View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F ederal

reserve

Ba n k

DALLAS, TEXAS

of

Dallas

75222

Circular No. 70-270
November 12, 1970

REPRINT OF REGULATION 0
LOANS TO EXECUTIVE OFFICERS OF MEMBER BANKS

To All Member Banks
in the Eleventh Federal Reserve District:

Enclosed is the new larger size reprint of
Regulation 0, as amended effective March 15, 1968.
No amendments to the Regulation have been issued
subsequent to March 15, 1968.
The small size Regulation 0 should be
destroyed.
Yours very truly,
P. E. Coldwell
President
Enclosure (l)

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

BOARD OF GOVERNORS
of the
FEDERAL RESERVE SYSTEM

LOANS TO EXECUTIVE OFFICERS
OF MEMBER BANKS

REGULATION O
(12 CFR 215)
As amended effective M arch 15, 1968

Any inquiry relating to this regulation should be addressed to the Federal
Reserve Bank of the Federal Reserve district in which the inquiry arises.

CONTENTS
Page

Page
S e c . 2 1 5 .1 — B a s is

..............................

3

........................................

3

(a ) “Member bank” ......................................
(b) “Executive officer” .................................
(c) “Extension of credit” and
“extend credit” ...................................

3
3

S e c . 2 1 5 .3 — G e n e r a l P r o h ib it io n s ................

4

and

Scope

S e c . 2 1 5 .2 — D e f i n i t i o n s

(a ) Extensions of credit to executive officers
(b) Extensions of credit to partnerships . .
S e c . 2 1 5 .4 — E x

c e p t io n s

...........................................

(a ) Protection of member bank against loss
(b) Particular ex cep tio ns ......................................

S e c . 2 1 5 .5 — R e q u i r e m e n t s f o r E x t e n s io n s
o f C re d it
......................................
S e c . 2 1 5 .6 — R e p o r t s
cers o f

5

E x e c u t iv e O f f i ­
T h e ir I n d e b t e d n e s s

by

........................

5

S e c . 2 1 5 .7 — R e p o r t s o f M e m b e r B a n k s t o
F e d e r a l S u p e r v is o r s ..............

5

Sta tu to r y A

6

to

O th er Ba

n k s

3

4
4
4
4
4

p p e n d ix

REGULATION 0
(12 CFR 215)
As amended effective M arch 15, 1968

LOANS TO EXECUTIVE OFFICERS
OF MEMBER BANKS*

SECTION 215.1— BASIS AND SCOPE
This Part is issued pursuant to sections ll(i)
and 22(g) of the Federal Reserve Act, as amended
(12 U.S.C. 248(i) and 375a), and relates to exten­
sions of credit by member banks to their executive
officers and reports of such indebtedness.
SECTION 215.2— DEFINITIO NS
(a) “Member bank”. The term “member bank”
means any banking institution that is a member of
the Federal Reserve System.
(b) “Executive officer’*. The term “executive of­
ficer” means every officer of a member bank who
participates or has authority tq participate, other­
wise than in the capacity of a director, in major
policy-making functions of the bank, regardless of
whether he has an official title or whether his title
contains a designation of assistant and regardless
of whether he is serving without salary or other
compensation.1 The chairman of the board, the
president, every vice president, the cashier, secre­
* This text corresponds to the Code o f Federal Regula­
tions, Title 12, Chapter II, Part 215; cited as 12 CFR 215.
The words “this Part”, as used herein, mean Regulation O.
1 The term is not intended to include persons who may
have official titles and may exercise a certain measure of
discretion in the performance of their duties, including
discretion in the making of loans but who do not partici­
pate in the determination of major policies of the bank
and whose decisions are circumscribed by policy stand­
ards fixed by the top management of the bank. For ex­
ample, the term would not include a manager or assistant
manager of a branch of a bank unless he participates or is
authorized to participate in major policy-making functions.

tary, and treasurer of a member bank are assumed
to be executive officers, unless, by resolution of
the board of directors or by the bank’s bylaws, any
such officer is excluded from participation in
major policy-making functions, otherwise than
in the capacity of a director of the bank, and he
does not actually participate therein.2
(c)
“Extension of credit” and “extend credit”.
The terms “extension of credit” and “extend
credit” mean the making of a loan or the extend­
ing of credit in any manner whatsoever, and
include:
(1) any advance by means of an overdraft, cash
item, or otherwise;
(2) the acquisition by discount, purchase, ex­
change, 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, endorser, guarantor, or surety;
(3) the increase of an existing indebtedness, ex­
cept on account of accrued interest or on account
of taxes, insurance, or other expenses incidental to
the existing indebtedness and advanced by the
bank for its own protection;
(4) any advance of unearned salary or other
unearned compensation for periods in excess of
30 days; and
(5) any other transaction as a result of which
an executive officer becomes obligated to a bank,
directly or indirectly by any means whatsoever,
2 Such resolutions may be particularly appropriate with
respect to some officers of banks with a large number of
vice presidents.

