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FEDERAL RESERVE BANK
OF NEW YORK
Circular No. 10645
June 21. 1993
AMENDMENT TO REGULATION O
Exceptions to the Aggregate Insider Lending Limits
To A ll Member Banks and Bank Holding Companies in the Second
Federal Reserve District, and Others Concerned:
T h e B oard
of G o v e rn o rs of the Federal R eserve
S ystem
has am ended
its
R egulation 0 , "Loans to E xe c u tive O fficers, D irectors, and Principal S h a re h o ld e rs of M em ber
Banks," in o rd e r to adop t three e xce p tio n s to the a g g re g a te insider lending limits containe d
in the regulation, in a c c o rd a n c e with the H o u sin g and C o m m u n ity D evelo pm ent A ct of 1992.
E n clo se d - for d e p o sito ry institutions and others m aintaining sets of the B o a rd ’s re gula tions
-- is the text of the am endm ent to R egulation 0 , as published in the F e d e ra l Register.
Q u e stio n s regarding this m atter m ay be d irected to Kevin Clarke,
Bank Exa m in er A (Tel. N o. 212-720-2181).
E. G erald Corrigan ,
President.
Board of Governors of the Federal Reserve System
LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL
SHAREHOLDERS OF MEMBER BANKS
A m endm ent to Regulation O
(E ffe c tiv e M a y 3 , 1 9 9 3 )
FEDERAL RESER VE SYSTEM
C om m en ts
“ zero-b ased review " o f a ll excep tions.
S e e 1 3 8 Cong. Rec. S 1 7 ,9 1 4 -1 5 (daily
In resp o n se to its p rop osal, the Board
12 CFR Part 215
ed . O ctober 8 ,1 9 9 2 ). T h e Board has
rece iv e d 40 com m en ts: 15 by banks, 8
p ro p o sed three e x c e p tio n s to the
[Regulation 0; Docket No. R-0785]
b y state or n ation al b ank ers’
aggregate le n d in g lim it in R egulation O
a sso cia tio n s, 8 by bank h old in g
Loans to Executive Officers, Directors, (12 CFR part 215) to im p lem en t th is
co m p a n ie s, 6 b y F ed eral R eserve banks,
am
en
dm
en
t.
and Principal Shareholders of Member
2 horn la w firm s, an d 1 by a banker’s .
A ll o f th e p ro p o sed ex cep tio n s are
Banks; Loans to Holding Companies'
bank. T hirty-four com m en ters favored
fou n d in th e N a tio n a l Bank A ct and are
Bnd Affiliates
th e ex c e p tio n s. S ix com m en ters favored
already in corporated in th e in d ivid u al
other or further ex c e p tio n s, and d id not
AGENCY: Board o f G overnors o f the
le n d in g lim it in R egulation O. S ee 12
co m m en t on th e p ro p o sed excep tions.
Federal R eserve S ystem .
U.S.C . 84; 12 CFR 215.2(h ) and 215.4(c).
There w ere n o com m en ters that
ACTION: F in al rule.
T h ese e x c e p tio n s are for certain
op p o sed the e x c ep tio n s.
categories o f loan s or ex ten sio n s of
SUMMARY: T he Board is am ending
A m ong the 34 co m m en ts in favor o f
cred it that are d eem e d , as a result o f the
Regulation O to ad opt three excep tion s
m anner in w h ic h th e y are collateralized, the ex cep tio n s, 27 ex p re sse d o n e or
:o the aggregate in sid er len d in g lim it in
m ore reasons for th eir su p p ort. T w en ty
to p o se m in im a l risk o f lo ss to a bank.
h e regulation su bstan tially as they w ere
com m enters n o ted that lo a n s w ith in
T he p ro p o sed ex c e p tio n s are in the
&t forth in the B oard’s proposed rule.
th ese categories w o u ld p o se m in im a l
fo llo w in g three categories:
\d d itio n a l ex c ep tio n s suggested by
risk to the len d in g bank, 7 com m en ters
(1) E x ten sio n s o f cred it secured by
:om m enters w ill b e con sid ered in future
ob ligation s o f th e U n ite d States or other favored the ex c ep tio n s b e ca u se th ey
rulemaking. T h e Board is taking th is
w o u ld im prove tn e a b ility o f m em ber
ob ligation s fu lly guaranteed as to
iction o n d ie b asis o f authority granted
banks to retain q u a lified o u tsid e
p rin cip al an d in terest b y the U nited
n the H ou sin g and C om m unity
directors, and 5 co m m en ters su p p orted
States;
Developm ent A ct o f 1992.
