The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK OF DALLAS Dallas, Texas, December 14, 1935 REGULATION 0, EFFECTIVE JANUARY 1, 1936 To the Member Bank Addressed: The Board of Governors of the Federal Reserve System has promulgated a new Regulation, designated as Regulation 0, on the subject of loans to executive officers of member banks, pursuant to the provisions of Section 22(g) of the Federal Reserve Act, as amended by the Banking Act of 1935. This Regulation, copy of which is enclosed herewith, will become effective January 1, 1936. Yours very truly, Federal Reserve Agent This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS of TH E FEDERAL RESERVE SYSTEM LOANS TO EXECUTIVE OFFICERS OF MEMBER BANKS REGULATION O This Regulation as printed herewith is in the form as approved effective January 1, 1936 Printed and Distributed by THE FEDERAL RESERVE BANK OF DALLAS , INQUIRIES REGARDING THIS REGULATION Any inquiry relating to this regulation should be addresed to the Federal Reserve bank o f the district in which the inquiry arises. CONTENTS Page STATUTORY PROVISIONS ..................................................................................... 4 Sec. 1. DEFINITIONS .................... 4 (a) “member bank” .................................................................................... 4 (b) “ executive officer” ................................................................................ 4 (c) “ loan” , “loaning”, “ extension of credit” and “extend credit” ........... 4 (d) “ borrow” and “become indebted”....................................................... 5 Sec. 2. GENERAL PROVISIONS ............................................................................ 5 (a) Executive officers and partnerships prohibited from borrowing.......... 5 (b) Member banks prohibited from loaning to executive officers and partnerships ..................................................................................... 5 Sec. 3. EXCEPTIONS ................................................................................................ 5 (a) (1) Loans or indebtedness not in excess of $2,500............. 5 (a) (2) Indorsing or guaranteeing for the protectionof bank................... 5 (a) (3) Protecting member bank against loss or giving financial assist ance to it................................................................................... 5 (b) Approval and recordation of excepted loans....................................... 6 Sec. 4. RENEWALS OR EXTENSIONS OF LOANS MADE PRIOR TO JUNE 16, 1933 ......................................................................................................... 6 (a) Loans may be renewed under certain conditions................................ 6 (b) Limitations not applicable to excepted loans..................................... 6 Sec. 5. REPORTS BY EXECUTIVEOFFICERS OF MEMBER BANKS OF THEIR INDEBTEDNESS TO OTHERBANKS........................................... 6 Sec. 6. PENALTIES .................................................................................................. 7 (a) Executive officers subject to removal from office................................. 7 (b) Member banks subject to forfeiture of membership.......................... 7 APPENDIX 7 REGULATION 0 Effective January 1, 1936. LOANS TO EXEC U TIVE OFFICERS OF MEMBER BANKS STATUTORY PROVISIONS This regulation is based upon and issued pursuant to the provisions of subsection (g ) of section 22 of the Federal Reserve Act which, together with related provisions o f law, are published in the Appendix hereto. SECTION 1. DEFINITIONS For the purpose o f this regulation— (a) The term “ member bank” means any national bank, State bank, savings bank, trust company, M orris Plan bank, mutual savings bank, or other banking institution which is a member o f the Federal Reserve System. ( b ) The term “ executive officer” means the Chairman of the Board of Directors, the President, every Vice President, the Cashier, Secretary, Treasurer, and Trust Officer o f a member bank, and, in addition, every other officer o f a member bank who participates in the management of the bank or any branch thereof, regardless o f whether he has an official title or whether his title contains a designation of assistant, and regardless o f whether he is serving without salary or other compensation; but such term does not include a director or member o f a committee who is not also an executive officer within the foregoing definition. (c ) The terms “ loa n ’, “ loaning” , “ extension of credit” , and “ extend credit” mean the making of a loan or the extending of credit in any manner whatsoever, and include— (1 ) Any advance by means o f an overdraft, cash item, or other wise; (2 ) The acquisition by discount, purchase, exchange, or otherwise o f any note, draft, bill o f exchange or other evidence o f indebted ness upon which an executive officer may be liable as maker, drawer, indorser, guarantor, or surety; (3 ) The increase of an existing indebtedness, except on account o f accrued interest or on account o f taxes, insurance, or other ex penses incidental to the existing indebtedness and advanced by the bank for its own protection; (4) Any advance of unearned salary or other unearned com pensation for periods in excess o f 30 days; and (5 ) Any other transaction as a result o f which an executive officer becomes obligated to a bank, directly or indirectly by any means whatsoever, by reason o f an indorsement on an obligation or other wise, to pay money or its equivalent. Such terms, however, do not include (i) advances against accrued salary or other accrued compensation, or for the purpose o f providing for 4 the payment o f authorized travel or other expenses incurred or to be incurred on behalf of the bank, (ii) the acquisition by a bank o f any check deposited in or delivered to the bank in the usual course of busi ness unless it results in the granting o f an overdraft to or the carrying o f a cash item for an executive officer, or (iii) the acquisition o f any note, draft, bill o f exchange, or other evidence o f indebtedness, through a merger or consolidation o f banks or a similar transaction by which a bank acquires assets