By Tyler Mondres and Hugh Carney
ABA Viewpoint
The FDIC’s recent proposal to index key asset thresholds is a long-overdue step toward modernizing a regulatory framework that has failed to keep pace with inflation, economic growth and the evolution of the banking sector.
Tyler Mondres is senior director, prudential regulation at ABA. Hugh Carney is EVP for financial institution policy and regulatory affairs at ABA.
For decades, federal banking regulation has been shaped by hard-coded asset thresholds: $500 million, $1 billion, $10 billion, $50 billion, $100 billion, and so on. These figures are often mistaken for risk-based guardrails, but in reality, they are the product of legislation or rulemaking from a very different economic era. In many cases, thresholds were established when aggregate bank assets were a fraction of what they are today. Yet because most thresholds are not indexed to inflation or growth, they pull more and more banks into heavier regulatory regimes over time without any corresponding increase in risk.
This is not just a technical problem. Static thresholds misallocate supervisory resources, distort business planning, and create unnecessary compliance burdens for banks that have grown in size on paper but not in complexity or systemic footprint. At a time when policymakers are working to expand access to credit, encourage investment in underserved communities, and strengthen competition in financial services, an outdated framework that arbitrarily adds regulatory costs works against these goals.
The current framework also invites policy whiplash. If thresholds are fixed in law or rule, any increase in the number of institutions subject to a particular regime becomes a political flashpoint. Policymakers are left to debate whether a rule intended for “large” banks should apply to an ever-growing number of institutions that no longer meet the original intent of the threshold. This creates uncertainty for banks and supervisors alike.
The FDIC’s proposal acknowledges these dynamics and begins to address them. By proposing to index select thresholds to inflation going forward, the agency is recommending a mechanism to ensure that regulatory coverage evolves with the economy without the need for constant rulemakings or legislation.
Still, the proposal raises important policy design questions. Is inflation the right metric for adjustment? While inflation is easy to measure and widely used elsewhere in public policy, some thresholds were originally tied, explicitly or implicitly, to market structure, financial sector size, or systemic risk, not general price levels. Should adjustments reflect growth in the banking sector itself, or the broader economy?
The proposal also prompts a conversation about cadence. How frequently should thresholds be reviewed and adjusted? Annual updates provide predictability and minimize large shocks, but they also add a layer of administrative burden. Less frequent adjustments might be easier to implement but risk allowing the framework to become stale. There is also the question of a catch-up mechanism: given how much real erosion has already occurred, should there be a one-time reset to restore thresholds to their original intent before applying an indexing formula going forward? The FDIC has proposed such a reset using a CPI-based adjustment, but there is open debate about whether some thresholds were set appropriately in the first place. In certain cases, the original figures may have been arbitrary or the product of political compromise, rather than grounded in sound economic reasoning. This raises the question of whether simply inflating those figures would perpetuate underlying flaws.
These questions do not undermine the core value of the FDIC’s initiative. They strengthen it. As policymakers weigh how best to implement indexing, it is crucial to ask what we are trying to preserve and what we are trying to avoid. The goal of the proposal is not to eliminate thresholds but to ensure they remain meaningful over time.
ABA has long supported indexing as a matter of good governance. The FDIC’s actions are a welcome step in what we hope becomes a broader shift across the regulatory community. As we noted in January, this issue is not unique to the FDIC. Thresholds appear throughout the banking regulatory framework, including in rules from the Federal Reserve, OCC, and CFPB, as well as in laws enacted by Congress. Many of these agencies already have the legal authority to take action. They should do so.
We also believe Congress has an important role to play. In some cases, statutory thresholds lock in outdated figures that were never intended to capture so many institutions. In other cases, Congress can provide clarity or direction to ensure that future regulations are built on durable, forward-looking foundations. Indexing should not be seen as deregulatory. It is about maintaining a consistent, risk-appropriate framework over time.
Ultimately, the goal is not simply to reduce burden but to ensure that the banking regulatory system is targeted, predictable, and aligned with real-world risk. Dynamic thresholds make supervision more sustainable and more credible, and they allow both regulators and institutions to focus their energy on what really matters: safety and soundness, consumer protection, and financial stability.
We commend the FDIC for advancing this proposal and urge other agencies and Congress to treat this as a starting point. A smarter, more modern regulatory framework begins with acknowledging that the economy changes. Our rules should too.
ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.
