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286 INTERPF.ETATION _ X-9515 BANKING ACT OF 1935 (Copies to be sent to all Federal Reserve banks) March 3, 1936 .. Honorable J. F. T. O'Connor, Comptroller of the Currency, Washington, D. C. Dear Mr. O'Connor: This refers to former Deputy Comptroller Awalt's lotte!' C>f January 17, 1936, in which ho inquires whether the indorsement of a not<3 or other evidence of indebtedness by an r.:xecutive officer of a member bank, which is purely for the nccommodation of a third party and from which the executive officer derives neither directly nor indirectly aey financial benefit, is included within the definition contained in section l(c) of the Board's Regulation 0. Section l(c) of tho Board's Regulation 0 provides, in: part, that the terms "loan", "loaning 11 , 11 oxtonsion of crodit" and "extend credit" include: "(2) The acquisition by discount, purchnse, exchange, or otherwise of any note, draft, bill of exchange or other evidence of indebtedness upon which an executive officer may be liable as maker, drawer, indorser, guarantor, or surety; 11 and "(5) Any other transaction as a result of which executive officer becomes obligated to u bank, directly or indiroctly by any means whatsoever, by reason of an indorsement on an obligrttion or otherwise, to pay money or its equivalent. 11 [·m An accommodation indorsement by an executive officer of a meillber bank 287 X-9515 -2- upon a note or other evidence of indebtedness is included within the definition quoted above, if tho executive officer may be liable ns indorser or becomes obligated to r, bank by rGason of such an indorsement. In this connl~ction, undm· the usut....l rules of ln.w en accommocation indorser is ono who has signed r.m instrument as an indorser, without receiving vuluc therefor and for the purpose of lending hifl nnme to some other person, and such an indorser is liable on the instrument to a holder for value. Moreover, c. lean or extension of credit to a third pers:m b~'csed in part upon the credit of an executive officer, as represented by his accommodeti'Jrl indorsement, is d. t:ransacthm which it is believed should be subject to the same ro:.;:trictions as a lxm or ext:msion of credit to tho executive officer himself. The abuses which led to the enactment of section 22(g), including the undue influence exercised ! by executive :::Jfficers in obtaining credit fr,:Jm the banks they serve, mey also bo present to a certain extant in the C<tse where a loan t.o a third person is support<1d by the accoJlliuodatLm indorsement of an executive officer. ficer receives n8 Acc·.;rdingly, the mere fact that an executive offin;:~ncial h~rwfi t as the result Jf his accommoda- tion indorsement would not be justificn.tL'n for excluding the liability :~rising as tho result :lf un .!lcconilllodation indorsement by an execu- tive officer from the provisi ms of Regulation 0. In the circumstances, it is the Board's view that the liability of an executive c,fficer ·::>f a member bank by reason of an 288 -5- X-9515 accolllf.lodation indorsonent on a note or other cvidonce of indebtedness held by a bank :is inclndGd within the defini ti )n c.:mtaincd in section 1( c) 0f the B~;ar<l' s Re~ulati:m 0. V01--y truly Y'Jurs, (Signed) L. P. Bethea L. P, Bethea, A.ssif.:tcmt Socrotary.
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