and assumes liabilities o f another bank or other organization or through foreclosure on collateral or similar proceeding for the protection o f the bank. (d ) The terms “ borrow ” and “ become indebted” mean any transaction by which an executive officer, directly or indirectly by any means what soever, receives a loan or extension o f credit as defined above. SECTION 2. GENERAL PROVISIONS (а ) E x e c u t iv e officers an d p a rtn e rsh ip s p r o h ib ite d fr o m b o r r o w in g . — Except as provided in section 3 of this regulation, an executive officer of a member bank shall not borrow from or otherwise become indebted to the member bank o f which he is an executive officer and a partnership in which one or more executive officers o f a member bank are partners having either individually or together a m ajority interest in the partner ship shall not borrow from or otherwise become indebted to such member bank. (б ) M em ber banks p roh ib ited fr o m loan in g to e x ecu tiv e officers and partnerships.— Except as provided in section 3 of this regulation, no mem ber bank shall make any loan or extend credit in any manner to any of its own executive officers and no member bank shall make any loan or extend credit in any manner to a partnership in which one or more executive officers o f such member bank are partners having either indi vidually or together a m ajority interest in the partnership. SECTION 3. EXCEPTIONS (a) The provisions o f section 2 o f this regulation shall not apply— (1 ) To any loan or extension of credit by a member bank, pro vided that, as a result o f such loan or extension o f credit, an executive officer o f the member bank does not become indebted to it in an amount in excess o f $2,500, and provided further that a majority o f the entire board o f directors o f the member bank has in each case given prior approval to such loan or extension o f cred it;1 (2 ) T o the indorsing or guaranteeing for the protection of a member bank o f any loan or other asset which shall have been previously acquired by the member bank in good faith, regardless of the amount thereof; or (3) To any loan, indebtedness, or extension o f credit, regardless 1 It is not contemplated that a renewal or extension of a loan previously made and ap proved under the provisions of this paragraph must be approved by the board of directors if such renewal or extension does not include an increase in the indebtedness of the executive officer involved. 5 o f the amount thereof, fo r the purpose o f protecting a member bank against loss or giving financial assistance to it. ( b ) The approval o f any loan or extension o f credit under the pro visions of paragraph (1 ) o f subsection (a ) o f this section shall be evi denced by a resolution of the board o f directors spread upon the minute book o f the bank; and any indorsement, guarantee, loan, indebtedness, or extension o f credit under the provisions o f paragraph (2 ) or (3 ) of subsection (a ) o f this section shall be reported to the board o f directors o f the bank and a record thereof incorporated in the minute book of the bank. SECTION 4. RENEWALS OR EXTENSIONS OF LOANS MADE PRIOR TO JUNE 16, 1933 ( a ) Loans may be ren ew ed u n d e r certain con d ition s.— Loans made to an executive officer prior to June 16, 1933, by the member bank of which he is an executive officer, may be renewed or extended with the prior approval o f the board o f directors o f the member bank for periods expiring not later than June 16, 1938. Any such renewal or extension shall be made only where the board o f directors of the member bank shall have satisfied itself that such renewal or extension is in the best interest of the member bank and that the executive officer indebted has made a reasonable effort to reduce his obligation. The findings o f the board o f directors with respect thereto shall be evidenced by a resolution spread upon the minute book o f the bank. No such loan shall be renewed or extended, by conversion into a demand loan or otherwise, for periods expiring subsequent to June 16, 1938. ( b ) Limitations not applicable to excepted loans.— The limitations prescribed in the foregoing subsection shall not apply to any loan, indebtedness, extension o f credit or to the indorsing or guaranteeing of any loan or other asset referred to in section 3 of this regulation. SECTION 5. REPORTS BY EXECUTIVE OFFICERS OF MEMBER BANKS OF THEIR INDEBTEDNESS TO OTHER BANKS Any executive officer of any member bank who on the effective date o f this regulation is or thereafter becomes indebted to any bank, banking association, or trust com pany (including a member bank) other than the member bank o f which he is an executive officer shall, within 30 calendar days after the effective date o f this regulation or within 10 calendar days after he becomes so indebted, as the case may be, make a written report thereof to the board o f directors o f the member bank o f which he is an executive officer.2 Each such report shall state the name o f the bank to which he is indebted, the date such indebtedness was incurred and the date o f maturity thereof, the amount o f such indebted ness, the form o f the indebtedness, the security therefor, if any, and the purpose for which the proceeds have been or are to be used. A record of the receipt o f each such report shall be made in the minute book o f the member bank receiving it and all such reports shall be retained by such 2 No report need be made in the case of renewals or extensions of an indebtedness which has been previously reported, provided the indebtedness is not increased. 6 member bank and made available, upon request, for inspection by duly authorized examiners. SECTION 6. PENALTIES (а) E x ecu tiv e officer su b ject to rem oval fr o m office.— Any executive officer of a member bank who violates any provision of subsection (g ) o f section 22 o f the Federal Reserve A ct w ill be subject to removal from office in a manner prescribed in section 30 o f the Banking Act o f 1933. (б ) M em ber banks su b ject to fo r fe itu r e o f m em bership.