993
• During the 2005 update to the ICFR threshold

The proposed ICFR threshold increase (from $1B to $5B) also aligns with historical application, covering about 75% of institutions at implementation.

Next Steps and Timing

• The FDIC will accept public comments on the proposal for 60 days following publication in the Federal Register.
• Initial threshold updates will take effect at the start of the first calendar quarter after the final rule is adopted.
• Future adjustments will take effect annually on April 1 of the adjustment year.