Full text of Federal Reserve Bank of New York Circulars : 10700. Loans to Executive Officers, Directors and Principal Shareholders of Member Banks

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 10700 ”1
March 22, 1994

LOANS TO EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL SHAREHOLDERS OF MEMBER BANKS
Amendments to Regulation O
To All Depository Institutions, and Others
Concerned in the Second Federal Reserve District:

The following statement has been issued by the Board o f Governors of the
Federal Reserve System:
The Federal Reserve Board has announced approval of a final rule amending
several provisions of Regulation O (Loans to Executive Officers, Directors, and
Principal Shareholders of Member Banks).
The rule was effective February 18, 1994.
The first amendment makes permanent an interim rule increasing Regulation O ’s
aggregate lending limit for small, adequately capitalized banks from 100 percent of
a bank’s unimpaired capital and surplus to 200 percent.
The second set of amendments is designed to reduce the burden and complexity
of the regulation. These amendments clarify the “tangible economic benefit” rule,
provide certain exceptions to the lending limit for insiders, permit banks to follow
alternative recordkeeping procedures, and narrow the definition of “extension of
credit.”
Additionally, the final rule implements technical amendments to Regulation O
in order to make it more readily understandable and somewhat shorter.
Enclosed — for depository institutions in the Second Federal Reserve D istrict
and others who m aintain sets of regulations of the Board of G overnors — is the text
of the am endm ents to Regulation O, which have been reprinted from the Federal
Register o f February 24; additional single copies may be obtained at this Bank (33
Liberty Street) from the Issues Division on the first floor, or by contacting the
Circulars Division (Tel. No. 212-720-5216). Questions regarding Regulation O may
be directed to Donald E. Schm id, Manager, Dom estic Banking D epartm ent (Tel.
No. 212-720-6611).

W il lia m J. M c D o n o u g h ,

President.

/0 7 0 O

Board of Governors of the Federal Reserve System
LOANS TO EXECUTIVE OFFICERS, DIRECTORS,
AND PRINCIPAL SHAREHOLDERS OF MEMBER BANKS
AMENDMENTS TO REGULATION O
E ffe c tiv e F e b ru a ry 18, 1994

FEDERAL RESERVE SYSTEM
12CFR Part 215

S y stem , 2 0 th & C S tre e ts, N W .,
W a sh in g to n , DC 2 0 5 5 1 .
SUPPLEMENTARY INFORMATION:

[Regulation O; Docket Nos. R -0 80 0 and R 0809]

I. Background

th o s e p e rs o n s (in sid e rs). S e c tio n 306 o f
th e F e d e ra l D e p o sit In s u ra n c e
C o rp o ra tio n Im p ro v e m e n t A ct o f 1991
(FDICIA) * a m e n d e d s e c tio n 22(h) to
im p o s e a n ag g re g ate lim it o n th e a m o u n t
a b a n k m a y le n d to its in s id e rs as a
c la ss. S ee 12 U .S.C . 375b(5). In g e n e ra l,
th e lim it is e q u a l to 100 p e rc e n t o f th e
b a n k ’s u n im p a ir e d c a p ita l a n d
u n im p a ir e d s u r p lu s . T h e B o ard is
a u th o riz e d , h o w e v e r, to m ak e
e x c e p tio n s to th e g e n e ra l lim it for b a n k s
w ith d e p o s its o f le ss th a n $ 1 0 0 m illio n
“ if th e B o a rd d e te rm in e s th a t th e
e x c e p tio n s a re im p o rta n t to a v o id
c o n s tric tin g th e a v a ila b ility o f c re d it in
s m a ll c o m m u n itie s o r to a ttra c t d ire c to rs
o f s u c h b a n k s .” 12 U .S.C . 375b(5)(C).
T h e h ig h e r lim it m a y n o t e x c e e d 200
p e rc e n t o f th e b a n k ’s u n im p a ire d c a p ita l
a n d u n im p a ir e d s u r p lu s . Id.
E ffe ctiv e M a y 1 8 ,1 9 9 2 , th e B o ard
a m e n d e d R e g u la tio n O , w h ic h
im p le m e n ts s e c tio n 2 2(h), to in c o rp o ra te
th e ag g reg ate le n d in g lim it a d d e d b y
FDICIA . T h e g e n e ra l lim it o n le n d in g to
in s id e r s a n d th e ir re la te d in te re s ts — 100
p e r c e n t o f th e b a n k ’s u n im p a ir e d c a p ita l
a n d u n im p a ir e d s u r p lu s — w as a d o p te d .
T h e B o a rd a lso d e c id e d a s a n in te rim
m e a s u re to p e r m it b a n k s w ith d e p o s its
u n d e r $ 1 0 0 m illio n to a d o p t a h ig h e r
lim it, n o t to e x c e e d 200 p e rc e n t o f th e
b a n k ’s u n im p a ir e d c a p ita l a n d
u n im p a ir e d s u r p lu s , for a p e rio d o f o n e
y e a r to e x p ire M a y 1 8 ,1 9 9 3 . T h e
in te rim p e rio d w a s in te n d e d to a llo w
th e B o a rd to c o n s u lt w ith th e o th e r
fe d e ra l b a n k in g a g e n c ie s a n d c o lle c t
d a ta o n th e le n d in g p ra c tic e s o f b a n k s
in o rd e r to a n a ly z e th e effec t o f th e
ag g re g ate le n d in g lim it o n th e
a v a ila b ility o f c r e d it a n d se rv ic e o f
d ire c to rs . S ee 57 FR 2 2 417, 22420, M ay
2 8 ,1 9 9 2 .
T h e B o a rd s u b s e q u e n tly e x te n d e d th e
in te r im r u le for s ix m o n th s , th ro u g h
N o v e m b e r 1 8 ,1 9 9 3 , in o rd e r to o b ta in
p u b lic c o m m e n ts o n w h e th e r th e

T h e B o a rd is m a k in g p e r m a n e n t, w ith
c e rta in a d d itio n a l q u a lific a tio n s , its
in te rim ru le p e rm ittin g s m a ll,
a d e q u a te ly c a p ita liz e d b a n k s to e x te n d
c re d it to in s id e rs u p to 200 p e rc e n t o f
u n im p a ir e d c a p ita l a n d s u r p lu s , in
AGENCY: B o a rd o f G o v ern o rs o f th e
c irc u m s ta n c e s w h e r e s u c h le n d in g is
F e d e ra l R e serv e S y stem .
n e c e s sa ry to s e rv e lo c a l c r e d it n e e d s o r
ACTION: F in a l ru le .
to a ttra c t d ire c to rs . T h e B o a rd a ls o is
a d o p tin g a m e n d m e n ts to R e g u la tio n O
SUMMARY: T h e B o a rd is re v isin g
(12 CFR p a rt 215) d e s ig n e d to in c re a s e
R e g u la tio n O to p e rm it th e ag g reg ate
th e a b ility o f b a n k s to m a k e e x te n s io n s
lim it o n le n d in g to in s id e rs by e lig ib le ,
o f c re d it th a t p o s e m in im a l ris k o f lo ss,
a d e q u a te ly c a p ita liz e d s m a ll b a n k s to b e to e lim in a te re c o rd k e e p in g r e q u ire m e n ts
in c re a s e d from 100 p e r c e n t o f
th a t im p o s e a p a p e rw o rk b u r d e n b u t d o
u n im p a ire d c a p ita l a n d s u r p lu s to 200.
n o t sig n ific a n tly a id c o m p lia n c e w ith
T h e B o a rd a ls o is re v is in g R e g u la tio n O th e re g u la tio n , a n d to re m o v e c e rta in
to p e rm it b a n k s to fo llo w a lte rn a tiv e
tra n s a c tio n s fro m th e re g u la tio n ’s
re c o rd k e e p in g p r o c e d u re s o n lo a n s to
c o v e ra g e c o n s is te n t w ith b a n k sa fe ty
in s id e r s o f a ffilia te s, to n a rro w th e
a n d so u n d n e s s . T h e a b o v e a m e n d m e n ts
d e fin itio n o f “ e x te n s io n o f c r e d it,” a n d
a re e x p e c te d to in c re a s e th e a v a ila b ility
to a d o p t c e rta in e x c e p tio n s to th e
o f c re d it, p a r tic u la rly in c o m m u n itie s
g e n e ra l re s tr ic tio n s o n le n d in g to
se rv e d by sm a ll b a n k s , a n d to r e d u c e th e
in s id e rs a n d th e s p e c ia l re s tr ic tio n s o n
co st o f c o m p lia n c e w ith th e re g u la tio n .
le n d in g to e x e c u tiv e offic ers. O th e r
In v ie w o f th e e x te n s iv e c h a n g e s m a d e
m in o r re v is io n s c la rify in g c e rta in
to R e g u la tio n O a s a re s u lt o f th is
e x e m p tio n s a n d c o n fo rm in g c e rta in
ru le m a k in g , th e B o a rd is re sta tin g
p ro v is io n s to th e e n a b lin g s ta tu te s a re
su b p a rt A o f R e g u la tio n O a s a m e n d e d ,
in c lu d e d as w e ll.
ra th e r th a n s e p a ra te ly d e s c rib in g e a c h
EFFECTIVE DATE: E ffe ctiv e F e b ru a ry 1 8 ,
a m e n d m e n t.
1994.
T h e B o a rd is m a k in g th e ru le effec tiv e
FOR FURTHER INFORMATION CONTACT:
im m e d ia te ly in o r d e r to p re v e n t a la p se
G regory B aer, S e n io r A tto rn e y (2 0 2 /
in th e 2 0 0 p e rc e n t le n d in g lim it
4 5 2 -3 2 3 6 ), G o rd o n M ille r, A tto rn e y
a v a ila b le to e lig ib le b a n k s u n d e r th e
(2 0 2 /4 5 2 -2 5 3 4 ), o r S te p h e n V an M e te r,
in te rim ru le for lo a n s to in s id e rs , a n d to
A tto rn e y (2 0 2 /4 5 2 -3 5 5 4 ), L egal
m a k e a ll o th e r p ro v is io n s effectiv e at th e
D iv isio n ; S te p h e n M . L o v e tte , M a n a g e r
sa m e tim e .
o f P o lic y I m p le m e n ta tio n ( 2 0 2 /4 5 2 IL
The 200 Percent Aggregate Lending
3469), o r M a rk B e n to n , S e n io r F in a n c ia l
Limit
A n a ly s t (2 0 2 /4 5 2 -5 2 0 5 ), D iv isio n o f
B a n k in g S u p e rv is io n a n d R e g u la tio n ,
S e c tio n 2 2(h) o f th e F ed era l R eserv e
B o a rd o f G o v e rn o rs o f th e F e d e ra l
A c t (12 U .S.C . 375b) re stric ts th e
R eserv e S y stem . F o r th e h e a rin g
a m o u n ts a n d te rm s o f e x te n sio n s o f
im p a ire d o n ly , T e le c o m m u n ic a tio n s
c re d it fro m a b a n k to e x e c u tiv e o fficers,
D ev ice for th e D ea f (TDD), D o ro th e a
d ire c to rs , a n d p r in c ip a l s h a re h o ld e rs o f
T h o m p s o n (2 0 2 /4 5 2 —3544), B o a rd o f
th e b a n k a n d its h o ld in g c o m p a n y
• Pubic Law 102-242, Section 306,105 Stat. 2236
G o v ern o rs o f th e F e d e ra l R e serv e
(1991).
a ffilia te s a n d to a n y re la te d in te re s t o f

Loans to Executive Officers, Directors,
and Principal Shareholders of Member
Banks; Loans to Holding Companies
and Affiliates

P R IN T E D IN N E W Y O R K , F R O M F E D E R A L R E G IS T E R , V O L . 5 9 , N O . 3 7 , pp. 8 8 3 1 -8 8 4 2

[Enc. Cir. No. 10700]