— Any mem ber bank which violates any provision o f subsection (g ) of section 22 o f the Federal Reserve Act will, in the case o f a national bank, be subject to the forfeiture o f all rights, privileges, and franchises granted to it under the National Bank Act, in the manner prescribed in section 2 of the Federal Reserve Act and, in the case o f any State member bank, be subject to the forfeiture o f all o f its rights and privileges o f membership in the Federal Reserve System, in the manner prescribed in section 9 of the Federal Reserve Act. APPENDIX Subsection (g ) o f section 22 o f the Federal Reserve Act, as amended by section 3 2 6 (c) of the Banking Act o f 1935, provides as follow s: Sec. 22. * * * (g ) No executive officer of any member bank shall borrow from or otherwise become indebted to any member bank of which he is an executive officer, and no member bank shall make any loan or extend credit in any other manner to any of its own executive officers: Provided, That loans made to any such officer prior to June 16, 1933, may be renewed or extended for periods expiring not more than five years from such date where the board of directors of the member bank shall have satisfied themselves that such extension or renewal is in the best interest of the bank and that the officer indebted has made reasonable effort to reduce his obligation, these findings to be evidenced by resolution of the board of directors spread upon the minute book of the bank: Provided further, That with the prior approval of a majority of the entire board of directors, any member bank may extend credit to any executive officer thereof, and such officer may become indebted thereto, in an amount not exceeding $2,500. If any executive officer of any member bank borrow from or if he be or become indebted to any bank other than a member bank of which he is an executive officer, he shall make a written report to the board of directors of the member bank of which he is an executive officer, stating the date and amount of such loan or indebtedness, the security therefor, and the purpose for which the proceeds have been or are to be used. Borrowing by, or loaning to, a partnership in which one or more executive officers of a member bank are partners having either individually or together a majority interest in said partnership, shall be considered within the prohibition of this subsection. Nothing contained in this subsection shall prohibit any executive officer of a member bank from endorsing or guaranteeing for the protection of such bank any loan or other asset which shall have been previously acquired by such bank in good faith or from incurring any indebtedness to such bank for the purpose of protecting such bank against loss or giving financial assistance to it. The Board of Governors of the Federal Reserve System is authorized to define the term “executive officer’, to determine what shall be deemed to be a borrowing, indebtedness, 7 loan, or extension of credit, for the purposes of this subsection, and to prescribe such rules and regulations as it may deem necessary to effectuate the provisions of this subsection in accordance with its purposes and to prevent evasions of such provisions. Any executive officer of a member bank accepting a loan or extension of credit which is in violation of the provisions of this subsection shall be subject to removal from office in the manner prescribed in section 30 of the Banking Act of 1933: Provided, That for each day that a loan or exten sion of credit made in violation of this subsection exists, it shall be deemed to be a continuation of such violation within the meaning of said section 30. Section 30 of the Banking Act o f 1933, as amended, provides as fo llo w s : Sec. 30. Whenever, in the opinion of the Comptroller of the Currency, any director or officer of a national bank, or of a bank or trust company doing business in the District of Columbia, or whenever, in the opinion of a Federal reserve agent, any director or officer of a State member bank in his district shall have continued to violate any law relating to such bank or trust company or shall have continued unsafe or unsound practices in conducting the business of such bank or trust company, after having been warned by the Comptroller of the Currency or the Federal reserve agent, as the case may be, to discontinue such violations of law or such unsafe or unsound practices, the Comptroller of the Currency or the Federal reserve agent, as the case may be, may certify the facts to the Board of Governors of the Federal Reserve System. In any such case the Board of Governors of the Fedei'al Reserve System may cause notice to be served upon such director or officer to appear before such Board to show cause why he should not he removed from office. A copy of such order shall be sent to each director of the bank affected, by registered mail. If after granting the accused director or officer a reasonable opportunity to be heard, the Board of Governors of the Federal Reserve System finds that he has continued to violate any law relating to such bank or trust company or has continued unsafe or unsound practices in conducting the business of such bank or trust company after having been warned by the Comptroller of the Currency or the Federal reserve agent to discontinue such violation of law or such unsafe or unsound practices, the Board of Governors of the Federal Reserve System, in its dis cretion, may order that such director or officer be removed from office. A copy of such order shall be served upon such director or officer. A copy of such order shall also be served upon the bank of which he is a director or officer, whereupon such director or officer shall cease to be a director or officer of such bank: Provided, That such order and the findings of fact upon which it is based shall not be made public or disclosed to anyone except the director or officer involved and the directors of the bank involved, otherwise than in connection with proceedings for a violation of this section. Any such director or officer removed from office as herein provided who thereafter participates in any manner in the management of such bank shall be fined not -more than $5,000, or im prisoned for not more than five years, or both, in the discretion of the court. 8
@FedFRASER