§§

2 1 5 .2 -2 1 5 .4

by reason of an endorsement on an obligation or
otherwise, to pay money or its equivalent.
Such terms, however, do not include:
(i) advances against accrued salary or other ac­
crued compensation, or for the purpose of provid­
ing for the payment of authorized travel or other
expenses incurred or to be incurred on behalf of
the bank;
(ii) the acquisition by a bank of any check de­
posited in or delivered to the bank in the usual
course of business unless it results in the carrying
of a cash item for or the granting of an overdraft
(other than an inadvertent overdraft in a nominal
amount that is promptly repaid) to an executive
officer;
(iii) the acquisition of any note, draft, bill of
exchange, or other evidence of indebtedness,
through a merger or consolidation of banks or a
similar transaction by which a bank acquires as­
sets and assumes liabilities of another bank or
similar organization, or through foreclosure on
collateral or similar proceeding for the protection
of the bank; or
(iv) indebtedness arising by reason of general
arrangements under which a bank (a) acquires
charge or time credit accounts or (b) makes pay­
ments to or on behalf of participants in a bank
credit card plan, check credit plan, or similar plan,
except that this subdivision (iv) shall not apply to
indebtedness of an executive officer to his own
bank to the extent that the aggregate amount
thereof exceeds $1,000 or to any such indebted­
ness to his own bank that involves prior individual
clearance or approval by the bank other than for
the purpose of determining whether his participa­
tion in the arrangement is authorized or whether
any dollar limit under the arrangement has been
or would be exceeded.
SECTION 215.3— G ENERAL PROHIBITIONS
(a) Extensions of credit to executive officers.
Except as provided in § 215.4, no member bank
shall extend credit to any of its own executive
officers and no executive officer of a member bank
shall borrow from or otherwise become indebted
to such bank.
(b) Extensions of credit to partnerships. Except
as provided in subparagraph (3) of § 215.4(b), no
member bank shall extend credit to a partnership

REGULATION 0

in which one or more executive officers of such
bank are partners having either individually or to­
gether a majority interest in the partnership and
no such partnership shall borrow from or other­
wise become indebted to such member bank.
SECTION 215.4— EXCEPTIONS
(a) Protection of member bank against loss.
This Part shall not apply to the endorsing or
guaranteeing for the protection of a member bank
of any loan or other asset previously acquired by
such bank in good faith or to any indebtedness for
the purpose of protecting a member bank against
loss or of giving financial assistance to it.
(b) Particular exceptions. Subject to the require­
ments of § 215.5, the provisions of this Part shall
not apply:
(1)
to any loan not exceeding $30,000 made
by a member bank, with the specific prior approval
of its board of directors, to any executive officer
of such bank if, at the time the loan is made:
(1) it is secured by a first lien on a dwelling
which is owned, or after the making of the loan is
to be owned, by the officer solely or jointly with
his spouse and used by him as his residence;
(ii) it is made for the purpose of purchasing,
constructing, maintaining, or improving such resi­
dence; and
(iii) no other such loan by the bank to the of­
ficer is outstanding;
(2) to extensions of credit made by a member
bank to any executive officer of the bank, not ex­
ceeding the aggregate amount of $10,000 out­
standing at any one time, to finance the education
of the children of the executive officer; or
(3) to extensions of credit made by a member
bank to any executive officer of the bank which
are not otherwise specifically authorized under
this paragraph (b), not exceeding the aggregate
amount of $5,000 outstanding at any one time.
For purposes of this subparagraph, the full amount
of any extension of credit authorized hereunder
that may be made to a partnership in which one
or more of the member bank’s executive officers
are partners and have either individually or togather a majority interest shall be considered to
have been extended to each executive officer of
the bank who is a member of the partnership.

REGULATION 0

§§ 2 1 5 .5 -2 1 5 .7

SECTION 215.5— REQUIREM ENTS FOR
EXTENSIONS OF CREDIT

SECTION 215.6— REPORTS BY EXECUTIVE
OFFICERS OF TH EIR INDEBTEDNESS TO
OTHER BANKS

Every extension of credit to an executive officer:

Any executive officer of a member bank who
becomes indebted to any other bank or banks on
or after July 3, 1967, on account of extensions of
credit of any one of the three categories respec­
tively described in subparagraphs (1), (2), and (3)
of § 215.4 (b), in an aggregate amount greater
than the amount of credit of the same category
that could lawfully be extended to him by the
bank of which he is an executive officer, shall
within 10 days make a written report to the board
of directors of the member bank, identifying the
lender and stating the date and amount of each
such extension of credit, the security therefor, if
any, and the purposes for which the proceeds
have been or are to be used.

