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Federal Reserve Bank
OF DALLAS
ROBERT

D. M c T E E R , J R .

P R E S ID E N T
A N D C HIE F E X E C U T IV E O F F IC E R

June 1, 1993

DALLAS, TEXAS 7 5 2 2 2

No t i c e 93-59
TO:

The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Final Rule A m e n d i n g Regulation 0 (Loans
to Executive Officers, Directors, and Principal
Shareholders of Member Banks)
DETAILS

The Federal Reserve Board has amended Regulation 0 (Loans to
Executive Officers, Directors, and Principal Shareholders of Member Banks) to
implement recent amendments to section 22(h) of the Federal Reserve Act,
contained in the Housing and Community Development Act of 1992.
The final rule adopts three exceptions to the aggregate insider
lending limit in Regulation 0 substantially as they were set forth in the
Board’s proposed rule. Additional exceptions suggested by commenters will be
considered in future rulemaking.
ATTACHMENT
A copy of the Board’s notice (Federal Reserve System Docket No.
R-0785) is attached.
M ORE INFORMATION
For more information, please contact Jane Anne Schmoker at (214)
922-5104.
For additional copies of this Bank’s notice, please contact the
Public Affairs Department at (214) 922-5254.
Sincerely yours,

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas:
Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162,
Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL RESERVE SYSTEM
12 CFR Part 215
[Regulation 0; Docket No. R-0785]
Loans to Executive Officers, Directors, and Principal
Shareholders of Member Banks; Loans to Holding Companies and
Affiliates
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY:

The Board is amending Regulation 0 to implement recent

amendments to section 22(h) of the Federal Reserve Act, contained
in the Housing and Community Development Act of 1992.

The final

rule adopts three exceptions to the aggregate insider lending
limit in Regulation 0 substantially as they were set forth in the
Board's proposed rule.

Additional exceptions suggested by

commenters will be considered in future rulemaking.
EFFECTIVE DATE:

May 3, 1993.

FOR FURTHER INFORMATION CONTACT: Gordon Miller, Attorney
(202/452-2534), Legal Division, Board of Governors of the Federal
Reserve System.

For the hearing impaired only. Telecommunication

Device for the Deaf (TDD), Dorothea Thompson (202/452-3544),
Board of Governors of the Federal Reserve System, 20th &
C Streets, N W . , Washington,

DC 20551.

SUPPLEMENTARY INFORMATION:
Background
The Housing and Community Development Act of 1992 (HCDA),
Pub. L. 102-550,

106 Stat. 3672

(1992), effective October 28,

1992, amended section 22(h) of the Federal Reserve Act (Act),
12 U.S.C. 375(b), to authorize the Board to adopt exceptions from
the definition of "extension of credit" that pose minimal risk to
the lending bank.

The legislative history of this provision

states that the Board should make a "zero-based review" of all
exceptions.
1992).

See 138 Cong. Rec. S17,914-15

(daily ed. October 8,

The Board has proposed three exceptions to the aggregate

lending limit in Regulation O (12 CFR Part 215) to implement this
amendment.
All of the proposed exceptions are found in the National
Bank Act and are already incorporated in the individual lending
limit in Regulation 0.
215.4(c).

See 12 U.S.C. § 84; 12 CFR 215.2(h) and

These exceptions are for certain categories of loans

or extensions of credit that are deemed, as a result of the
manner in which they are collateralized, to pose minimal risk of
loss to a bank.

The proposed exceptions are in the following

three categories:
(1)

Extensions of credit secured by obligations
of the United States or other obligations
fully guaranteed as to principal and interest
by the United States;

(2)

Extensions of credit to or secured by
commitments or guarantees of a department

or

agency of the United States; and
(3)

Extensions of credit secured by a segregated
deposit account with the lending bank.

Proposal as Adopted
The Board has determined to adopt the three proposed
exceptions, with the modifications discussed below.

The Board

anticipates that the final rule will reduce the regulatory and
recordkeeping burden on banks and increase the ability of banks
to make loans and other extensions of credit that pose little or
no risk to the bank.
Although loans secured in accordance with these exceptions
are removed from a bank's aggregate lending limit, such loans
remain subject to the general prohibitions in Regulation 0 on
extensions of credit to insiders found at §§ 215.4(a) and (b), as
a safeguard against abuse of these exceptions.
Comments
In response to its proposal, the Board received 40 comments:
15 by banks,

8 by state or national bankers' associations,

bank holding companies,

6 by Federal Reserve banks, 2 from law

firms, and 1 by a banker's bank.
the exceptions.

8 by

Thirty-four commenters favored

Six commenters favored other or further

exceptions, and did not comment on the proposed exceptions.
There were no commenters that opposed the exceptions.

Among the 34 comments in favor of the exceptions,
expressed one or more reasons for their support.

27

Twenty

commenters noted that loans within these categories would pose
minimal risk to the lending bank, 7 commenters favored the
exceptions because they would improve the ability of member banks
to retain qualified outside directors, and 5 commenters supported
the exceptions because, by reducing the inconsistency between the
aggregate lending limit and the individual lending limit, they
would reduce the regulatory burden on member banks.