the ex cep tio n s b eca u se , b y re d u cin g the
(2) E x ten sio n s o f cred it to or secured
in co n sisten cy b etw e en th e aggregate
EFFECTIVE DATE*. M ay 3 ,1 9 9 3 .
by co m m itm en ts or guarantees o f a
len d in g lim it and th e in d iv id u a l len d in g
OR FURTHER INFORMATION CONTACT:
departm ent or agen cy o f the U nited
lim
it, they w o u ld red u ce th e regulatory
Gordon M iller, A ttorney (2 0 2 /4 5 2 States; a n d
burden on m em ber banks. A cco rd in gly,
’.534), Legal D iv isio n , Board of
(3) E x ten sio n s o f cred it secured by a
the com m enters felt that th e p rop osal is
Governors o f the F ederal Reserve
segregated d ep o sit a ccou n t w ith the
in the p ub lic in terest.
lystem . For the hearing im paired on ly,
len d in g bank.
O ne com m enter su g g ested clarifyin g
telecom m u n ication D ev ice for the D eaf
P ro p o sa l a s A d op ted
the
p roposed ex c e p tio n s b y
TDD), D orothea T h om p son (2 0 2 /4 5 2 incorporating d irectly in to R egu lation O
T h e Board h as d eterm in ed to adopt
544), Board o f G overnors of the Federal
Reserve S ystem , 20th and C Streets,
th e three p rop osed ex cep tio n s, w ith the certain interpretations b y th e O ffice o f
the Com ptroller o f th e C urrency o f the
JW., W ashington, DC 20551.
m o d ifica tio n s d isc u sse d b elow . T he
Board an ticip a tes that the final rule w ill ex cep tio n s contain e d in th e N a tio n al
UPPLEMENTARY INFORMATION:
redu ce th e regulatory and recordkeeping Bank A ct.1 S ee 12 CFR 32 .6 (d), (e), and
ackground
burden on banks and increase the ability (f). T h is com m enter su ggested that the
Board clarify that th e am ou n t o f an
o f banks to m ake lo a n s and other
T he H ou sin g and C om m unity
exten sion of credit that is e x c e p te d from
ex
te
n
sio
n
s
o
f
credit
that
pose
little
or
no
developm ent A ct o f 199 2 (HCDA), Pub.
the aggregate len d in g lim it is lim ited to
risk to th e bank.
,. 1 0 2 - 5 5 0 ,1 0 6 Stat. 3672 (1992),
an am ount equal to:
A
lth
o
u
g
h
loan
s
secu
red
in
accordance
ffective O ctober 2 8 ,1 9 9 2 , am ended
(1) T he current fair m arket v a lu e of
action 22(h) o f the Federal Reserve A ct w ith th e se e x c e p tio n s are rem oved from the U n ited States o b lig a tio n s or other
a
b
ank
’s
aggregate
le
n
d
in
g
lim
it,
su
ch
\c t) , 12 U.S.C. 375(b), to authorize the
loan s rem ain subject to the general
oard to adopt ex cep tio n s from the
1 All Interpretation* by the Comptroller of the
p roh ib ition s in R egulation O on
efin itio n o f “ex ten sio n of credit" that
ex te n sio n s o f cred it to in sid ers found at exception* contained ln-12 U.S.C. 84 ere applicable
o se m in im al risk to th e len d in g bank,
to Regulation O to the extent that these exceptions
§§ 215.4 (a) and (b), as a safeguard
h e le g isla tiv e h istory o f this provision
are incorporated by reference Into or otherwise
against ab use o f th e se excep tions.
adopted in Regulation O.
ates that the Board sh o u ld m ake a
PRINTED IN NEW YORK, FROM
^nc. Cir. No. 10645]
F E D E R A L R E G IS T E R ,
VOL. 58, NO. 84
(OVER)
obligations fully guaranteed as to
principal and interest b y th e U n ite d
States securing the e x te n sio n o f credit;
(2) T he am ount o f th e co m m itm en t or
guarantee of a departm ent or a g en cy of
the U nited States secu rin g th e ex te n sio n
o f credit; or
(3) The am ount o f th e m em ber bank ’s
perfected security in terest in th e
segregated, earm arked d ep o sit accou n t
securing the ex ten sio n o f cred it. T h is
com m enter also su gg ested that the
Board clarify that an e x te n sio n o f credit
is eligible in full for an e x c e p tio n if the
unpaid principal am ou n t th ereo f is
secured or guaranteed as d escrib ed
above, and that is n ot required that
accrued and u n p aid in terest on the
extension of credit a lso b e so covered.
T he Board has d eterm in ed that the
suggested clarification s are c o n siste n t
w ith the C om ptroller’s interpretation s of
12 U.S.C. 84, and incorporate
appropriate safeguards again st ab use of
the proposed ex cep tio n s. T h e Board also
has clarified, co n siste n t w ith th e
Com ptroller’s interpretation o f 12 U.S.C.