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8832

Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations

in te rim ru le s h o u ld b e m a d e p e rm a n e n t,
m o d ifie d , o r p e rm itte d to e x p ire . S ee 58
FR 28492, M ay 1 4 ,1 9 9 3 . T h e B o ard
th e re a fte r e x te n d e d th e in te rim r u le a n
a d d itio n a l th re e m o n th s , th ro u g h
F e b ru a ry 1 8 ,1 9 9 4 , in o rd e r to re v ie w
th e w ritte n c o m m e n ts, c a ll re p o rts o f
sm a ll b a n k s , a n d re le v a n t in fo rm a tio n
from o th e r g o v e rn m e n ta l a g e n cies. See
5 8 FR 6 1803, N o v em b e r 2 3 ,1 9 9 3 .
T h e in te rim ru le e s ta b lis h e d
re q u ire m e n ts th a t a sm a ll b a n k h a d to
m e e t in o rd e r to a d o p t a h ig h e r
aggregate le n d in g lim it. U n d e r th a t ru le ,
th e b o a rd o f d ire c to rs o f th e b a n k h a d
to d e te rm in e b y re s o lu tio n th a t a h ig h e r
aggregate le n d in g lim it w a s c o n s is te n t
w ith p r u d e n t, safe, a n d s o u n d b a n k in g
p ra c tic e s in lig h t o f th e b a n k ’s
e x p e rie n c e in le n d in g to its in sid e rs,
a n d th a t a h ig h e r lim it w a s n e c e ssa ry to
a ttra c t o r re ta in d ire c to rs o r to p re v e n t
re stric tin g th e a v a ila b ility o f c re d it in
sm a ll c o m m u n itie s. T h e re s o lu tio n h a d
to se t fo rth th e facts a n d re a so n in g th a t
s u p p o rte d th is d e te rm in a tio n , in c lu d in g
th e a m o u n t o f th e b a n k ’s aggregate
le n d in g to in s id e rs , e x p re s s e d as a
p e rc e n ta g e o f u n im p a ire d c a p ita l a n d
u n im p a ire d s u rp lu s , a s o f th e d a te o f th e
re so lu tio n . T h e b a n k a lso w a s re q u ire d
to s u b m it its re s o lu tio n to th e
a p p ro p ria te fed e ra l b a n k in g ag e n cy ,
w ith a c o p y to th e B oard . F in a lly , th e
b a n k h a d to m e e t o r ex c e e d all
a p p lic a b le c a p ita l re q u ire m e n ts. See 12
CFR 215.4(d)(2).
In re s p o n s e to th e n o tic e o f th e
e x te n sio n o f th e in te rim ru le , th e B o ard
re c e iv e d 147 w ritte n c o m m e n ts, w ith
144 r e s p o n d e n ts in fav o r o f m a k in g th e
200 p e rc e n t lim it p e rm a n e n t. S m a ll
b an k s su b je ct to th e r u le s u b m itte d th e
large m a jo rity o f c o m m e n ts. O th e r
c o m m e n te rs in c lu d e d n u m e ro u s sta te
a n d n a tio n a l b a n k in g tra d e a s so c ia tio n s ,
se v eral sta te b a n k in g s u p e rin te n d e n ts
a n d F e d e ra l R eserve B a n k s, in d iv id u a l
b a n k d ire c to rs, b a n k h o ld in g c o m p a n ie s,
a n d law firm s.
A d v e rse c o m m e n t fo c u se d o n th e
re la tiv e ly lo w le v el o f u s e o f th e in te rim
p ro v isio n . T w o o f th e th re e a d v e rse
c o m m e n te rs a rg u e d th a t a h ig h e r
aggregate le n d in g lim it w a s n o t
im p o rta n t to c re d it o r d ire c to r
a v a ila b ility b e c a u s e v e ry few b a n k s h a d
u s e d th e in te rim ru le . O n e sta te b a n k in g
c o m m issio n e r n o te d th a t o f th e 88 sm a ll
b a n k s it s u p e rv is e d , o n ly o n e h a d
aggregate in s id e r lo a n s in e x c ess o f 60
p e rc e n t o f u n im p a ire d c a p ita l a n d
u n im p a ire d s u rp lu s as o f M a rc h 31,
1993.
C all re p o rt d a ta re fle c te d a s im ila r lo w
lev el o f aggregate in s id e r le n d in g . A s of
S e p te m b e r 3 0 ,1 9 9 3 , o f a to ta l
p o p u la tio n o f 7,435 b a n k s w ith d e p o s its
o f less th a n $ 100 m illio n , o n ly 17



re p o rte d lo a n s to in s id e rs in a n a m o u n t
g rea ter th a n 100 p e rc e n t o f c a p ita l. A
to ta l o f 131 b a n k s r e p o rte d in s id e r lo a n s
g re a te r th a n 60 p e rc e n t o f c a p ita l. O n ly
54 b a n k s h a v e n o tifie d th e B o ard
p u rs u a n t to th e in te rim ru le th a t th e y
h a v e a d o p te d a h ig h e r ag g reg ate le n d in g
lim it.
In s u p p o rt o f th e p ro p o s e d ru le , six ty tw o c o m m e n te rs sta te d th a t a h ig h e r
aggregate le n d in g lim it w a s im p o rta n t in
o rd e r th a t sm a ll b a n k s n o t b e fo rc e d to
c h o o se b e tw e e n re fu sin g c r e d it to
q u a lifie d in s id e rs a n d a s k in g in s id e rs to
re sig n as d ire c to rs. S e v e ra l b a n k s
o b se rv e d th a t th is w a s a p a r tic u la r
h a rd s h ip b e c a u s e q u a lifie d d ire c to rs
ty p ic a lly are a c tiv e b u s in e s s p e rs o n s
w h o se b u s in e s s e s h a v e s u b s ta n tia l y e t
h e a lth y c re d it re q u ire m e n ts.
F ifte e n c o m m e n te rs o b se rv e d th a t th e
aggregate le n d in g lim it w a s a p a r tic u la r
h a rd s h ip in sm a ll c o m m u n itie s a n d
ru ra l m a rk e ts b e c a u s e in th o s e se ttin g s
sm a ll b a n k s w e re d e p e n d e n t o n in s id e rs
as a lo a n so u rc e , in s id e rs h a d fe w e r
a lte rn a tiv e c re d it so u rc e s, a n d in s id e rs
te n d e d to b e c lo se ly id e n tifie d w ith
th e ir b a n k s, m a k in g it d iffic u lt fo r th e m
to seek c re d it from a c o m p e tito r.
In o rd e r to d e m o n s tra te th a t th e
h ig h e r lim it w a s b e in g u s e d a n d w o u ld
h a v e im p o rta n t b e n e fits if m a d e
p e rm a n e n t, th e I n d e p e n d e n t B a n k e rs
A sso c ia tio n o f A m e ric a (IBAA)
p re s e n te d in its c o m m e n t a su rv e y o f
8,057 sm a ll b a n k s. O f 1,060 b a n k s th a t
r e s p o n d e d to th e su rv e y , 152 re p o rte d
th a t th e g e n e ra l ag g reg ate le n d in g lim it
h a d p re v e n te d th e m fro m m a k in g a lo a n
to a n in sid e r; 95 r e s p o n d e n ts re p o rte d
th a t th e aggregate le n d in g lim it h a d
p re v e n te d th e m from n a m in g a n
in d iv id u a l as a d ire c to r; a n d 53
r e s p o n d e n ts re p o rte d th a t th e y h a d
a c c e p te d a d ire c to r re sig n a tio n
a ttrib u ta b le to th e ag g reg ate le n d in g
lim it.
A d d itio n a l c o m m e n te rs p re s e n te d a
v a rie ty o f re a so n s fo r th e lo w le v e l o f
u s e o f th e in te rim 200 p e rc e n t lim it;
c o n c e rn th a t th e in te rim ru le w o u ld b e
e lim in a te d , th e re b y fo rc in g b a n k s to
re tra c t c re d it e x te n d e d in re lia n c e o n it;
h isto ric a lly lo w le n d in g le v els; lo a n
p a rtic ip a tio n s as a n a lte rn a tiv e to
a p p ro v in g a h ig h e r lim it; a n d d e fe rra l o f
c o n s id e ra tio n o f th e is s u e b y sm a ll
b a n k s w h o se in s id e r lo a n s h a d n o t
m a tu re d sin c e a d o p tio n o f th e in te rim
ru le . S o m e c o m m e n te rs a lso o b se rv e d
th a t th e in te rim ru le im p o s e d d e ta ile d
re q u ire m e n ts a n d th a t so m e b a n k s m a y
h a v e fea re d a ttra c tin g a d d itio n a l
re g u la to ry sc ru tin y b y a d o p tin g th e
in te rim ru le.
A fter th e c lo se o f th e c o m m e n t p e rio d ,
th e G en e ral A c c o u n tin g O ffice (GAO)
p ro v id e d to th e B o a rd a d ra ft re p o rt on

b a n k in s id e r a c tiv itie s. T h e GAO
re v ie w e d b a n k s th a t fa ile d d u rin g 1990
a n d 1991 in o rd e r to d e te rm in e w h e th e r
in s id e r p ra c tic e s c o n trib u te d to th e
b a n k s ’ fa ilu re s. (T h e G A O d id n o t
e v a lu a te a n y e x istin g o r p ro p o s e d
re g u la tio n in th is are a.) T h e G A O fo u n d
th a t in s id e r p ro b le m s (w h ic h th e G A O
d e fin e d v e ry b ro a d ly ) w e re p re v a le n t a t
fa ile d b a n k s , th a t b a n k s w ith le ss th a n
$ 1 0 0 m illio n o f a s se ts w e re m o re lik e ly
th a n la rg e r b a n k s to b e c ite d for in s id e r
p ro b le m s, a n d th a t th e m o s t fre q u e n tly
c ite d v io la tio n s w e re lo a n s to in s id e rs
m a d e in e x c e ss o f le n d in g lim its a n d o n
p re fe re n tia l te rm s n o t a v a ila b le to th e
g e n e ra l p u b lic .
H o w ev er, th e G A O re p o rt d id n o t
e s ta b lis h a c a u s a l lin k b e tw e e n in s id e r
p ro b le m s a n d b a n k fa ilu re s. R ath er, th e
G A O a p p e a re d to c o n c lu d e th a t in s id e r
p ro b le m s, a s b ro a d ly d e fin e d b y th e
G A O , w e re c o rre la te d w ith p o o r in te rn a l
c o n tro ls a n d u n d e rw ritin g p ra c tice s.
T h e G A O w a s n o t ab le to m e a su re th e
a c tu a l le v e l o f in s id e r le n d in g a t failed
o r tro u b le d b a n k s , a n d th e re fo re w a s n o t
a b le to a d d re s s s p e c ific a lly th e
r e la tio n s h ip o f th e a c tu a l le v e l o f in s id e r
le n d in g to b a n k fa ilu re s. T h e m ajo r G A O
re c o m m e n d a tio n s w e re fo r in c re a se d
m o n ito rin g o f in s id e r le n d in g a n d m o re
e ffec tiv e fo llo w -u p o n v io la tio n s .
T h e B o a rd h a s c o n c lu d e d th a t th e
c o n c e rn s ra is e d in th e G A O re p o rt d o
n o t ju stify p re v e n tin g q u a lifie d b a n k s
fro m u tiliz in g a h ig h e r a g g re g a te le n d in g
lim it. If th e h ig h e r lim if s h o u ld p re s e n t
sa fe ty a n d s o u n d n e s s p ro b le m s a t a n
in s titu tio n , th e n th e a p p ro p ria te
b a n k in g s u p e rv is o r re ta in s g en e ral
a u th o rity to re q u ire a re d u c tio n in th e
le v e l o f in s id e r lo a n s. If p ro b le m s
s h o u ld o c c u r m o re g e n e ra lly , th e B o ard
re ta in s a u th o rity to e lim in a te o r re d u c e
th e e x e m p tio n .
A lth o u g h th e 100 p e rc e n t aggregate
le n d in g lim it d o e s n o t a p p e a r to b e
c u rre n tly c re a tin g a w id e s p re a d p ro b le m
w ith c re d it o r d ire c to r a v a ila b ility , th e
B o a rd h a s c o n c lu d e d th a t it d o e s a p p e a r
to p o se im p o rta n t p ro b le m s for b a n k s in
c e rta in c o m m u n itie s. G iv en th e
a v a ila b le d a ta a n d th e c o m m e n ts, th e
B o a rd b e lie v e s th a t th e 100 p e rc e n t lim it
is re stric tin g th e a v a ila b ility o f c re d it
a n d th e re c ru itm e n t o f d ire c to rs in
c o m m u n itie s w h e re th e p ro p e r
c e rtific a tio n c a n b e m a d e . In s u c h
c irc u m sta n c e s, th e B o a rd b e lie v e s th a t
a n e lig ib le sm a ll b a n k s h o u ld b e
p e rm itte d to e s ta b lis h a h ig h e r le n d in g
lim it u p to 2 0 0 p e rc e n t o f u n im p a ir e d
c a p ita l a n d u n im p a ir e d s u rp lu s . E ach
elig ib le b a n k ’s b o a rd o f d ire c to rs w ill
s till b e re q u ire d to c e rtify th a t th e h ig h e r
lim it is n e c e s sa ry to a v o id re s tric tin g
c re d it o r to a s s is t in a ttra c tin g d ire c to rs

/O'/DO
Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations
a n d is c o n s is te n t w ith p r u d e n t, safe, a n d
so u n d b a n k in g p ra c tic e s.
T h e B o ard e m p h a s iz e s th a t, as w a s
th e case p r io r to FDICIA, b o rro w in g b y
in s id e rs w ill c o n tin u e to b e su b je c t to
s c ru tin y d u rin g th e e x a m in a tio n
p ro ce ss, in c lu d in g a n e v a lu a tio n o f
w h e th e r s u c h b o rro w in g re p re s e n ts a n
in a p p ro p ria te c o n c e n tra tio n o f lo a n s.
In th e fin a l ru le , th e B o a rd h a s
a d o p te d th r e e m o d ific a tio n s to th e
p ro p o s e d ru le . F irs t, th e B o a rd h a s
p ro v id e d th a t to q u a lify fo r th e h ig h e r
le n d in g lim it, a b a n k m u s t b e in
sa tisfac to ry o v era ll c o n d itio n as
d e te rm in e d in th e m o st re c e n t re p o r t o f
e x a m in a tio n o f th e b an k , as w e ll as
b ein g a d e q u a te ly c a p ita liz e d , as w a s
a lre a d y re q u ire d in th e in te rim ru le .
S eco n d , a p ro v isio n h a s b e e n a d d e d
clarify in g th a t f b a n k o p e ra tin g ab o v e
th e 100 p e rc e n t lim it th a t s u b s e q u e n tly
b ec o m e s in e lig ib le for th e h ig h e r lim it
m a y re ta in its e x istin g in s id e r lo a n s b u t
m ay n o t e x te n d c re d it th a t w o u ld
m a in ta in aggregate in s id e r le n d in g in
ex cess o f 100 p e rc e n t o f u n im p a ire d
c a p ita l a n d s u rp lu s . T h ird , b a n k s a re n o t
b e re q u ire d to file th e re q u ire d
re s o lu tio n s w ith th e ir p rim a ry re g u la to r
o r th e B oard, as w a s re q u ire d b y th e
in te rim ru le . T h e re s o lu tio n s a re to b e
m a d e a v a ila b le for in s p e c tio n d u rin g th e
e x a m in a tio n p ro c e ss.

