For more than three decades, the Federal Deposit Insurance Corporation Improvement Act — which includes 12 CFR Part 363, the regulation that dictates how large insured depository institutions must comply with audit and reporting mandates — has been in place to address the savings and loan crisis of the 1980s. The FDIC recently updated parts of the Act with many of these changes benefiting smaller institutions.
These updates address outdated fixed-dollar thresholds that subjected smaller banks to requirements meant for larger ones.
New FDICIA requirements for 2026
On Nov. 25, 2025, the FDIC adopted amendments to FDICIA, raising total asset thresholds for board audit committee composition, independent audits and other reporting obligations, thereby reducing compliance burdens for smaller and mid-size institutions. Effective Jan. 1, 2026, the new total asset thresholds and corresponding requirements are as follows:
For institutions with $1 billion to $5 billion in total assets:
- All audit committee members must be outside directors, a majority of which must be independent of management.
- Mandatory independent external audit of financial statements.
- Management must attest to the effectiveness of internal controls including those critical to the bank’s operations and risk profile, IT systems and fraud prevention.
For institutions with over $5 billion in total assets:
- Mandatory Internal Control over Financial Reporting (ICFR) assessments and external auditor attestation.
- All audit committee members must be independent outside directors.
- Audit committees must include members with banking or related financial management expertise, have access to outside counsel, and not include any of the institution’s large customers.
Which institutions do the FDICIA changes impact?
Although the recent FDICIA changes removed nearly 800 institutions from the general scope of applicability for Part 363, the regulation continues to cover financial institutions holding approximately 95% of industry assets. Banks with total assets that fluctuate around the $1 billion and $5 billion thresholds must closely monitor their total assets to plan to meet the different requirements.
The changes to Part 363 also allow for future adjustments to the new thresholds based on inflation. The limits will be reviewed and potentially updated every two years or, if inflation exceeds 8% in a single year, sooner. The first planned update is anticipated to be effective October 2027.
Benefits of FDICIA updates
Since these updates address outdated fixed-dollar thresholds that subjected smaller banks to requirements meant for larger ones, smaller institutions should experience an easing of financial reporting burdens that may free up resources and funding for other uses, such as investments in innovation, customer experience technology, and fraud prevention.
The updates also represent an opportunity to fully reassess overall risk profiles, internal controls, and compliance efforts.
Moreover, even though the FDICIA updates have removed the requirement for independent external financial statement audits for banks with under $1 billion in assets, audit committees may choose to continue these audits for strategic planning purposes and growth projections, as well as to inform decisions about potential acquisitions. Finally, audit committees may find it easier to recruit members because the compensation threshold that determines whether a director is independent of management increased from $100,000 to $120,000.
