On October 7, 2025, federal banking regulators made a move most consumers missed—but you might feel its effects when renewing insurance policies in 2026. The Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) jointly proposed rules redefining “unsafe or unsound practices” in banking. Translation? Banks will face fewer regulatory slaps on the wrist for minor paperwork issues, freeing up resources to focus on actual financial risks.
Why should insurance customers care about banking rules? Because $4.3 trillion in insurance company assets sit in bank investments, according to NAIC data. When banks operate more efficiently, insurance companies benefit—and sometimes, those savings trickle down to policyholders. Sometimes.
The proposal targets “Matters Requiring Attention” (MRAs)—essentially regulatory to-do lists banks receive after examinations. According to Sullivan & Cromwell’s analysis, Acting FDIC Chairman Hill called current practices a “litany of process-related items unrelated to a bank’s current or future financial condition.”
What Changed in the FDIC-OCC Banking Proposal?
Three core shifts define the October 2025 proposal:
- Narrower definition of “unsafe or unsound.” Banks previously got dinged for issues ranging from catastrophic risk exposure to using outdated compliance forms. The new standard focuses enforcement on material threats to financial stability—things that could actually cause a bank to fail or harm depositors.
- Fewer MRAs for minor violations. Process errors that don’t threaten safety get downgraded from formal regulatory actions to guidance. Think of it as the difference between a speeding ticket and a warning.
- CAMELS rating protection. Banks won’t automatically receive lower ratings for administrative lapses unrelated to financial health. The CAMELS system (Capital, Assets, Management, Earnings, Liquidity, Sensitivity) determines regulatory intensity—lower ratings trigger tougher oversight and higher insurance premiums from the FDIC.
The proposal doesn’t weaken safety standards. It redirects examiner attention from “did you file form X-47B correctly?” to “can you survive a recession?”
How Banking Rules Affect Insurance Company Operations
Insurance companies aren’t just insurance companies. They’re massive institutional investors holding bank bonds, lending to banks, and partnering on products like credit life insurance.
Where insurance meets banking:
| Connection Point | Current Impact |
|---|---|
| Investment portfolios | Insurers hold $1.2 trillion in bank bonds and stocks |
| Reinsurance financing | Banks provide $380 billion in letters of credit backing reinsurance |
| Consumer products | Mortgage insurance, credit insurance sold through bank channels |
| Operational accounts | Claims payments, premium collections processed through banks |
When banks waste compliance resources on trivial MRAs, those costs get passed along. Regulatory overhead increases bank fees, which insurers pay, which eventually shows up in your premiums. The proposal aims to break that chain.
But there’s a flip side. Less regulatory scrutiny could mean banks take bigger risks. If a bank holding $500 million in insurance company bonds fails due to overlooked problems, insurers absorb losses—and policyholders foot the bill through rate hikes.
Will This Make Insurance Cheaper or More Expensive?
Depends on which dominoes fall first.
Scenario 1: Efficiency gains (optimistic case). Banks redirect compliance staff to risk management. Operational costs drop 2-3%. Insurance companies holding bank investments see slightly higher returns. A large life insurer with $80 billion in bank bonds might save $40-60 million annually. Some of that filters into competitive premiums or expanded coverage options.
Scenario 2: Risk creep (pessimistic case). Lighter oversight lets marginal banks hide problems longer. A mid-sized bank with $12 billion in assets fails unexpectedly. Insurance companies holding its bonds lose $180 million. To rebuild reserves, they raise premiums 1.5-2% across product lines.
The October 2025 proposal includes safeguards against Scenario 2. Regulators retain authority to act on material risks—they’re just not chasing paperwork errors. Still, implementation matters more than intent.
State Regulation vs Federal Banking Rules: Why Geography Matters
Here’s where it gets messy for consumers.
Insurance is state-regulated. Banking is federally regulated. The FDIC-OCC proposal changes federal rules, but state insurance departments set the standards insurers must follow. When federal banking policy shifts, state insurance regulators don’t automatically adjust.
Three states where the disconnect matters most:
- New York: The Department of Financial Services applies strict investment standards to insurers. If banks become riskier under looser federal rules, New York might restrict insurer holdings in certain bank securities—forcing portfolio reshuffles that cost money.
