December 5, 2025

Vol. XLII, No. 15

OCC - Reduced Regulatory Burden for Community Banks
(National Banks and Federal Savings and Loans)

I. Introduction
The Office of the Comptroller of the Currency (OCC) recently announced guidance to banks designed to reduce regulatory burden for community banks.

In two bulletins, the OCC clarified examination procedures for community banks, indicating that it is removing fixed examination requirements for community banks and instead tailoring the examination scope and frequency to be consistent with risk-based supervision. The OCC also announced that it will only use the core assessment standards in the Community Bank Supervision booklet of the Comptroller's Handbook to examine for retail nondeposit investment products.

In a separate bulletin, the OCC clarified its expectations that community banks should tailor model risk management practices commensurate with the bank's risk exposures, its business activities, and the complexity and extend of its model use. In particular, the bulletin highlights that the OCC's model risk management guidance does not impose prescriptive requirements, such as annual model validations.

II. Examinations: Frequency and Scope for Community Banks
Effective January 1, 2026, the OCC is updating its policies to eliminate mandatory examination activities not required by statute or regulation to reduce supervisory burden for community banks. OCC community bank examiners will continue to apply risk-based supervision, with a heightened focus on material financial risks.

In fulfilling its responsibility for conducting a full scope, on-site examination of a community bank's specific activities in light of its size, complexity, and risk profile, with heightened focus on material financial risks. Examiners will retain their discretion to conduct, as appropriate, supervisory activities beyond those required by statute, consistent with a bank's size, complexity, risk profile, and the risks posed by the bank's specific activities.

This change will reduce regulatory burden on community banks and simplify requests made by examiners. For example, OCC policy currently requires examiners to perform a fair lending risk assessment during every supervisory cycle and perform transaction testing for flood insurance coverage once during every three supervisory cycles. By eliminating these requirements, examiners will no longer be required to collect information or perform these activities. Similarly, in examining a bank's compliance with flood insurance requirements, examiners will determine whether there is a need to conduct transaction testing based on risk and will not, for example, conduct transaction testing solely for the sake of completing procedures required by OCC policy.

The OCC is also reaffirming the importance of examiners relying on quarterly monitoring activities and bank-provided reports. As part of their quarterly monitoring, examiners will conduct off-site analyses focused on essential financial risk indicators. Examiners will discuss with bank management financial trends and changes in bank operations, risk management, and personnel. Examiners will focus on areas of significant actual or planned changes, including growth, to determine whether there are emerging or newly identified risks. Examiners will use this analysis and communication to better focus on actual risks facing the bank and reduce disruption during the required on-site examination.

Similarly, examiners will leverage a community bank's audit, risk management, reporting and other functions when appropriate. Although examiners will need to determine the reliability of these functions, when reliance is appropriate, examiners will use these bank-provided reports to avoid unnecessary duplication and reduce the burden on banks.

III. Retail Nondeposit Investment Products: Exam Procedures for Community Banks
The OCC will no longer examine community banks using the procedures and standards in the "Retail Nondeposit Investment Products" (RNDIP) booklet of the Comptroller's Handbook. Community banks are still expected to follow all laws and regulations applicable to their RNDIP offerings and comply with all pertinent legal requirements, including the Gramm-Leach-Bliley Act, federal securities laws, federal and state insurance laws, consumer privacy laws, Bank Secrecy Act/anti-money laundering laws, and prudential OCC regulations.

This change to examination policy is part of the OCC's ongoing efforts to reflect a tailored regulatory framework for bank supervision. The OCC will continue to consider each banks' RNDIP activities on an individual basis and will continue to consider each bank's unique circumstances and risk profile when determining examination priorities for that institution.

IV. Model Risk Management: Clarification for Community Banks
Community banks have the flexibility to tailor their model risk management practices, including the appropriate frequency and nature of validation activities, commensurate with the bank's risk exposures, its business activities, and the complexity and extend of its model use. The OCC's guidance on model risk management does not, and should not be interpreted to, require community banks to perform annual model validation.

The OCC is issuing this bulletin to highlight that the practical application of the OCC's model risk management guidance should be customized when applied by community bank management to be commensurate with the bank's risk exposures, its business activities, and the complexity and extent of its model use. A community bank using relatively few models of only moderate complexity might conduct significantly fewer model risk management activities than a bank where use of models is more extensive or complex. Similarly, a community bank's model validation frequency will generally be less than that of a larger bank with more extensive and complex model usage. Importantly, the OCC will not provide negative supervisory feedback to a bank solely for the frequency or scope of the model validation that the bank reasonably determined to perform based on the bank's risk exposures, its business activities, and the complexity and extent of its model use.

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The foregoing Compliance Update is for informational purposes only and does not constitute legal advice. As a reminder, the NBA general counsel is the attorney for the Nebraska Bankers Association, not its member banks. The general counsel is available to assist members with finding resources to help answer their questions. However, for specific legal advice about specific situations, members must consult and retain their own attorney.