84, that a m em ber bank is required to
obtain a perfected secu rity interest in
U nited States ob ligation s or other
obligations fully guaranteed as to
principal and in terest b y th e U n ited
States in order for th is ex cep tio n to be
effective.
T w enty-on e o f th e com m en ters
proposed other or further e x c e p tio n s .'
T hese com m ents p resen ted a variety o f
proposals, in clu d in g , am ong others, the
adoption o f on e or m ore ad d ition al
excep tions to the le n d in g lim its foun d
in 12 U.S.C. 84, th e a d op tion o f certain
excep tions not fou n d in 12 U .S .C 84,
and the adoption o f ex em p tio n s that
w ou ld reduce or elim in a te the
additional regulatory restrictions
im posed on ex ten sio n o f credit b y a
m em ber bank to its ex e cu tiv e officers.*
T hese p rop osals w ill b e con sid ered by
the Board in th e near future. H ow ever,
the Board h as d e c id e d n o t to address
these prop osals at tills tim e in order not
to d elay th e a d op tion o f a final rule
concerning the 3 ex c e p tio n s p rop osed
by the Board.
Final R egulatory F le x ib ility A ct
A n alysis
Pursuant to sectio n 605(b) o f the
Regulatory F lex ib ility A ct (5 U .S .C 601
et seq ), the Board h ereby certifies that
the final rule w ill n o t h a v e a sign ifican t
adverse effect on a substan tial num ber
of sm all in stitu tio n s. T h e final ru le
sh ould relieve th e regulatory burden on
all m em ber banks, regardless o f siz e,
and w ill increase th e ab ility o f sm a ll
m em ber banks to m ake lo a n s and other
exten sion s o f credit that p o se little or no
risk o f lo ss to them , an d to attract an d
retain o u tsid e directors to w h o m su c h
loans m ay b e m ade in th e sam e m anner
and to th e sam e ex ten t a s th ey m ay be
made to p ersons w h o are n ot in sid ers o f
the m em ber bank.
1. T h e authority citation for part 215
is rev ised to read as follow s:
Authority: 12 U.S.C. 248(i), 375a, 375b{7),
1817(k)(3) and 1972(2)(F)(vi), Pub. L. 102550,106 Stal 3895 (1992).
Subpart A — Loans by Member Banks
to Their Executive Officers, Directors,
and Principal Shareholders
2. S ectio n 215.4 is am ended b y
a d d in g a n ew paragraph (d)(3) to read as
fo llo w s:
S215.4 General prohibition*.
* * * * *
(d)* * *
(3) E xception s. T h e general lim it
sp e c ifie d in paragraph (d)(1) o f this
se ctio n d o es not ap p ly to the follow ing:
(i) E xten sion s o f credit secured b y a
perfected security interest in b on d s,
n o tes, certificates o f in debted ness, or
Treasury b ills of the U nited States or in
other su c h obligations fully guaranteed
as to p rin cip al and interest by the
U n ited States;
(ii) E xten sion s o f credit to or secured
b y u n con d ition al takeout com m itm ents
List o f Subjects in 12 CFR Part 215
or guarantees of any departm ent,
agen cy, bureau, board, com m ission or
Credit, Federal Reserve System,
estab lish m en t of the U nited States or
Penalties, Reporting and record keeping an y corporation w h o lly ow n ed directly
requirements.
or in d irectly by the U nited States;
(iii) E xtensions o f credit secured by a
For th e reasons set forth in the
p erfected security interest in a
pream ble, th e Board am en ds title 12 o f
segregated deposit account in the
the C ode o f Federal R egulations, part
len d in g bank; or
215, subpart A , as follow s: (iv) T h e excep tion s in this paragraph
PART 215— LOANS TO EXECUTIVE
(d)(3) ap p ly on ly to th e am ount o fs u c h
OFFICERS, DIRECTORS, AND
ex te n sio n s o f credit that are secured in
PRINCIPAL SHAREHOLDERS OF
the m anner described herein.
MEMBER BANKS
‘ These provisions appear in 12 CFR 215.5 of
Regulation O, and have been adopted pursuant to
section 22(g) of the A ct 12 U.S.C 375a. The subject
matter of these comments is outside the scope of the
current rulemaking, but w ill b e considered in
connection with future rulemaking by the Board
concerning Regulation 0 .
By order of the Board of Governors of the
Federal Reserve System, April 27,1993.
William W. Wiles,
Secretary o f the Board.
IFR Doc. 93-10431 Filed 5-3-93; 8:45 am]
BtLUNQ COOf *210-01-u
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