III. Recordkeeping Procedures
S ectio n 21 5 .8 o f R e g u la tio n O
c u rre n tly re q u ire s th a t e a c h b a n k
m a in ta in re c o rd s n e c e s s a ry fo r
c o m p lia n c e w ith th e in s id e r le n d in g
re s tric tio n s o f R e g u la tio n O.
S p ecifically , b a n k s a re re q u ire d to
m a in ta in re c o rd s (1) id e n tify in g a ll
d ire c to rs, officers, a n d p rin c ip a l
s h a re h o ld e rs o f th e b a n k a n d its
affiliates a n d a ll re la te d in te re s ts o f
th o se p e rs o n s (c o lle c tiv e ly , " in s id e r s ” ),
a n d (2) sp e c ify in g th e a m o u n ts a n d
te rm s o f a ll c re d it e x te n d e d to th e s e
in sid e rs. S e c tio n 215.8 fu rth e r re q u ire s
ea c h b a n k to re q u e s t o n a n a n n u a l b a s is
th a t its in s id e rs a n d in s id e rs o f its
affilia te s id e n tify th e ir re la te d in te re sts .
T h e lis t o f in s id e r s is th e n u s e d b y th e
b a n k to id e n tify a ll e x is tin g o r p ro p o s e d
e x te n sio n s o f c r e d it c o v e re d b y
R e g u la tio n O , to m o n ito r th e a m o u n t
th e re o f su b je c t to th e in d iv id u a l a n d
aggregate le n d in g lim its, a n d to e n s u re
th a t a ll a p p ro p ria te a p p ro v a l p ro c e d u re s
a re fo llo w ed .
S in c e a d o p tio n o f th e in itia l
re c o rd k e e p in g re q u ire m e n t, th e a n n u a l
su rv e y h a s g ro w n in siz e a n d
c o m p le x ity . B ank h o ld in g c o m p a n ie s
h a v e b e c o m e in c re a sin g ly la rg e a n d
d iv e rsifie d , a n d co m m e rc ia l
o rg a n iz a tio n s h a v e a c q u ire d c re d it c a rd
b an k s a n d lim ite d p u rp o s e b a n k s. T h u s ,



for e x a m p le , a sm a ll, g ra n d fa th e re d
b a n k o w n e d b y a la rg e d iv e rsifie d
h o ld in g c o m p a n y m a y h a v e h u n d r e d s o f
affilia te s w ith th o u s a n d s o f o ffic ers a n d
d ire c to rs. A lth o u g h th e b a n k m a y h a v e
n o c o n ta c t w ith th e s e o ffic ers a n d
d ire c to rs a n d c o m p a n ie s c o n tro lle d b y
th e m , it c u rre n tly is re q u ire d to c o lle c t
in fo rm a tio n o n a ll th e s e p a rtie s . In
a n o th e r e x a m p le , a CEBA c re d it c a rd
b a n k is p re v e n te d b y la w fro m m a k in g
lo a n s to a n y o n e b u t in d iv id u a ls ,2 a n d is
th u s e ffe c tiv e ly p r o h ib ite d fro m le n d in g
to in s id e r s ’ r e la te d in te re s ts , b u t th e
c u rre n t r u le n o n e th e le s s re q u ire s th e
b a n k to c o n d u c t a n a n n u a l su rv e y o f
re la te d in te re sts .
O n S e p te m b e r 9 ,1 9 9 3 , th e B o a rd
p u b lis h e d n o tic e o f p ro p o s e d
ru le m a k in g a n d re q u e s te d c o m m e n t
c o n c e rn in g a lte rn a tiv e re c o rd k e e p in g
p ro c e d u re s th a t b a n k s m a y fo llo w to
m o n ito r lo a n s to in s id e rs o f th e b a n k
a n d its a ffilia te s. S ee 58 FR 47400. T h e
B o a rd p ro p o s e d to a llo w e a c h b a n k to
d e c id e o n its o w n h o w to g a th e r
in fo rm a tio n o n re la te d in te re sts , so lo n g
as its m e th o d w a s effec tiv e . F o r
e x a m p le , in th e c a se o f a n o n b a n k c re d it
c a rd b a n k o r o th e r b a n k th a t d o e s n o t
m a k e c o m m e rc ia l lo a n s, th e b a n k c o u ld
d e c id e n o t to k e e p re c o rd s o n re la te d
in te re sts . F o r b a n k s th a t m a k e
c o m m e rc ia l lo a n s, tw o a c c e p ta b le
re c o rd k e e p in g m e th o d s w e re id e n tifie d :
(1) T h e " s u rv e y ” m e th o d c u rre n tly
re q u ire d , u n d e r w h ic h a ll in s id e rs a re
a sk e d a n n u a lly to id e n tify a ll th e ir
re la te d in te re sts ; a n d (2) th e " b o rro w e r
in q u ir y ” m e th o d , u n d e r w h ic h th e b a n k
w o u ld (a) a sk e a c h c o m m e rc ia l b o rro w e r
as p a rt o f th e lo a n a p p lic a tio n p ro c e ss
w h e th e r i t is a re la te d in te re s t o f a n
in s id e r o f th e b a n k , a n d (b) m a in ta in a
re c o rd o f e a c h a ffirm a tiv e re sp o n se .
F in a lly , th e p ro p o s e d ru le so u g h t
c o m m e n t o n w h e th e r a n y o th e r
re c o rd k e e p in g m e th o d s w o u ld b e
effec tiv e in m o n ito rin g c o m p lia n c e w ith
R e g u la tio n O.
T h e d ra ft G A O re p o rt, d is c u s s e d
a b o v e , u rg e d th e fe d e ra l b a n k a g e n c ie s
to e m p h a siz e th e im p o rta n c e o f a c c u ra te
a n d c o m p le te in s i le r re c o rd k e e p in g .
M a n a g e m e n t re c o rd k e e p in g fa ilu re s, th e
G A O a rg u e d , W ere in d ic a tiv e o f la rg e r
b a n k m a n a g e m e n t p ro b le m s, a n d
m a n a g e m e n t s o lu tio n s in th is area, th e
G A O re a s o n e d , w o u ld c o n trib u te to th e
re s o lu tio n o f m a n a g e m e n t’s la rg e r
p ro b le m s. T h e B o a rd b e lie v e s th a t th e
p ro p o s e d re c o rd k e e p in g a m e n d m e n ts ,
w h ic h a tte m p t to e lim in a te u n n e c e s s a ry
re c o rd k e e p in g a n d a llo w fo r a lte rn a tiv e
m e th o d s o f re c o rd k e e p in g , are
c o n s is te n t w ith th e G A O ’s
re c o m m e n d a tio n s .
2

See 12 U.S.C. 1841(c)(2).

8833

C o m m e n te rs s u p p o r te d th e
re c o rd k e e p in g a m e n d m e n ts a s a m e a n s
o f d e c re a s in g u n n e c e s s a ry p a p e rw o rk
b u rd e n . C o m m e n te rs u n ifo rm ly
s u p p o rte d n o lo n g e r re q u irin g c re d it
c a rd b a n k s a n d o th e r in s titu tio n s th a t d o
n o t m a k e c o m m e rc ia l lo a n s to k ee p
r e c o rd s o n th e r e la te d in te re sts of
in s id e rs . N o c o m m e n te r p ro p o s e d an y
g e n e ra l r e c o rd k e e p in g m e th o d s in
a d d itio n to th o s e id e n tifie d in th e ru le.
A few c o m m e n te rs e x p re sse d
c o n c e rn s a b o u t th e s e c o n d
re c o rd k e e p in g o p tio n p u t fo rth in th e
p ro p o s e d ru le — th e “ b o rro w e r in q u ir y ”
m e th o d . C o m m e n te rs n o te d th a t in so m e
ca se s a c o rp o ra te b o rro w e r m ig h t b e
u n a w a re th a t it is a re la te d in te re s t o f a
b a n k in s id e r a n d th e re fo re m ig h t
in a d v e rte n tly m is in fo rm a b a n k ’s lo a n
officer. F o r e x a m p le , a c o rp o ra te
e m p lo y e e n e g o tia tin g a lo a n m a y n o t
k n o w th a t o n e o f h is c o m p a n y ’s
c o n tro llin g s h a re h o ld e r s is a lso a
d ire c to r o f o n e o f th e le n d in g b a n k ’s
affilia te s. C itin g th is p o s s ib ility , se v eral
b a n k c o m m e n te rs s u p p o r te d th e
re c o rd k e e p in g p ro v is io n b u t re q u e ste d
th a t th e B o a rd s p e c ify th a t u se o f th e
b o rro w e r in q u iry m e th o d w o u ld g iv e a
b a n k a “ sa fe h a r b o r ” fro m c ritic is m
d u rin g a n e x a m in a tio n in th e e v e n t th a t
in a c c u ra te c e rtific a tio n s w e re a c c e p te d
fro m b o rro w e rs. O n a re la te d p o in t, tw o
c o m m e n te rs s o u g h t a s s u ra n c e th a t
in te rn a l c o n tro ls c o n s is te n t w ith th e
p ro p o s e d r e c o rd k e e p in g a lte rn a tiv e s
w o u ld m e e t th e c o m p lia n c e c e rtific a tio n
r e q u ire m e n ts o f se c tio n 112 o f FDICIA.
T h e B o a rd b e lie v e s p ro te c tio n s
c u rre n tly e x is t to p re v e n t in te n tio n a l
m is re p o rtin g b y b o rro w e rs u n d e r th e
b o rro w e r in q u ir y m e th o d . In te n tio n a l
m is re p o rtin g c o u ld b rin g c rim in a l o r
c iv il p e n a ltie s. F irs t, a b o rro w e r th a t
k n o w in g ly m is s ta te s w h e th e r it is a
re la te d in te re s t o f th e le n d in g b a n k is
c rim in a lly lia b le . 18 U .S.C . 1014.
S e c o n d , a b a n k in s id e r to w h o m th e
c o rp o ra te b o rro w e r is re la te d a n d w h o is
a w a re o f th e lo a n v io la te s R e g u la tio n O
if th e in s id e r p e r m its th e re la te d in te re s t
to re c e iv e a n y e x te n s io n o f c re d it n o t
a u th o riz e d u n d e r R e g u la tio n 0 . 12 CFR
215.6.
T h e B o a rd h a s a lso c o n c lu d e d th a t
a n y u n in te n tio n a l m is re p o rtin g s h o u ld
n o t b e a m a tte r o f s e rio u s c o n c e rn .
W h ile th e re c o u ld b e c a se s in larg e
m u lti-b a n k h o ld in g c o m p a n ie s w h e re a
b o rro w e r a n d le n d e r a re g e n u in e ly
ig n o ra n t o f th e r e la tio n s h ip b e tw e e n
th e m , th e re is n o p o te n tia l in th o se
c irc u m s ta n c e s for a n in s id e r ’s s ta tu s to
im p ro p e rly affect th e c re d it d e c isio n .
T h e B o a rd h a s d e c id e d to a d o p t th e
re c o rd k e e p in g p ro v isio n s, as p ro p o se d ,
w ith th re e a m e n d m e n ts . F irst, in o rd e r
to a d d r e s s c o n c e rn s a b o u t in a c c u ra te