Accordingly,

the commenters felt that the proposal is in the public interest.
One commenter suggested clarifying the proposed exceptions
by incorporating directly into Regulation 0 certain
interpretations by the Comptroller of the Currency of the
exceptions contained in the National Bank Act.-'
32.6(d),

(e), and (f).

See 12 CFR

This commenter suggested that the Board

clarify that the amount of an extension of credit that is
excepted from the aggregate lending limit is limited to an amount
equal to:

(1) the current fair market value of the United States

obligations or other obligations fully guaranteed as to principal
and interest by the United States securing the extension of
credit;

(2) the amount of the commitment or guarantee of a

department or agency of the United States securing the extension
of credit; or (3) the amount of the member bank's perfected

All interpretations by the Comptroller of the
exceptions contained in 12 U.S.C. § 84 are applicable to
Regulation 0 to the extent that these exceptions are incorporated
by reference into or otherwise adopted in Regulation 0.

5

security interest in the segregated, earmarked deposit account
securing the extension of credit.

This commenter also suggested

that the Board clarify that an extension of credit is eligible in
full for an exception if the unpaid principal amount thereof is
secured or guaranteed as described above, and that it is not
required that accrued and unpaid interest on the extension of
credit also be so covered.
The Board has determined that the suggested clarifications
are consistent with the Comptroller's interpretations of
12 U.S.C. § 84, and incorporate appropriate safeguards against
abuse of the proposed exceptions.

The Board also has clarified,

consistent with the Comptroller's interpretation of 12 U.S.C.
§ 84, that a member bank is required to obtain a perfected
security interest in United States obligations or other
obligations fully guaranteed as to principal and interest by the
United States in order for this exception to be effective.
Twenty-one of the commenters proposed other or further
exceptions.
including,

These comments presented a variety of proposals,
among others, the adoption of one or more additional

exceptions to the lending limits found in 12 U.S.C. § 84, the
adoption of certain exceptions not found in 12 U.S.C. § 84, and
the adoption of exemptions that would reduce or eliminate the
additional regulatory restrictions imposed on extension of credit
by a member bank to its executive officers.-/

These proposals

-/ These provisions appear in 12 CFR 215.5 of Regulation 0,
and have been adopted pursuant to section 22(g) of the Act,
(continued...)

6

will be considered by the Board in the near future.

However, the

Board has decided not to address these proposals at this time in
order not to delay the adoption of a final rule concerning the 3
exceptions proposed by the Board.
Final Regulatory Flexibility Act Analysis
Pursuant to section 605(b) of the Regulatory Flexibility Act
(5 U.S.C. § 601 et seg.). the Board hereby certifies that the
final rule will not have a significant adverse effect on a
substantial number of small institutions.

The final rule should

relieve the regulatory burden on all member banks, regardless of
size, and will increase the ability of small member banks to make
loans and other extensions of credit that pose little or no risk
of loss to them, and to attract and retain outside directors to
whom such loans may be made in the same manner and to the same
extent as they may be made to persons who are not insiders of the
member bank.
List of Subjects in 12 CFR Part 215
Credit, Federal Reserve System, Penalties, Reporting and
record keeping requirements.
For the reasons set forth in the preamble, the Board amends
Title 12 of the Code of Federal Regulations, Part 215, Subpart A,
as follows:

-/ (...continued)
12 U.S.C. § 375a.
The subject matter of these comments is
outside the scope of the current rulemaking, but will be
considered in connection with future rulemaking by the Board
concerning Regulation O.

7

PART 215— LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL
SHAREHOLDERS OF MEMBER BANKS
1. The authority citation for part 215 is revised to read as
follows:
Authority:

12 U.S.C. 248(i), 375a, 375b(7),

1972 (2) (F) (vi) , Pub. L. 102-550,

106 Stat. 3895

1817

(k)(3) and

(1992).

Subpart A— Loans by Members Banks to Their Executive Officers,
Directors, and Principal Shareholders
2.

Section 215.4 is amended by adding a new paragraph

(d)(3) to

read as follows:

§215.4

General prohibitions.

*

*

*

(d)

*

(3)

Exceptions.

(d)(1) of

*

*

*

*
The general limit

this section does notapply
(i)

specified

in paragraph

to thefollowing:

Extensions of credit secured by a perfected

security interest in bonds, notes, certificates of
indebtedness, or Treasury bills of the United States or in
other such obligations fully guaranteed as to principal and
interest by the United States;
(ii)

Extensions of credit to or secured by

unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or
establishment of the United States or any corporation wholly
owned directly or indirectly by the United States; or

8

(iii) Extensions of credit secured by a perfected
security interest in a segregated deposit account in the
lending bank.
(iv)

The exceptions in this paragraph (d)(3) apply

only to the amount of such extensions of credit that are
secured in the manner described herein.
By order of the Board of Governors of the Federal Reserve
System, April 27, 1993.
_____________ (signed)____________
William W. Wiles
Secretary of the Board