FDIC Proposes Major Regulatory Relief for Community and Mid-Sized Banks by Adjusting Audit Thresholds

By Marc Valerio, Kevin Rhode, on July 23rd, 2025

July 2025 – In a long-anticipated move aimed at modernizing outdated rules, the Federal Deposit Insurance Corporation (FDIC) has proposed sweeping changes to several long-standing regulatory thresholds, with the most immediate impact falling on financial statement audits and internal control reporting requirements.

The proposed rule would increase the threshold for mandatory annual audits under Part 363 of the FDIC’s regulations from $500 million to $1 billion in total assets, and raise the threshold for internal control over financial reporting (ICFR) audits from $1 billion to $5 billion.

These changes could relieve up to 1,400 banks, about 28% of all FDIC-insured institutions, from costly audit and governance requirements, particularly those in the $500 million to $5 billion asset range.

A Meaningful Rollback of Part 363 Obligations

Part 363 of the FDIC regulations, originally implemented following the savings and loan crisis, requires institutions over $500 million in total assets to submit audited financial statements and related reporting. Institutions exceeding $1 billion must also assess and attest to the effectiveness of internal controls over financial reporting.

If finalized, the proposal would:

  • Exempt nearly 800 institutions between $500 million and $1 billion from the audit requirements
  • Exempt an additional approximately 675 institutions between $1 billion and $5 billion from the ICFR requirement
  • Keep coverage of roughly 90% of banking assets intact, while tailoring compliance requirements to today’s inflation-adjusted industry structure

The FDIC noted that the proposed thresholds mirror the relative scope of applicability from when the rule was first adopted in 1993 and last updated in 2005, despite the fact that asset values have grown substantially over time.

Inflation-Based Indexing: A Long-Term Fix

In addition to the immediate updates, the proposal introduces a mechanism to automatically index most thresholds for inflation going forward. Under the proposed framework:

  • Thresholds will be reviewed every two years, or more frequently if inflation exceeds 8%
  • The inflation gauge will be the Consumer Price Index for Urban Wage Earners (CPI-W)
  • Adjusted thresholds will be rounded to two significant digits and will not decrease in deflationary periods

This indexing mechanism is intended to avoid the slow regulatory drift that occurs when thresholds are fixed in nominal dollars, forcing smaller institutions to bear compliance burdens intended for larger and more complex banks.

Additional Threshold Adjustments

The proposal also covers inflation updates to several other regulations, including:

  • Part 303 – Raises de minimis thresholds under Section 19 to ease restrictions on hiring individuals with minor criminal records.
  • Part 335 – Increases insider loan disclosure threshold from $5 million to $10 million.
  • Part 340 / Part 380 – Updates the “substantial loss” definition from $50,000 to $100,000 in failed bank asset sales.
  • Part 347 – Doubles limits on foreign underwriting and securities dealing under international banking rules.
  • Part 363 – Increases the audit committee independence compensation cap from $100,000 to $120,000.

Policy Motivation: Preserving Proportionality

The FDIC’s rationale is clear: fixed dollar thresholds, if left unadjusted, slowly pull smaller and mid-sized banks into compliance with regulatory frameworks not originally designed for them. As the proposal notes, the number of institutions subject to Part 363 has steadily grown, not because of risk or complexity, but because of inflation and industry consolidation.

By re-establishing thresholds in real-dollar terms and committing to systematic inflation adjustment going forward, the FDIC aims to create a more predictable and proportionate regulatory environment.

What’s Next

This proposal is the first in a planned multi-phase effort to re-evaluate outdated FDIC regulatory thresholds, particularly those not set by statute and specific to the agency. The FDIC expects future proposals to expand on this effort, including potential collaboration with other regulators.

Stakeholders have 60 days from publication in the Federal Register to submit comments. Key areas for comment include whether the audit relief strikes the right balance between cost reduction and safety, whether the inflation indexing methodology is appropriate, and whether additional thresholds should be reevaluated.

Bottom Line

If adopted, the proposed changes would be the most significant structural revision to FDIC audit and governance thresholds in decades. For banks in the $500 million to $5 billion range the proposal represents a long-awaited easing of compliance obligations that have grown disproportionately burdensome over time.

If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Written By

Marc Valerio
Kevin Rhode

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