JD'/DD
8834

Federal Register / V o l. 59, N o. 37 / T h u rs d a y , F e b ru a ry 24, 199 4 / R u le s a n d R e g u la tio n s

re p o rtin g , th e B o ard h a s a d o p te d a n
a d d itio n a l sa fe g u ard to p re v e n t th e
o c c u rre n c e o f th o se re p o rtin g e rro rs,
b o th in te n tio n a l a n d u n in te n tio n a l, th a t
are lik e ly to o c c u r m o st fre q u e n tly a n d
th a t ra ise th e g rea test c o n c e rn . T h e fin al
r u le e sta b lish e s a m in im u m re q u ire m e n t
th a t ev e ry b a n k , re g a rd le ss o f th e
re c o rd k e e p in g m e th o d it se le c ts, m u s t
c o n d u c t a n a n n u a l su rv e y to id e n tify its
o w n in s id e rs (th at is, its o w n e x e c u tiv e
officers, d ire c to rs, a n d p r in c ip a l
sh a re h o ld e rs a n d th e ir re la te d in te re sts ,
b u t n o t th o s e o f its h o ld in g c o m p a n y
affiliates). E very b a n k is e x p e c te d to
c h e c k th is sh o rt lis t b e fo re e x te n d in g
c re d it, e v e n if it is e m p lo y in g th e
b o rro w e r in q u iry m e th o d o f
re c o rd k e e p in g for a ffilia te s in lie u o f th e
su rv e y m e th o d . In a d d itio n to
a d d re s s in g p o ssib le v io la tio n s o f
R e g u la tio n O , th e lim ite d su rv e y a n d th e
s h o rt lis t it p ro d u c e s w ill b e av a ila b le
for m o n ito rin g c o m p lia n c e w ith se c tio n
23A o f th e F e d e ra l R eserv e A ct.
A s for c o n c e rn s a b o u t a “ safe h a rb o r,”
th e B o ard b eliev e s th a t a n im p lic it safe
h a rb o r e x ists for b a n k s e le c tin g e ith e r
o n e o f th e tw o re c o rd k e e p in g o p tio n s
in c lu d e d in th e fin al ru le , a n d th a t
fo llo w in g e ith e r o f th e s e o p tio n s w o u ld
a llo w th e n e c e ssa ry c e rtific a tio n to b e
m a d e for p u rp o s e s o f se c tio n 112 o f
FDICLA. F u rth e rm o re , u n d e r th e
e n fo rc e m e n t g u id e lin e s, th e fed e ra l
b a n k in g ag e n cies s h o u ld n o t a sse ss c iv il
m o n e y p e n a ltie s for a n in a d v e rte n t o r
a c c id e n ta l v io la tio n o f th e ir ru le s.
S eco n d , b e c a u se th e c o m m e n te rs d id
n o t id e n tify a n y re c o rd k e e p in g m e th o d s
o th e r th a n th e tw o p ro p o s e d b y th e
B o ard , th e B o ard h a s a d o p te d a
p re s u m p tio n in th e fin a l r u le th a t a b a n k
m u s t u s e e ith e r o n e o f th e tw o id e n tifie d
m e th o d s u n le s s it c a n d e m o n s tra te th a t
a n o th e r m e th o d is e q u a lly effectiv e. T h e
s u ita b ility o f a n y a lte rn a tiv e p ro c e d u re
for m o n ito rin g le n d in g to in s id e rs a n d
th e ir re la te d in te re s ts m u s t b e
d e te rm in e d , o f c o u rse , o n th e b a s is o f
th e effec tiv e n ess o f th e p ro c e d u re in
p re v e n tin g v io la tio n s o f la w a n d in s id e r
ab u se. A n y a lte rn a tiv e re c o rd k e e p in g
p r o c e d u re m u s t su ffic ie n tly id e n tify
e x te n s io n s o f c re d it c o v e re d b y
R e g u la tio n O to e n s u re th a t p ro p e r
m o n ito rin g o f a n d c o m p lia n c e w ith
in s id e r le n d in g re s tric tio n s is
m a in ta in e d .
F in a lly , th e B oard h a s m a d e a n
e x p lic it e x e m p tio n fro m th e
re q u ire m e n t th a t a b a n k k e e p re c o rd s of,
o r in q u ire a b o u t re la te d in te re s ts o f
in s id e rs o f th e b a n k o r its a ffilia te s, for
b a n k s th a t are p ro h ib ite d fro m m a k in g
co m n je rc ia l lo a n s in th e first p la c e .3
3 For example, a nonbank credit card bank, in
order to maintain its exception from the definition




R e la te d in te re s ts c o n s ist o n ly o f
c o m p a n ie s o r o th e r s im ila r e n titie s , as a
r e s u lt o f w h ic h a b a n k th a t is p ro h ib ite d
fro m m a k in g c o m m e rc ia l lo a n s is
p ro h ib ite d from m a k in g lo a n s to a n y
c o m p a n y o r o th e r e n tity th a t m a y b e a
re la te d in te re st. W h e n s u c h a
p ro h ib itio n ex ists, re c o rd k e e p in g o r
in q u irie s w ith re sp e c t to re la te d
in te re s ts is u n n e c e s s a rily b u rd e n so m e .

IV. Definition of Extension of Credit
T h e B o a rd p ro p o s e d th re e
a m e n d m e n ts to th e d e fin itio n o f
“ e x te n s io n o f c r e d it” in R e g u la tio n O: a
c la rific a tio n o f th e “ta n g ib le e c o n o m ic
b e n e f it” ru le ; a n e w e x c e p tio n for th e
d is c o u n t b y a b a n k o f o b lig a tio n s so ld
b y a n in s id e r w ith o u t re c o u rse ; a n d a n
in c re a s e in th e th r e s h o ld for tre a tin g
c re d it c a rd d e b t as a n e x te n s io n o f
c re d it. S ee 58 FR 474 0 0 , S e p te m b e r 9,
1993.

A. “Tangible Economic Benefit” Rule
R e g u la tio n O p ro v id e s th a t a n
e x te n s io n o f c re d it is d e e m e d to b e
m a d e to a n in s id e r w h e n th e p ro c e e d s
o f th e c re d it are u s e d for th e ta n g ib le
e c o n o m ic b e n e fit of, o r a re tra n sfe rre d
to , th e in sid e r. 12 CFR 215.3(f). T h e se
e x te n s io n s o f c re d it are th e re b y c o u n te d
to w a rd th e le n d in g lim its o f R e g u la tio n
O.
F o llo w in g th e e n a c tm e n t o f FDICLA,
w h ic h e x p a n d e d th e le n d in g lim it
p ro v is io n o f s e c tio n 22(h) o f th e F e d e ra l
R e serv e A ct to c o v e r d ire c to rs a n d th e ir
re la te d in te re sts , q u e s tio n s w e re ra ise d
m o re fre q u e n tly re g a rd in g th e sc o p e a n d
p r o p e r a p p lic a tio n o f th e ta n g ib le
e c o n o m ic b e n e fit ru le . If in te rp re te d
lite ra lly , th e ta n g ib le e c o n o m ic b e n e fit
r u le w o u ld a p p ly w h e n e v e r a b a n k
e x te n d e d c re d it to a n y p e rs o n , in c lu d in g
a m e m b e r o f th e g e n e ra l p u b lic w ith n o
o th e r re la tio n s h ip to th e b a n k , a n d th e
p ro c e e d s o f th e e x te n s io n o f c re d it w e re
tra n sfe rre d to o r u s e d for th e b e n e fit o f
a n in s id e r o r a n in s id e r ’s re la te d
in te re st. F o r e x a m p le , as o n e c o m m e n te r
n o te d , lo a n s o n n o n -p re fe re n tia l te rm s
to m e m b e rs o f th e g e n e ra l p u b lic to
p u rc h a s e h o m e s from a b u ild e r w h o is
a d ire c to r o f th e b a n k w o u ld b e tre a te d
as lo a n s to th e b u ild e r/d ire c to r.
T h e ta n g ib le e c o n o m ic b e n e fit ru le is
sim ila r to a p ro v is io n c o n ta in e d in
se c tio n 23A o f th e F e d e ra l R eserv e A ct,
a n d w a s a d o p te d a t a tim e w h e n th e
B o a rd w a s re q u ire d b y se c tio n 22(h) o f
th e F e d e ra l R e serv e A c t to u s e th e
d e fin itio n o f “ e x te n s io n o f c r e d it” fo u n d
in se c tio n 23A . S ee P u b lic L aw 9 5 -6 3 0
S e c tio n 104, 92 S tat. 3644 (1978). T h e
of “bank” in the Bank Holding Company Act, may
not engage in the business of making commercial
loans. See 12 U.S.C. 1841(c)(2)(E).

d e fin itio n o f e x te n s io n o f c re d it in
s e c tio n 22(h), h o w e v e r, is n o lo n g e r tie d
to se c tio n 23A , a n d th e B o a rd is
a u th o riz e d to a d o p t a p p ro p ria te
d e fin itio n s o f te rm s in th e sta tu te . S ee
12 U .S.C . 375b(9)(D ) a n d 375b(10). T h e
B o a rd th e re fo re p ro p o s e d to re v ise th e
ta n g ib le e c o n o m ic b e n e fit r u le to clarify
th a t it w a s n o t in te n d e d to re a c h s u c h
tra n s a c tio n s , b y p ro v id in g e x p lic itly
th a t th e ru le d o e s n o t a p p ly to a n a r m ’sle n g th 4 e x te n s io n o f c re d it b y a b a n k to
a th ir d p a rty w h e re th e p ro c e e d s o f th e
c r e d it a re u s e d to fin a n c e th e b o n a fid e
a c q u is itio n o f p ro p e rty , g o o d s, o r
s e rv ic e s fro m a n in s id e r o r a n in s id e r ’s
r e la te d in te re st.
C o m m e n te rs s u p p o r te d th e p ro p o sa l,
a n d n o a d v e rse c o m m e n ts w e re
re c e iv e d . T h re e c o m m e a te rs o b je c te d to
th e r e q u ire m e n t th a t a n y a r m ’s-len g th
lo a n sa tisfy th e n o n -p re fe re n tia l
p ro v is io n s for in s id e r lo a n s fo u n d in
§ 2 15.4(a), la b e llin g th a t re q u ire m e n t
o v e rly re stric tiv e . T h e B o a rd h a s
r e ta in e d th e re q u ire m e n t, h o w e v e r, th a t
lo a n s b e o n n o n -p re fe re n tia l te rm s, in
o rd e r to p re v e n t b a n k s from
p a rtic ip a tin g in c o m m e rc ia l p ro m o tio n s
th a t b e n e fit th e b a n k ’s in s id e rs to th e
d e trim e n t o f th e b a n k .3
C o n tin u in g to b e c o v e re d b y th e
ta n g ib le e c o n o m ic b e n e fit r u le are
e x te n s io n s o f c re d it to a n in s id e r ’s
n o m in e e a n d tra n s a c tio n s in w h ic h th e
p ro c e e d s o f th e c re d it a re lo a n e d to an
in s id e r. T h e B o a rd a lso n o te s th a t
p ro v is io n s o f th e d e fin itio n o f
“ e x te n s io n o f c r e d it” o u ts id e th e
ta n g ib le e c o n o m ic b e n e fit r u le w ill
c o n tin u e to re a c h tra n s a c tio n s in w h ic h
a n in s id e r a c tu a lly b e c o m e s o b lig a te d to
a b a n k , “ w h e th e r th e o b lig a tio n arise s
d ire c tly o r in d ire c tly , o r b e c a u s e o f a n
e n d o rs e m e n t o n a n o b lig a tio n o r
o th e rw is e , o r b y a n y m e a n s
w h a ts o e v e r.” 12 CFR 215.3(a)(8).

B. Discount of Obligations without
Recourse
R e g u la tio n O in c lu d e s w ith in th e
d e fin itio n o f “ e x te n s io n o f c r e d it” a n y
“ d is c o u n t o f p ro m isso ry n o te s , b ills o f
e x c h a n g e , c o n d itio n a l sa le s c o n tra c ts , o r
s im ila r p a p e r, whether with or without
4
In order to satisfy this requirement, the
extension of credit to the general public must be on
terms that would satisfy the standard set forth in
§ 215.4 of Regulation O if the extension of credit
was being made directly to an insider or an
insider’s related interest.
s One other commenter sought clarification on
the relationship between the tangible economic
benefit rule and another rule in Regulation O that
states that loans made by a bank to a partnership
in which one or more executive officers of the bank
hold a majority interest are to be attributed in full
to each of the executive officers. 12 CFR 215.5(b).
The introductory portion of §215.5 has been
revised to clarify the interplay between § 215.5 and
the general provisions of Regulation O.