- California: After recent wildfire insurer exits, regulators scrutinize every financial decision. Banks reducing compliance spending could trigger California to question whether insurers holding those bank investments maintain adequate reserves.
- Texas: Home to 47 insurance company headquarters, Texas regulators coordinate closely with banking supervisors. Changes to federal bank oversight might prompt Texas to update its own investment rules for insurers—creating temporary uncertainty.
Geographic impact remains unclear because the proposal is exactly that—a proposal. The 60-day public comment period (closing early December 2025) will determine final rules.
What Should Insurance Customers Watch For?
Most policyholders won’t notice immediate changes. But three indicators signal whether this regulatory shift helps or hurts:
1. Premium trajectory in 2026-2027. If life insurance and annuity rates improve slightly (even 0.3-0.5%), efficiency gains worked. If property-casualty premiums spike beyond normal inflation, hidden banking risks might be surfacing.
2. Insurer financial strength ratings. A.M. Best, Moody’s, and S&P rate insurance companies based partly on investment portfolio quality. Watch for rating agencies commenting on bank investment risk in 2026 reports. Downgrades could precede premium increases.
3. State insurance department actions. Check your state insurance department website quarterly. If regulators issue new investment guidelines or capital requirements related to bank holdings, it means they’re reacting to federal banking changes.
Realistically? You’ll probably see nothing dramatic. Banking and insurance regulation moves slowly. But the October 2025 proposal sets a direction—less bureaucracy, more focus on real risks. Whether that philosophy delivers better outcomes depends on execution over the next 2-3 years.
Frequently Asked Questions
Why does a banking rule affect my insurance policy?
Insurance companies invest $4.3 trillion in assets, with roughly 28% ($1.2 trillion) held in bank-related securities like bonds and stocks. When banking regulations change operational costs or risk profiles, insurers holding those investments feel the impact—sometimes passing costs to policyholders through premium adjustments. Additionally, banks provide critical services to insurers, including reinsurance financing and consumer product distribution channels.
What are MRAs and why do they matter?
“Matters Requiring Attention” are formal findings issued by bank examiners during safety and soundness reviews. Under current practice, MRAs range from critical issues (inadequate capital reserves) to minor process errors (outdated internal forms). Banks must address all MRAs, consuming compliance resources. The FDIC-OCC proposal limits MRAs to material safety threats, letting banks focus on actual financial risks rather than administrative paperwork—potentially reducing costs that flow through to insurance company partners and policyholders.
Could this proposal make banks riskier for insurance investments?
Not if implemented correctly. The proposal narrows the definition of “unsafe or unsound practices” but retains full regulatory authority over material risks. Banks still face enforcement actions for inadequate capital, poor lending practices, or governance failures. The change eliminates regulatory actions for minor compliance lapses unrelated to financial stability. However, critics worry lighter oversight could let problems hide longer. Insurance regulators and rating agencies will monitor bank investment risks closely—if banks become materially riskier, you’ll see state insurance departments update investment rules and rating agencies adjust insurer scores.
When will these rules take effect?
The FDIC and OCC opened a 60-day comment period starting October 7, 2025, closing in early December. After reviewing public feedback, agencies typically take 6-12 months to finalize rules. Expect implementation sometime in mid-to-late 2026. Even then, banks need time to adjust internal processes, and insurance companies need time to evaluate any changes in banking partner risk profiles. Meaningful impacts on insurance premiums or coverage likely won’t surface until 2027 or later.
Bottom line: The October 2025 FDIC-OCC proposal shifts banking supervision from process compliance to substantive risk management. For insurance customers, that’s mostly background noise—unless your insurer holds concentrated positions in banks that exploit looser oversight. Watch financial strength ratings and premium trends over the next two years. If nothing changes dramatically, the regulatory reform worked. If premiums spike or insurers announce losses from bank investments, it didn’t.
Most likely outcome? Something in between. Banks save money on compliance, insurers see modest investment return improvements, and you might save $15-30 annually on life insurance or annuities—enough for one pizza, not a vacation.