The Federal Reserve wants to loosen capital-raising rules for mutual banks that have not been touched since 1993. On July 31, 2026, the Fed issued a notice of proposed rulemaking to modernize the regulatory framework governing mutual banking organizations, the roughly 300 depositor-owned institutions that make up a small but persistent corner of the US banking system. More than 90% of mutual banks hold under $3 billion in assets, and the Fed said the three-decade-old rules have become “overly burdensome and complex” for a sector it has supervised since taking over the role from the Office of Thrift Supervision in 2011.
The proposal would clarify which instruments count as regulatory capital for mutual banks and reduce the procedural steps required to issue them, opening the door to instruments like mutual capital certificates and special deposits that give these banks new ways to raise capital without converting to stock ownership. Fed Vice Chair for Supervision Michelle Bowman said the change “will allow mutual banks to continue to grow and more effectively serve communities across the country, while preserving their unique depositor-owned structure.” The proposal is open for public comment for 60 days after it is published in the Federal Register.
The timing matters as much as the substance. Regulators are simultaneously tightening capital and earnings expectations on banks whose growth outpaced their balance sheets, evidenced by this week’s second FDIC consent order against Lineage Bank over its BaaS-fueled expansion. Read together, the two actions describe a regulatory posture that wants to widen the paths banks have to raise capital while narrowing tolerance for banks that grow faster than their capital and risk infrastructure can support. For mutual bank leadership, the practical takeaway is to start scoping which of the newly clarified instruments fit a multi-year capital plan now, since a rule three decades in the making is unlikely to be revisited again soon once finalized.
Source: Federal Reserve