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Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations
recourse .” 12 CFR 215.3(a)(5) (e m p h a sis
a d d e d ). A t th e tim e th is p ro v is io n w a s
a d o p te d , th e B o ard w a s re q u ire d b y
se c tio n 22(h) to in c lu d e s u c h ite m s in
th e re g u la to ry d e fin itio n o f e x te n s io n o f
c re d it.6 H o w ev er, th e c u rre n t sta tu to ry
d e fin itio n d o e s n o t re q u ire th e in c lu s io n
o f s u c h ite m s w h e re th e tra n s a c tio n is
m a d e w ith o u t re c o u rse to th e
tra n sfe ro r.7 T h e B o ard p ro p o s e d to
d e le te th is p ro v isio n so as to e x c lu d e
n o n -re c o u rse tra n s a c tio n s from
R e g u la tio n O coverage. T ra n sa c tio n s
e n te re d in to w ith re c o u rse to th e
tra n sfe ro r w o u ld c o n tin u e to b e c o v e re d
u n d e r o th e r p ro v is io n s o f th e d e fin itio n .
See 12 CFR 215.3(a)(4) a n d (8).
T h e B o ard h a s a d o p te d th is
a m e n d m e n t as p ro p o se d . N o n -re c o u rse
tra n s a c tio n s re se m b le a p u rc h a s e o f
as se ts m o re th a n th e le n d in g o f m o n e y ,
a n d th e fin a l ru le co n fo rm s th e
tre a tm e n t o f th e s e tra n s a c tio n s to th e
tre a tm e n t o f o th e r a s se t p ru c h a s e s
b e tw e e n a b a n k a n d its in sid e rs.
M o reo v e r, th e s e n o n -re c o u rse
tra n s a c tio n s d o n o t c o n s titu te
“ e x te n s io n s o f c r e d it” to th e tra n s fe ro r
u n d e r th e N a tio n a l B an k A ct as
in te rp re te d b y th e O ffice o f th e
C o m p tro lle r o f th e C u rre n c y . S ee 12
U .S.C . 84(b)(1); 12 CFR 32.2(a). T h e se
tra n s a c tio n s w ill c o n tin u e to b e
g o v ern e d , h o w e v e r, b y g e n e ra l
s ta n d a rd s o f safety a n d s o u n d n e s s ,
p r o h ib itio n s a g a in st fra u d a n d a b u se ,
a n d c o rp o ra te fid u c ia ry d u tie s .*928
C o m m e n te rs s u p p o rte d th e p ro p o sa l,
a n d n o a d v e rse c o m m e n ts w e re
rec eiv e d . O n e c o m m e n te r a s k e d th e
B o ard to c la rify w h e th e r lim ite d o r
p a rtia l re c o u rs e tra n s a c tio n s w o u ld b e
tre a te d a s e x te n s io n s o f c re d it. T h e
B o ard b e lie v e s th a t it is m o re
a p p ro p ria te to a d d re s s th e n u m e ro u s
6The current definition of “extension of credit'*
in Regulation O was adopted in 1979, when the
Board substantially amended the regulation in order
to implement the Financial Institutions Regulatory
Act of 1978 (FIRA), Public Law 95-630 Section 104,
92 Stat. 3644 (1978). 44 FR 12963, March 9,1979.
FIRA added section 22(h) to the Act, which in turn
incorporated the definition of “extension of credit”
contained in section 2 3A. At that time, section
23A's definition included the above-referenced
provision concerning the discount of paper
acquired with or without recourse. See Public Law
89-485 Section 12, 80 StaL 241 (1966).
’ The statutory cross-reference to section 23A was
deleted from section 22(h) in 1982. See Public Law
97-230 Section 410, 96 Stat. 1520 (1982). FDIOA
added a new definition of "extension of credit” to
section 22(h), which applies whenever a member
bank makes or renews a loan, grants a line of credit,
or enters into any similar transaction as a result of
which a person becomes obligated to pay money or
its equivalent to the bank. See 12 U.S.C. 375b(9)(D).
This definition does not cover all transactions, such
as the purchase of assets, covered by section 2 3A.
•In addition, sections 23A and 23B of the Act
may be applicable to such transactions if the insider
or the insider’s related interest is an affiliate, as
defined in section 23A, of the lending bank.




p o s s ib le re c o u rs e a rra n g e m e n ts o n a
c a se -b y -ca se b a sis.

C. C redit Card Plan Indebtedness
R e g u la tio n O e x e m p ts fro m th e
d e fin itio n o f “ e x te n sio n o f c r e d it,” a n d
th u s fro m R e g u la tio n O ’s le n d in g lim its,
in d e b te d n e s s o f $ 5 ,0 0 0 o r le ss a risin g
th ro u g h a n y g e n e ra l a rra n g e m e n t b y
w h ic h a b a n k : (1) A c q u ire s c h a rg e o r
tim e c re d it a c c o u n ts; o r (2) m a k e s
p a y m e n ts to o r o n b e h a lf o f p a rtic ip a n ts
in a b a n k c re d it c a rd p la n o r o th e r o p e n e n d c re d it p la n . 12 CFR 215.3(b)(5). T o
q u a lify for th e e x e m p tio n , th e
in d e b te d n e s s m u s t b e o n m a rk e t te rm s
a n d m u s t n o t in v o lv e p r io r in d iv id u a l
c le a ra n c e o r a p p ro v a l b y th e b a n k o th e r
th a n for th e ^ p u rp o se o f d e te rm in in g th e
b o rro w e r’s e lig ib ility a n d c o m p lia n c e
w ith a n y a p p lic a b le d o lla r lim it. Id.
T h e B o a rd p ro p o s e d to in c re a s e fro m
$ 5 ,0 0 0 to $ 1 5 ,0 0 0 th e th re s h o ld a b o v e
w h ic h s ta n d a rd c re d it c a rd lo a n s to
in s id e rs w o u ld b e c o u n te d a s e x te n s io n s
o f c re d it. T h is p ro p o s e d in c re a se
re fle c te d w id e s p re a d in c re a se s b y c re d it
c a rd is s u e rs in p re -a p p ro v e d le n d in g
lim its a n d , to so m e e x te n t, in fla tio n
sin c e th e in itia l a d o p tio n o f th e $ 5 ,0 0 0
lim it in 1979. T h e B o ard d id n o t
p ro p o s e ra isin g th e lim it fo r e x te n s io n s
o f c re d it th ro u g h o v e rd ra ft p la n s ,
le av in g th a t lim it at $ 5 ,000. E x te n sio n s
o f c re d it th ro u g h o v e rd ra fts in a m o u n ts
u p to $ 1 5 ,0 0 0 h a v e n o t b e c o m e ro u tin e .
C o m m e n te rs s u p p o rte d th e p ro p o s e d
in c re a se . M a n y c o m m e n te rs, h o w e v e r,
re q u e s te d th a t th e in c re a se b e e x p a n d e d .
T h irte e n c o m m e n te rs su g g e sted th a t th e
p ro p o s e d $ 1 5 ,0 0 0 c a p o n th e a m o u n t o f
e x c lu d e d c re d it c a rd d e b t e ith e r b e
e lim in a te d , in c re a se d , in d e x e d , o r
p e rio d ic a lly re v ie w e d . T w o c o m m e n te rs
re q u e ste d th a t c re d it c a rd d e b t b e
e x e m p te d fro m th e c a p o n g en e ral
p u rp o s e lo a n s to e x e c u tiv e officers.
E ig h t c o m m e n te rs re q u e ste d th a t th e
o v e rd ra ft lim it b e ra ise d b y a n id e n tic a l
a m o u n t. C o m m e n te rs re a so n e d th a t o n e
e x te n s io n o f c re d it is th e sa m e as
a n o th e r a n d th u s th a t n o s u b s ta n tiv e
d iffe re n c e e x ists b e tw e e n c re d it c a rd
lo a n s a n d o v e rd ra ft e x te n sio n s o f c re d it.
M o reo v e r, so m e o v e rd ra ft p ro te c tio n
p la n s a re n o w tie d d ire c tly to c re d it
c a rd lin e s o f c re d it. C o m m e n te rs a lso
n o te d th a t th e ra tio n a le th a t th e c re d it
c a rd lim it w a s b e in g ra ise d to
c o m p e n s a te for in fla tio n a p p lie d e q u a lly
to o v e rd ra ft p ro te c tio n .
T h e B o a rd h a s d e c id e d to in c re a s e th e
c r e d it c a rd e x e m p tio n from $ 5 ,0 0 0 to
$ 1 5 ,0 0 0 a n d to m a in ta in th e o v e rd ra ft
lim it a t $ 5 ,000. R aisin g th e lim it c o u ld
e n c o u ra g e in s id e rs to v ie w o v e rd ra ft
p la n s a s a s o u rc e o f c re d it, r a th e r th a n
so le ly a s p ro te c tio n a g a in st in fre q u e n t
a n d u n p la n n e d ev e n ts. T h e B o ard is n o t

8835

p ro h ib itin g p a y m e n t o f o v e rd ra fts o v er
$ 5 ,0 0 0 p u r s u a n t to a p e rm issib le p re ­
a p p ro v e d o v e rd ra ft p la n , b u t m e re ly
p ro v id in g th a t o v e rd ra fts o v e r $ 5,000
a re c o u n te d to w a rd th e in d iv id u a l a n d
ag g reg ate le n d in g lim its o f R e g u la tio n O.

The Board believes that the proposed
limit is an appropriate compromise
between its concern to prevent insider
lending abuse and the added
convenience that even higher or
indexed limits may provide.
Commenters presented no evidence to
support their argument that a cap on
exempt credit card lending is no longer
necessary. Finally, the Board believes
that exempting credit card loans from
the cap on general purpose loans to
executive officers would be more
properly addressed in the context of a
more general review of executive officer
lending restrictions.

V. Consumer Installment Paper
P u rs u a n t to th e a u th o rity g ra n te d it b y
th e H o u sin g a n d C o m m u n ity
D e v e lo p m e n t A ct o f 1992 (HCDA),9 th e
B o a rd p ro p o s e d a n e x c e p tio n to th e
ag g reg ate le n d in g lim it for th e d is c o u n t
o f c o n s u m e r in s ta llm e n t p a p e r from an
in s id e r w ith re c o u rse , so lo n g as th e
b a n k is re ly in g p rim a rily u p o n th e
c r e d itw o rth in e s s o f th e m a k e r o f th e
p a p e r a n d n o t o n a n y e n d o rs e m e n t o r
g u a ra n te e o f th e in sid e r. S u c h
tra n s a c tio n s w o u ld c o n tin u e to
c o n s titu te e x te n s io n s o f c re d it su b je ct to
th e ag g reg ate le n d in g lim it if th e m a k e r
o f th e c o n s u m e r in s ta llm e n t p a p e r w as
a n in sid e r. S ee 58 FR 47400, S e p te m b e r
9 ,1 9 9 3 .
T h e le g isla tiv e h is to ry o f HCDA sta te s
th a t th e B o a rd s h o u ld m a k e a “ zerob a s e d r e v ie w ” o f an y e x c e p tio n s it
a d o p ts .10*T h e p ro p o s e d e x c e p tio n is
c o n s is te n t w ith th is d ire c tiv e . T h e
B o a rd h a s c o n c lu d e d th a t, w h e re th e
b a n k is re ly in g p rim a rily u p o n th e
c r e d itw o rth in e s s o f th e u n d e rly in g
m a k e r, th e a c c o m p a n y in g e x te n sio n o f
c re d it to a n in s id e r tra n sfe rrin g th e
p a p e r w ith re c o u rs e p o se s m in im a l risk
o f lo ss to th e b a n k .11 In a d d itio n lik e th e
p re v io u s th re e e x c e p tio n s, th e n e w
e x c e p tio n is fo u n d in th e N a tio n a l B ank
A c t,12 a n d is in c o rp o ra te d as an
’ Public Law 102-550 Section 955,106 Stat. 3672
(1992).
10See 138 Cong. Rec. S17.914-15 (daily ed.
October 8,1992).

"Although extensions of credit made in
conformity with the proposed exception would not
count toward a bank’s aggregate lending limit, such
extensions of credit would continue to be treated
as extensions of credit under 12 CFR 215.3(4) (a)
and (b) of Regulation O. as a safeguard against abuse
of this exception.
i* All Interpretations by the Comptroller of the
Currency of the exceptions contained in 12 U.S.C.
Continued

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e x c e p tio n to th e in d iv id u a l le n d in g
lim it in R e g u la tio n O . S ee 12 U .S .G
84(c)(8); 12 CFR 215 .2 (h ) a n d 215.4(c).
C o m m e n te rs g e n e ra lly s u p p o r te d th e
n e w e x c e p tio n , e n d n o a d v e rse
c o m m e n ts w e re rec e iv e d . T h re e
c o m m e n te rs arg u e d th a t t h e p ro p o s e d
r e q u ire m e n t th a t a d e s ig n a te d o ffic er o f
th e b a n k certify in w ritin g th a t th e b a n k
is re ly in g p rim a rily u p o n th e m a k e r o f
th e d is c o u n te d p a p e r w a s to o
b u rd e n s o m e b e c a u se it d id n o t
a c c o m m o d a te its e lf to b u lk tra n s a c tio n s
in w h ic h th e b a n k m a y p e rfo rm o n ly a
s ta tis tic a l sa m p lin g o f a d is c o u n te d lo a n
p o rtfo lio . O n e c o m m e n te r a s k e d th e
B o a rd to clarify th a t th e d is c o u n t o f
c o n s u m e r lease p a p e r w a s in c lu d e d in
th e p ro v isio n . S ix c o m m e n te rs
Suggested a d o p tio n o f a d d itio n a l
e x c e p tio n s c o n ta in e d in th e N a tio n a l
B a n k A ct, a n d o n e c o m m e n te r su g g e sted
a n a d d itio n a l e x c e p tio n n o t in c lu d e d in
th e N a tio n a l B ank A ct.
T h e re q u ire m e n t th a t a d e s ig n a te d
o fficer ce rtify th a t th e b a n k h a s fo llo w ed
a p p ro p ria te u n d e rw ritin g p ro c e d u re s is
fo u n d in th e N a tio n a l B a n k A ct, a n d th e
B o a rd h a s d e c id e d to m a in ta in
c o n s iste n c y w ith th a t A ct.
C o n c ern in g c o n s u m e r le a se p a p e r, th e
B o a rd n o te s th a t a n in te rp re ta tiv e le tte r
c o n c e rn in g th e c irc u m s ta n c e s u n d e r
w h ic h a lease tra n s a c tio n m a y b e
c o n s id e re d to b e a n e x te n s io n o f c re d it
for p u rp o s e s o f R e g u la tio n O h a s
p re v io u s ly b e e n iss u e d . S ee
In te rp re ta tiv e L etter d a te d A p ril 8 ,1 9 7 6 .
T h e B o ard b eliev e s th a t it w o u ld b e
m o re a p p ro p ria te to p ro v id e fu rth e r
g u id a n c e a s to th e tre a tm e n t o f
p a rtic u la r tra n sa c tio n s u n d e r R e g u la tio n
O o n a case-by-case b a sis.
A d d itio n a l e x e m p tio n s fo u n d in th e
N a tio n a l B ank A ct h a v e n o t b e e n
a d o p te d . T h o se are e ith e r lim ite d
e x e m p tio n s, e x e m p tio n s for c re d it
s e c u re d b y c o lla te ra l th a t is n o t sta b le
a n d liq u id , o r e x e m p tio n s th a t w o u ld b e
d iffic u lt to a d m in is te r in th e R e g u la tio n
O c o n te x t. O th e r e x e m p tio n s su g g e sted
b y c o m m e n te rs w o u ld r e q u ire s ta tu to ry
ch an g e.