(a) shall be promptly reported to the board of
directors of the bank;3
(b) shall be one that the bank is authorized to
make to borrowers other than its officers;
(c) shall be on terms not more favorable than
those afforded other borrowers with similar credit
standing who are not associated with the bank;
(d) shall be preceded by submission of a de­
tailed current financial statement of the borrow­
ing officer, which shall include, but not be limited
to, all data customarily associated with a personal
financial statement including any obligations for
which the officer may be personally liable; and
(e) shall be made subject to the condition that
it shall, at the option of the bank, become due and
payable at any time when the officer is indebted
to any other bank or banks on account of exten­
sions of credit of any one of the three categories
respectively described in subparagraphs (1), (2),
and (3), of § 215.4(b), in an aggregate amount
greater than the amount of credit of the same
category that could be extended him by the bank
of which he is an officer.

1 Prior approval by the board of directors of an exten­
sion of credit made under § 215.4(b) shall be regarded as
compliance with this requirement.

SECTION 215.7— REPORTS OF MEMBER
BANKS TO FEDERAL SUPERVISORS
Each member bank shall include with (but not
as part of) each report of condition and copy
thereof filed pursuant to section 7(a)(3) of the
Federal Deposit Insurance Act (12 U.S.C. 1817
( a ) ( 3 ) ) a report of all loans under authority of
this Part made by the bank since the date of its
previous report of condition.

REGULATION O

STATUTORY APPENDIX

Subsection (g) of section 22 of the Federal Re­
serve Act provides as follows:
Sec. 22. * * *
(g)(1) Except as authorized under this subsec­
tion, no member bank may extend credit in any
manner to any of its own executive officers. No
executive officer of any member bank may become
indebted to that member bank except by means
of an extension of credit which the bank is au­
thorized to make under this subsection. Any ex­
tension of credit under this subsection shall be
promptly reported to the board of directors of the
bank, and may be made only if—
(A) the bank would be authorized to make
it to borrowers other than its officers;
(B) it is on terms not more favorable than
those afforded other borrowers;
(C) the officer has submitted a detailed cur­
rent financial statement; and
(D) it is on condition that it shall become
due and payable on demand of the bank at any
time when the officer is indebted to any other
bank or banks on account of extensions of credit
of any one of the three categories respectively
referred to in paragraphs (2), (3), and (4) in an
aggregate amount greater than the amount of
credit of the same category that could be ex­
tended to him by the bank of which he is an
officer.
(2) With the specific prior approval of its board
of directors, a member bank may make a loan not
exceeding $30,000 to any executive officer of the
bank if, at the time the loan is made—
(A) it is secured by a first lien on a dwelling
which is expected, after the making of the loan,
to be owned by the officer and used by him as
his residence, and
(B) no other loan by the bank to the officer
under authority of this paragraph is outstanding.
(3) A member bank may make extensions of
credit to any executive officer of the bank, not
exceeding the aggregate amount of $10,000 out­
standing at any one time, to finance the education
of the children of the officer.
(4) A member bank may make extensions of
credit not otherwise specifically authorized under

STATUTORY APPENDIX

this subsection to any executive officer of the bank
not exceeding the aggregate amount of $5,000
outstanding at any one time.
(5) Except to the extent permitted under para­
graph (4), a member bank may not extend credit
to a partnership in which one or more of its ex­
ecutive officers are partners having either indi­
vidually or together a majority interest. For the
purposes of paragraph (4), the full amount of any
credit so extended shall be considered to have been
extended to each officer of the bank who is a
member of the partnership.
(6) Whenever an executive officer of a mem­
ber bank becomes indebted to any bank or banks
(other than the one of which he is an officer) on
account of extensions of credit of any one of the
three categories respectively referred to in para­
graphs (2), (3), and (4) in an aggregate amount
greater than the aggregate amount of credit of the
same category that could lawfully be extended to
him by the bank, he shall make a written report
to the board of directors of the bank, stating the
date and amount of each such extension of credit,
the security therefor, and the purposes for which
the proceeds have been or are to be used.
(7) This subsection does not prohibit any ex­
ecutive officer of a member bank from endorsing
or guaranteeing for the protection of the bank any
loan or other asset previously acquired by the
bank in good faith or from incurring any in­
debtedness to the bank for the purpose of protect­
ing the bank against loss or giving financial as­
sistance to it.
(8) Each day that any extension of credit in
violation of this subsection exists is a continua­
tion of the violation for the purposes of section
8 of the Federal Deposit Insurance Act.
(9) Each member bank shall include with (but
not as part of) each report of condition and copy
thereof filed under section 7(a)(3) of the Federal
Deposit Insurance Act a report of all loans under
authority of this subsection made by the bank
since its previous report of condition.
(10) The Board of Governors of the Federal
Reserve System may prescribe such rules and
regulations, including definitions of terms as it
deems necessary to effectuate the purposes and to
prevent evasions of this subsection.
[U.S.C., title 12, sec. 375a.]