VL Loans to Executive Officers
The Board proposed three
amendments to the rules governing
extensions of credit by a bank to its
executive officers: A new exemption to
the limit for general purpose loans that
are fully collateralized by certain
categories of highly stable and liquid
collateral; clarification that home
mortgage loan refinancing, subjecf to
certain limitations, is included in the84
84 are applicable to Regulation O to the extent that
these exceptions are incorporated by reference into
or otherwise adopted in Regulation O.




c a te g o ry o f h o m e m o rtg a g e lo a n s; a n d a
re s ta te m e n t o f th e p rio r a p p ro v a l
re q u ire m e n t in se c tio n 22(g) o f th e
F e d e ra l R eserv e A ct. S ee 58 FR 4 7 4 0 0 ,
S e p te m b e r 9 ,1 9 9 3 .

A. General Purpose Loans
S e c tio n 22(g) o f th e F e d e ra l R e serv e
A c t e sta b lish e s a sp e c ia l a d d itio n a l r u le
fo r e x te n sio n s o f c re d it b y a b a n k to its
e x e c u tiv e officers. In g e n e ra l, a b a n k ’s
le n d in g to e a c h o f its e x e c u tiv e o fficers
is lim ite d to a n a m o u n t e q u a l to th e
g re a te r o f $ 2 5 ,0 0 0 o r 2.5 p e rc e n t o f th e
b a n k ’s c a p ita l a n d u n im p a ire d s u rp lu s ,
b u t n o t to e x c e e d $ 1 0 0 ,0 0 0 .1 2 CFR
215.5(c). Q u a lify in g h o m e m o rtg a g e
lo a n s a n d e d u c a tio n a l lo a n s a re n o t
c o u n te d to w a rd th is lim it, a lth o u g h th e y
d o c o u n t to w a rd th e g e n e ra l in d iv id u a l
a n d aggregate le n d in g lim its a p p lic a b le
to a ll in s id e rs u n d e r § 21 5 .4 o f
R e g u la tio n 0 . 12 CFR 215.5(c)(1) a n d
(2). A lso , u n lik e th e g e n e ra l in d iv id u a l
a n d aggregate le n d in g lim its , th e re h a s
b e e n n o e x c e p tio n to th e e x e c u tiv e
o ffic er le n d in g lim it b a s e d o n th e
m a n n e r in w h ic h th e e x te n s io n o f c re d it
is c o lla te ra liz e d .
T h e B o ard p ro p o s e d to c re a te a n
e x e m p tio n to th e g e n e ra l p u rp o s e
le n d in g lim it fo r lo a n s to e x e c u tiv e
o fficers fo r lo a n s fu lly s e c u re d by: (a)
O b lig a tio n s o f th e U n ite d S ta te s o r o th e r
o b lig a tio n s fu lly g u a ra n te e d a s to
p r in c ip a l a n d in te re s t b y th e U n ite d
S tates; (b) c o m m itm e n ts o r g u a ra n te e s o f
a d e p a rtm e n t o r ag e n c y o f th e U n ite d
S tate s; o r (c) a se g re g ate d d e p o s it
a c c o u n t w ith th e le n d in g b a n k .
T h e B o ard p re v io u sly h a s d e te rm in e d
th a t e x te n sio n s o f c re d it c o lla te ra liz e d
in th e m a n n e r d e s c rib e d a b o v e p o se
m in im a l risk o f lo ss to a b a n k . S ee 58
FR 2 6 5 0 7 , M ay 4 ,1 9 9 3 . In v ie w o f th is
d e te rm in a tio n , th e B o ard h a s c o n c lu d e d
th a t it is c o n s is te n t w ith sa fe a n d so u n d
b a n k in g p ra c tic e s to in c re a se th e
a m o u n t o f c re d it th a t a b a n k m a y e x te n d
to its e x e c u tiv e o fficers w h e n th e c re d it
is se c u re d as d e s c rib e d ab ove. B ecau se
s u c h lo a n s w o u ld c o n tin u e to b e su b je c t
to th e p ro h ib itio n s a g a in st p re fe re n tia l
le n d in g , th e B o ard a lso b e lie v e s th a t th e
p ro p o s e d e x c e p tio n w o u ld n o t le n d
its e lf to e v a sio n s o f th e la w o r a n y o th e r
ab u se.

Commenters supported the proposed
exception. Six commenters suggested
that additional categories of exempt
extensions of credit be adopted. Nine
commenters requested that the current
$100,000 cap on general purpose loans
be increased, and two commenters
suggested that the cap be eliminated
altogether. One commenter suggested
that loans to an executive officer serving
in a bona fide fiduciary capacity not be

in c lu d e d a s lo a n s to th e e x e c u tiv e
o ffic e r for p u rp o s e s o f 12 C FR 215.5(c).
T h e a d d itio n a l e x c e p tio n s th a t h a v e
b e e n p ro p o s e d a p p ly m o re re a d ily to
lo a n s m a d e in a c o m m e rc ia l c o n te x t
ra th e r th a n to p e rs o n a l lo a n s. S e c tio n
215.5 p rim a rily g o v e rn s p e rs o n a l lo a n s,
h o w e v e r, a n d d ie a d d itio n a l p ro p o s a ls
th e re fo re a re n e ith e r n e c e s s a ry n o r .
a p p ro p ria te . T h e B o a rd a lso c o n s id e rs it
m o re a p p ro p ria te to re c o n s id e r th e
a p p ro p ria te le n d in g lim it fo r e x e c u tiv e
o ffic ers i n c o n n e c tio n w ith a m o re
g e n e ra l re v ie w o f e x e c u tiv e o ffic er
re s tric tio n s . F in a lly , th e B o a rd n o te s
th a t th e p r o p e r tre a tm e n t u n d e r
R e g u la tio n O o f lo a n s to a n e x e c u tiv e
o ffic e r se rv in g in a b o n a fid e fid u c ia ry
c a p a c ity h a s p re v io u s ly b e e n a d d re s s e d .
S ee I F ed . R es. Reg. S erv. 3 -1 0 4 8 . T h e
B o a rd w ill p ro v id e a n y fu rth e r g u id a n c e
o n th is is s u e o n a c a se -b y -ca se b asis.

B. Refinancing o f H om e Mortgage Loans
S e c tio n 22(g) o f th e F e d e ra l R eserv e
A ct p ro v id e s th a t a b a n k m a y m a k e a
lo a n to its e x e c u tiv e o fficer, w ith o u t
re s tric tio n as to a m o u n t, if th e lo a n is
s e c u re d b y a first lie n o n a d w e llin g th a t
is o w n e d b y th e e x e c u tiv e o ffic e r a n d
u s e d b y th e e x e c u tiv e o ffic er a s a
r e s id e n c e a fte r th e lo a n is m a d e . 12
U .S .C 375a(2). S e c tio n 215.5(c)(2) o f
R e g u la tio n O im p le m e n ts th is p ro v isio n ,
a n a se ts fo rth a d d itio n a l re s tric tio n s o n
s u c h lo a n s.
T h e B o a rd p ro p o s e d to re v is e th e
re g u la tio n to p ro v id e c le a rly th a t th e
re fin a n c in g o f a h o m e m o rtg a g e lo a n is
in c lu d e d w ith in th is c a te g o ry to th e
e x te n t th a t th e p ro c e e d s a re u s e d to p a y
o ff th e p rio r h o m e m o rtg a g e lo a n o r fo r
o n e o r m o re o f th e p e rm is s ib le p u rp o s e s
e n u m e ra te d in 12 CFR 215.5(c)(2).
C o m m e n ts w e re g e n e ra lly su p p o rtiv e .
T w o c o m m e n te rs a sk e d th e B o a rd to
c la rify th a t th e c lo sin g c o s ts o f a h o m e
m o rtg a g e re fin a n c in g a re in c lu d e d a s
p a rt o f th e q u a lify in g p o rtio n o f th e
lo a n . T w o c o m m e n te rs r e q u e s te d th a t
a ll p ro c e e d s o f a h o m e m o rtg ag e
re fin a n c in g b e in c lu d e d in th is category.
T h e B o a rd , a s re q u e ste d in th e
c o m m e n ts, h a s re v is e d th e re g u la tio n
f u rth e r to p ro v id e e x p re ssly th a t clo sin g
c o s ts a re in c lu d e d as p a rt o f th e e x e m p t
p o rtio n o f a h o m e m o rtg a g e re fin a n c in g ,
a n d to m a k e o th e r c la rify in g ch a n g es.
I n c lu s io n w ith in th e e x e m p tio n o f
p ro c e e d s o f a re fin a n c in g th a t m a y b e
u s e d for u n re s tric te d p u rp o s e s is
p r o h ib ite d b y th e e n a b lin g sta tu te .
C. Prior A p p ro va l o f H om e Mortgage
Loans
S e c tio n 22(g) p ro v id e s th a t th e b o a rd
o f d ire c to rs o f a b a n k m u s t s p e c ific a lly
a p p ro v e in a d v a n c e a h o m e m o rtg ag e
lo a n to a n e x e c u tiv e o fficer. 12 U .S.C .

m oo 8837

Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations
375a(2). R e g u la tio n O , h o w e v e r, d o e s
n o t se t fo rth th is re q u ire m e n t. T h e
B o ard p ro p o s e d th a t 12 C FR 215.5(c) b e
re v ise d to c o n fo rm to th e e n a b lin g
s ta tu te .
C o m m e n ts u p o n th is p ro p o s a l w e re
m ix e d . O n e c o m m e n te r a s k e d th e B o ard
to cla rify th a t p rio r a p p ro v a l is re q u ire d
for a ll h o m e m o rtg ag e lo a n s re g a rd le ss
o f size, n o tw ith s ta n d in g th e g e n e ra l
p ro v is io n s o f R e g u la tio n O th a t re q u ire
p r io r a p p ro v a l o n ly for lo a n s in ex c e ss
o f a c a lc u la te d a m o u n t. S ee 12 CFR
215.4(b). T w o c o m m e n te rs su g g e sted
th a t th e B o ard re ly o n its ru le m a k in g
a u th o rity n o t to c o n fo rm to th e sta tu te ,
a n d tw o c o m m e n te rs a s k e d th e B o ard to
se ek re lie f from th is re q u ire m e n t from
C ongress.
T h e B o ard h a s a d o p te d th is p ro v isio n
s u b s ta n tia lly as p ro p o se d . A s d isc u sse d
ab o v e, th e B o ard h a s a d d e d a n
in tr o d u c to ry sta te m e n t to § 215.5 to
cla rify th a t th e r e q u ire m e n ts for
e x te n s io n s o f c re d it to e x e c u tiv e o fficers
u n d e r th a t se ctio n , p u r s u a n t to se c tio n
22(g), a re in a d d itio n to th e g en e ral
re q u ire m e n ts for in s id e rs se t fo rth
e ls e w h e re in R e g u la tio n O. T h e B o ard
la ck s th e a u th o rity to a d o p t a p ro v isio n
o f R e g u la tio n O th a t d o e s n o t co n fo rm
to th e s ta tu to ry p rio r a p p ro v a l
re q u ire m e n t. T h e a d d itio n a l c o m m e n ts
a re b e y o n d th e sc o p e o f th is ru le m a k in g .

VIII. Technical Amendments

VII. Conforming Definition of “Bank”

X. Paperwork Reduction Act

S u b p a rt B o f R e g u la tio n O p a rtia lly
im p le m e n ts th e re p o rtin g re q u ire m e n ts
o f title VIII o f FIRA, a s a m e n d e d b y th e
G am -S t. G erm a in D e p o sito ry
I n s titu tio n s A ct o f 1982 *3 a n d FDICIA.
.*12 U .S.C . 1972(2)(G ). S e c tio n 215.22
re q u ire s a n e x e c u tiv e officer o r
p r in c ip a l s h a re h o ld e r o f a b a n k to re p o rt
to th e b a n k e a c h y e a r if th e p e rs o n or
an y re la te d in te re s t o f th e p e rso n
b o rro w e d d u rin g th e p r io r c a le n d a r y ea r
from a c o rre s p o n d e n t b a n k o f th e b an k .
A s o rig in a lly e n a c te d , a
c o rre s p o n d e n t b a n k w a s d e fin e d in title
Vin o f FIR A to in c lu d e a b a n k as
d e fin e d in th e B ank H o ld in g C o m p an y
A ct. T itle Vffl w a s s u b s e q u e n tly
a m e n d e d to in c lu d e in th e d e fin itio n a
m u tu a l sa v in g s b a n k , a sa v in g s b an k ,
a n d a sa v in g s a s so c ia tio n a s d e fin e d in
se c tio n 3 o f th e F e d e ra l D e p o sit
In s u ra n c e A ct. 12 U .S.C . 1971 a n d
1972(H ). T h e B o ard p ro p o s e d to a m e n d
th e d e fin itio n o f b a n k in s u b p a rt B o f
R e g u la tio n O to co n fo rm th e ru le to th e
s ta tu to ry a m e n d m e n ts. S ee 58 FR 47400,
S e p te m b e r 9 ,1 9 9 3 .
C o m m e n ts w ere fav o rab le , a n d th e
B o ard h a s a d o p te d th is p ro v isio n as
p ro p o se d . 13
13 Public

Law 97-320, 96 Stat. 1469 (1982).




T h e B o a rd h a s a d o p te d a se rie s o f
te c h n ic a l a m e n d m e n ts to R e g u la tio n O
th a t a re d e s ig n e d to m a k e th e re g u la tio n
m o re e a sily u n d e rs ta n d a b le a n d
s o m e w h a t sh o rte r. T h e a m e n d m e n ts
in c lu d e a n e w d e fin itio n o f “ a ffilia te ,”
w h ic h m a k e s th e re g u la tio n re a d m o re
c le a rly a n d a llo w s v a rio u s c ro ssre fe re n c e s a n d fo o tn o te s to b e
e lim in a te d . B e ca u se th e te c h n ic a l
a m e n d m e n ts d o n o t m a k e a n y
s u b s ta n tiv e c h a n g e to th e re g u la tio n ,
n o tic e a n d c o m m e n t o n th e m w a s n o t
re q u ire d .

IX. Final Regulatory Flexibility Act
Analysis
T h e R e g u la to ry F le x ib ility A ct (5
U .S.C . 601 e t seq.) re q u ire s a n ag en cy to
p re p a re a fin a l re g u la to ry fle x ib ility
a n a ly s is w h e n th e a g e n cy p ro m u lg a te s a
fin a l ru le . T w o o f th e r e q u ire m e n ts o f a
fin a l re g u la to ry fle x ib ility a n a ly sis, a
s u c c in c t s ta te m e n t o f th e n e e d for a n d
o b je c tiv e s o f th e ru le , a n d a su m m a ry
a n d a s se ss m e n t o f iss u e s ra is e d b y th e
p u b lic c o m m e n ts a n d o f a n y c h a n g e s
m a d e in th e p ro p o s e d ru le as a re su lt
th e re o f (5 U .S.C. 604(b)), are c o n ta in e d
in th e su m m a ry a n d s u p p le m e n ta ry
in fo rm a tio n above. N o sig n ific a n t
a lte rn a tiv e s to th e fin a l ru le w e re
c o n s id e re d by th e ag en cy .
In a c c o rd a n c e w ith th e P a p e rw o rk
R e d u c tio n A ct o f 1980, 44 U .S.C . 3507,
a n d 5 CFR 13 2 0 .1 3 0 , th e B o ard , u n d e r
a u th o rity d e le g a te d b y th e O ffice o f
M a n a g e m e n t a n d B u d g et, h a s re v ie w e d
its a m e n d m e n ts to R e g u la tio n O. T h e
B o a rd h a s d e te rm in e d th a t th e re v isio n s
d o n o t sig n ific a n tly in c re a s e th e b u rd e n
o f th e re p o rtin g in s titu tio n s . T h e
c h a n g e s a re e x p e c te d to re d u c e
re g u la to ry b u r d e n for so m e b a n k s,
p a rtic u la rly sm a ll c o m m u n ity b a n k s a n d
ru ra l b a n k s , b u t th e e s tim a te d effect o n
ag g reg ate b u r d e n c a lc u la tio n s is n o t
d e e m e d to b e sig n ific a n t.

Subpart A—Loans by Member Banks
to Their Executive Officers, Directors,
and Principal Shareholders
2 . 1 2 C FR p a rt 215, s u b p a rt A , is
a m e n d e d b y re v isin g §§ 215.1 th ro u g h
2 1 5 .1 3 , to re a d as fo llo w s:

§215.1

Authority, purpose, and scope.

(a) A u th o rity . T h is s u b p a rt is iss u e d
p u r s u a n t to s e c tio n s l l ( i ) , 22(g), a n d
22(h) o f th e F e d e ra l R e serv e A c t (12
U .S.C . 248(i), 375a, a n d 375b), 12 U.S.C.
1 8 1 7;k), a n d se c tio n 306 o f th e F ed era l
D e p o sit In s u ra n c e C o rp o ra tio n
Im p ro v e m e n t A c t o f 1991 (P ub. L. 1 0 2 2 4 2 ,1 0 5 S tat. 2 236 (1991)).
(b) P u rp o se arid sc o p e . T h is su b p a rt A
g o v e rn s a n y e x te n s io n o f c re d it b y a
m e m b e r b a n k to a n e x e c u tiv e officer,
d ire c to r, o r p r in c ip a l s h a re h o ld e r of:
T h e m e m b e r b a n k ; a b a n k h o ld in g
c o m p a n y o f w h ic h th e m e m b e r b a n k is
a s u b s id ia ry ; a n d a n y o th e r su b sid ia ry o f
th a t b a n k h o ld in g c o m p a n y . It also
a p p lie s to a n y e x te n s io n o f c re d it by a
m e m b e r b a n k to: A c o m p a n y c o n tro lle d
b y s u c h a p e rso n ; a n d a p o litic a l or
c a m p a ig n c o m m itte e th a t b e n e fits o r is
c o n tro lle d b y s u c h a p e rso n . T h is
s u b p a rt A a lso im p le m e n ts th e re p o rtin g
re q u ire m e n ts o f 12 U .S.C . 375a
c o n c e rn in g e x te n s io n s o f c re d it b y a
m e m b e r b a n k fo its e x e c u tiv e o fficers
a n d o f 12 U .S.C . 1817(k) c o n c e rn in g
e x te n s io n s o f c re d it b y a m e m b e r b a n k
to its e x e c u tiv e o fficers o r p rin c ip a l
s h a re h o ld e rs , o r th e re la te d in te re s ts o f
s u c h p e rso n s.

§215.2

Definitions.

F o r th e p u rp o s e s o f th is s u b p a rt A , th e
fo llo w in g d e fin itio n s a p p ly u n le s s
o th e rw is e sp e c ifie d :
(a) A ffilia te m e a n s a n y c o m p a n y of
w h ic h a m e m b e r b a n k is a su b sid ia ry o r
a n y o th e r s u b s id ia ry o f th a t c o m p an y .
(b) C o m p a n y m e a n s a n y c o rp o ra tio n ,
p a r tn e rs h ip , tr u s t (b u sin e s s o r
o th e rw ise ), a s so c ia tio n , jo in t v e n tu re ,
p o o l sy n d ic a te , so le p ro p rie to rs h ip ,
u n in c o rp o r a te d o rg a n iz a tio n , o r an y
List of Subjects in 12 CFR Part 215
o th e r fo rm o f b u s in e s s e n tity n o t
C re d it, P e n a ltie s, R e p o rtin g a n d
s p e c ific a lly lis te d h e re in . H o w ev er, th e
re c o rd k e e p in g re q u ire m e n ts.
te rm d o e s n o t in c lu d e :
F o r th e re a so n s se t fo rth in th e
(1) A n in s u re d d e p o s ito ry in s titu tio n
p re a m b le , th e B o ard is a m e n d in g 12
(as d e fin e d in 12 U .S.C. 1813); o r
C FR p a rt 215 a s follow s:
(2) A c o rp o ra tio n th e m a jo rity o f th e
sh a re s o f w h ic h a re o w n e d b y th e
PART 215—LOANS TO EXECUTIVE
U n ite d S ta te s.o r b y a n y S tate.
OFFICERS, DIRECTORS, AND
(c)
(1) C o n tro l o f a c o m p a n y or b an k
PRINCIPAL SHAREHOLDERS OF
m e a n s th a t a p e rs o n d ire c tly o r
MEMBER BANKS (REGULATION O)
in d ire c tly , o r a c tin g th ro u g h o r in
1.
T h e a u th o rity c ita tio n for p a rt 215 c o n c e rt w ith o n e o r m o re p e rso n s:
is re v is e d to re a d as fo llo w s:
(i)
O w n s, c o n tro ls, o r h a s th e p o w e r
to v o te 25 p e rc e n t o r m o re o f a n y class
Authority: 12 U.S.C 248(i), 375a(10),
o f v o tin g s e c u ritie s o f th e c o m p a n y o r
375b(9) and (10), 1817(k) and 1972(2)(G)(ii);
bank;
Pub. L. 102-242.105 Stat. 2236.

W O D
8838

Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations

b o a rd , th e p re s id e n t, e v e ry v ic e
T h e le n d in g lim it a lso in c lu d e s a n y
(ii) C o n tro ls in a n y m a n n e r th e
p re s id e n t, th e c a sh ie r, th e se c re ta ry , a n d h ig h e r a m o u n ts th a t a re p e rm itte d b y
e le c tio n o f a m a jo rity o f th e d ire c to rs o f
th e tre a s u r e r o f a c o m p a n y o r b a n k a re
s e c tio n 5 2 0 0 o f th e R e v ise d S ta tu te s fo r
th e c o m p a n y o r b an k ; o r
c o n s id e re d e x e c u tiv e o fficers, u n le s s th e th e ty p e s o f o b lig a tio n s lis te d th e re in as
(iii) H as th e p o w e r to e x e rc ise a
o fficer is e x c lu d e d , b y re s o lu tio n o f th e
c o n tro llin g in flu e n c e o v e r th e
e x c e p tio n s to th e lim it. A m e m b e r
b o a rd o f d ire c to rs o r b y th e b y la w s o f
m a n a g e m e n t o r p o lic ie s o f th e c o m p a n y
b a n k ’s u n im p a ir e d c a p ita l a n d
th e b a n k o r c o m p a n y , fro m p a r tic ip a tio n u n im p a ire d s u r p lu s e q u a ls th e s u m of:
or bank.
(1) T h e “to ta l e q u ity c a p ita l’’ o f th e
(o th e r th a n in th e c a p a c ity o f a d ire c to r)
(2) A p e rs o n is p re s u m e d to h a v e
m e m b e r b a n k re p o rte d o n its m o s t
c o n tro l, in c lu d in g th e p o w e r to exercise* in m a jo r p o lic y m a k in g fu n c tio n s o f th e
re c e n t c o n s o lid a te d re p o rt o f c o n d itio n
b a n k o r c o m p a n y , a n d th e o fficer d o e s
a c o n tro llin g in flu e n c e o v e r th e
file d u n d e r 12 U .S .C 1817(a)(3);
n o t a c tu a lly p a r tic ip a te th e re in .
m a n a g e m e n t o r p o lic ie s, o f a c o m p a n y
(2) A n y s u b o rd in a te d n o te s a n d
(2)
E x te n sio n s o f c re d it to a n
o r b a n k if:
e x e c u tiv e o fficer o f a n affilia te o f a
d e b e n tu re s th a t c o m p ly w ith
(i) T h e p e rs o n is:
r e q u ire m e n ts o f th e a p p ro p ria te F e d e ra l
m e m b e r b a n k (o th e r th a n a c o m p a n y
(A) A n e x e c u tiv e o ffic e r o r d ire c to r o f
b a n k in g a g e n c y for a d d itio n to th e
th a t c o n tro ls th e b a n k ) s h a ll n o t b e
th e c o m p a n y o r b an k ; a n d
m e m b e r b a n k ’s c a p ita l s tr u c tu re a n d a re
su b je c t to §§ 215.4, 2 15.6 a n d 215.8 o f
(B) D irec tly o r in d ire c tly o w n s,
re p o rte d o n its m o st re c e n t c o n s o lid a te d
th is p a rt, p ro v id e d th a t:
c o n tro ls, or h a s th e p o w e r to v o te m o re
(i) The executive officer of the affiliate re p o rt o f c o n d itio n file d u n d e r 12 U .S .G
th a n 10 p e rc e n t o f a n y c la ss o f v o tin g
is excluded (by name or by title) from
1817(a)(3); a n d
s e c u ritie s o f th e c o m p a n y o r b a n k ; o r
(3) A n y v a lu a tio n re se rv e s c re a te d b y
participation in major policymaking
(iiXA) T h e p e rso n d ire c tly o r
c h a rg e s to th e m e m b e r b a n k ’s in c o m e
functions of the member bank by
in d ire c tly o w n s, c o n tro ls, o r h a s th e
resolutions of the boards of directors of re p o rte d o n its m o s t re c e n t c o n s o lid a te d
p o w e r to v o te m o re th a n 10 p e rc e n t o f
re p o rt o f c o n d itio n file d u n d e r 12 U .S.C .
both the affiliate and the member bank,
a n y c la ss o f v o tin g s e c u ritie s o f th e
1817(a)(3).
and does not actually participate in :
c o m p a n y o r b an k ; a n d
(j) M em ber bank means any banking
(B)
N o o th e r p e rso n o w n s, c o n tro ls , orsuch major policymaking functions; and
institution that is a member of the
(ii) The executive officer is not
h a s th e p o w e r to v o te a g re a te r
Federal Reserve System, including any
otherwise subject to such requirements
p e rc e n ta g e o f th a t c la ss o f v o tin g
subsidiary of a member bank. The term
as a director or principal shareholder.
se c u ritie s.
(f) Foreign bank h a s th e m e a n in g
does not include any foreign bank that
(3) A n in d iv id u a l is n o t c o n s id e re d to
g
iv
e
n
in
12
U
.S
.C
3101(7).
maintains a branch in the United States,
h a v e c o n tro l, In c lu d in g th e p o w e r to
(g) Im m ediate fa m ily m e a n s th e
whether or not the branch is insured
e x e rc ise a c o n tro llin g in flu e n c e o v e r th e
s p o u s e o f a n in d iv id u a l, th e in d iv id u a l's (within the meaning of 12 U.S.C
m a n a g e m e n t o r p o lic ie s, o f a c o m p a n y
m in o r c h ild re n , a n d a n y o f th e
1813(s)) and regardless of th e operation
o r b a n k so le ly b y v irtu e o f th e
in d iv id u a l's c h ild r e n (in c lu d in g a d u lts )
of 12 U.S.C. 1 8 13(h) and 12 U.S.C.
in d iv id u a l's p o s itio n a s a n o ffic er o r
re s id in g in th e in d iv id u a l's h o m e .
1828(jM3HB).
d ire c to r o f th e c o m p a n y o r b a n k .
(h) Insider m e a n s a n e x e c u tiv e o ffic er,
(k) P ay an overdraft on an accou n t
(4) A p e rs o n m a y re b u t a p re s u m p tio n
d ire c to r, o r p r in c ip a l s h a re h o ld e r, a n d
m e a n s to p a y a n a m o u n t u p o n th e o r d e r
e s ta b lis h e d b y p a ra g ra p h (b)(2) o f th is
in c lu d e s a n y re la te d in te re s t o f s u c h a
o f a n a c c o u n t h o ld e r in e x c e ss o f fu n d s
se c tio n b y su b m ittin g to th e a p p ro p ria te
p e rso n .
o n d e p o s it in th e a c c o u n t
F e d e ra l b a n k in g ag en cy (as d e fin e d in
(i) Lending lim it. T h e le n d in g lim it for
(l) Person m e a n s a n in d iv id u a l o r a
12 U .S .C 1813(q)) w ritte n m a te ria ls
a m e m b e r b a n k is a n a m o u n t e q u a l to
com pany.
th a t, in th e a g e n c y ’s ju d g m e n t,
(m )
( l ) P rincipal shareholder m e a n s a
th e lim it o f lo a n s to a s in g le b o rro w e r
d e m o n s tra te a n a b s e n c e o f c o n tro l.
p e rso n (o th e r m a n a n in s u r e d b o n k ) th a t
e s ta b lis h e d b y s e c tio n 5 2 0 0 o f th e
(d) D irector o f a m em ber bank m e a n s
d ire c tly o r in d ir e c tly ,-or a c tin g th ro u g h
R e v ise d S ta tu te s,2 12 U .S .C 84. T h is
a n y d ire c to r o f a m e m b e r b a n k , w h e th e r
o r in c o n c e rt w ith o n e o r m o re p e rs o n s ,
a m o u n t is 15 p e rc e n t o f th e b a n k ’s
o r n o t re c e iv in g c o m p e n sa tio n . A n
o w n s, c o n tro ls, o r h a s th e p o w e r to v o te
u n im p a ir e d c a p ita l a n d u n im p a ire d
a d v iso ry d ire c to r is n o t c o n s id e re d a
m o re th a n 10 p e rc e n t o f a n y c la s s o f
s u rp lu s in th e c a se o f lo a n s th a t a re n o t
d ire c to r if th e a d v iso ry d ire c to r:
v o tin g s e c u ritie s o f a m e m b e r b a n k o r
fu lly s e c u re d , a n d a n a d d itio n a l 10
(1) Is n o t e le c te d b y th e s h a re h o ld e rs
p e rc e n t o f th e b a n k ’s u n im p a ire d c a p ita l c o m p a n y . S h a re s o w n e d o r c o n tro lle d
o f th e c o m p a n y o r b an k ;
b y a m e m b e r o f a n in d iv id u a l’s
e n d u n im p a ir e d s u rp lu s in th e c a se o f
(2) Is n o t a u th o riz e d to v o te o n
im m e d ia te fa m ily are c o n s id e re d to b e
lo a n s th a t are fu lly s e c u re d b y re a d ily
m a tte rs b efo re th e b o a rd o f d ire c to rs;
h e ld b y th e in d iv id u a l.
m a rk e ta b le c o lla te ra l h a v in g a m a rk e t
and
(2)
A p r in c ip a l s h a re h o ld e r o f a
v a lu e , as d e te rm in e d b y re lia b le a n d
(3) P ro v id e s so le ly g e n e ra l p o lic y
c o n tin u o u s ly a v a ila b le p ric e q u o ta tio n s, m e m b e r b a n k d o e s n o t in c lu d e a
a d v ic e to th e b o a rd o f d ire c to rs.
c o m p a n y o f w h ic h a m e m b e r b a n k is a
at le a st e q u a l to th e a m o u n t o f th e lo a n .
(e)
(1) Executive officer o f a c o m p a n y
su b sid ia ry .
o r b a n k m e a n s a p e rso n w h o
(n) R elated in terest o f a p e rs o n m e a n s.
duties, including discretion In the making of loans,
p a rtic ip a te s o r h a s a u th o rity to
(1) A c o m p a n y th a t is c o n tro lle d b y
but who do not participate in the determination of
th a t p e rso n ; o r
p a rtic ip a te (o th e r th a n in th e c a p a c ity o f major policies of the bank or company and whose
decisions are limited by policy standards fixed by
(2) A p o litic a l o r c a m p a ig n c o m m itte e
a d ire c to r) in m ajo r p o lic y m a k in g
the senior management of the bank or company. For th a t is c o n tro lle d b y th a t p e rs o n o r th e
fu n c tio n s o f th e c o m p a n y o r b a n k ,
example, the ten s does not include a manager or
fu n d s o r se rv ic e s o f w h ic h w ill b e n e fit
w h e th e r o r n o t: th e o fficer h a s a n
assistant manager of a branch of a hank unless that
th a t p e rso n .
o fficial title ; th e title d e sig n a te s th e
individual participates, or ie authorized to
participate, in major policymaking functions of the
(oj S u b sid ia ry h a s th e m e a n in g g iv e n
o fficer a n a s sista n t; o r th e o ffic er is
bank or company.
in 12 U .S .G 1 8 4 1 (d ), b u t d o e s n o t
s e rv in g w ith o u t sa lary o r o th e r
> Where State law establishes a lending limit far
in c lu d e a s u b s id ia ry o f a m e m b e r b a n k .
c o m p e n s a tio n .1 T h e c h a irm a n o f th e
a State member bank that is lower than the amount
>The term is not intended to include persons who
may have official tides and may exercise a certain
measure erf discretion in the performance of their




permitted in section 5200 of the Revised Statutes,
the lending limit established by applicable State
laws shall be the lending limit for the State member
bank.

$ 21&3 Extension of credit
(a)
A n e x te n s io n o f c r e d it is a m a k in g
o r re n e w a l o f a n y lo a n , a g ra n tin g o f a

Federal Register 7 Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations

8839

§215.4 <Generel prohibitions.
o th e r a s s e t p re v io u s ly a c q u ire d b y th e
(a) T erm s a n d c re d itw o rth in ess. N o
b a n k In g o o d fa ith ; o r
(ii)
A n y in d e b te d n e s s to a b a n k fo r th em e m b e r b a n k m a y e x te n d c re d it to a n y
p u rp o s e o f p ro te c tin g th e b a n k a g a in st
in s id e r o f th e b a n k o r in s id e r o f its
lo ss o r o f g iv in g fin a n c ia l a s sista n c e to
a ffilia te s u n le s s t h e e x te n s io n o f cred it:
(1) Is m a d e o n s u b s ta n tia lly th e sam e
it;
(5)
In d e b te d n e s s o f $ 1 5 ,9 0 0 o r le s s
te rm s (in c lu d in g in te re s t ra te s a n d
c o lla te ra l) a s, a n d fo llo w in g c re d it
a risin g b y s e a s o n o f a n y g e n e ra l
u n d e rw ritin g p ro c e d u re s th a t a re n o t
(1) A c q u ire s c h a rg e o r tim e c re d it
le ss s tr in g e n t th a n , th o s e p re v a ilin g at
a c c o u n ts; o r
th e tim e fo r c o m p a ra b le tra n s a c tio n s by
(ii)
M a k e s p a y m e n ts t o o r o n b e h a lf o fth e b a n k w ith o th e r p e rs o n s th a t are n o t
p a r tic ip a n ts in a b a n k c r e d it c a rd p la n ,
c o v e re d b y t h i s p a r t a n d w h o are n o t
c h e c k c re d it p la n , o r sim ila r o p e n - e n d
e m p lo y e d b y th e b a n k ; a n d
(2) D o es n o t in v o lv e m o re th a n th e
c re d it p la n , p ro v id e d :
(A) T h e in d e b te d n e s s d o e s n o t
n o rm a l risk o f re p a y m e n t o r p re se n t
in v o lv e p rio ru n d iv id u a l c le a ra n c e o r
O ther u n fa v o ra b le fe a tu re s.
(b) P rior a p p ro v a l. { 1) N o m e m b e r
a p p ro v a l by th e b a n k o th e r th a n for th e
b a n k m a y e x te n d c re d it ( w h ic h te rm
p u rp o s e s o f d e te rm in in g a u th o rity to
in c lu d e s g ra n tin g a lin e o f cre d it) to a n y
p a rtic ip a te in t h e a rra n g e m e n t a n d
in s id e r o f th e b a n k o r in s id e r o f its
c o m p lia n c e w ith a n y d o lla r lim it u n d e r
th e a rra n g e m e n t, m id
a ffilia te s i n a n a m o u n t th a t, w h e n
(B) T h e in d e b te d n e s s is in c u rr e d
ag g reg ated w ith th e a m o u n t o f e ll o th e r
u n d e r te rm s th a t are n o t m o re fa v o ra b le
e x te n s io n s o f c re d it to th a t p e rso n an d
th a n th o se o ffe re d to th e g e n e ra l p u b lic ;
t o a ll re la te d in te re sts o f th a t p e rso n ,
(6) In d e b te d n e s s o f $ 5 ,0 0 0 o r le ss
e x c e e d s th e h ig h e r o f $ 2 5 ,0 0 0 o r 5
a risin g b y re a so n o f a n i n te re st -b eari ng
p e rc e n t o f th e m e m b e r b a n k ’s
o v e rd ra ft c r e d it p la n o f th e ty p e
u n im p a ire d c a p ita l a n d u n im p a ire d
sp e c ifie d i n § 2 1 5 .4 (e) o f t h i s p a rt; o r
s u r p lu s , u n le ss;
(7) A d is c o u n t o f p ro m is s o ry n o te s,
(ij T h e e x te n s io n o f c r e d it h a s b ee n
b ills o f e x c h a n g e , c o n d itio n a l sa le s
a p p ro v e d in a d v a n c e b y a m a jo rity o f
c o n tra c ts , o r s im ila r p a p e r, w ith o u t
th e e n tire b o a r d o f d ire c to rs o f th a t
re c o u rse .
bank; e n d
( d N o n -in te re s t-b e a rin g d e p o s its to
(Ii) T h e in te re s te d p a rty h a s ab s ta in e d
th e c re d it o f a b a n k are n o t c o n s id e re d
fro m p a rtic ip a tin g d ir e c tly o r in d ire c tly
lo a n s, a d v a n c e s , o r e x te n s io n s o f c r e d it
in th e v o tin g .
(2) In n o e v e n t m a y a m e m b e r b a n k
to th e b a n k o f d e p o s it; n o r is th e g iv in g
e x te n d c r e d it to a n y in s i d e r o f th e b a n k
o f im m e d ia te c r e d it t o a b a n k u p o n
o r in r id e r o f its a ffilia te s I n a n a m o u n t
u n c o lle c te d ite m s re c e iv e d i n th e
th a t, w h e n ag g reg ated w ith a ll o th e r
o rd in a ry c o u rs e o f b u s in e s s c o n s id e re d
e x te n sio n s-o f c r e d it to th a t p e rso n , a n d
to b e a lo a n , a d v a n c e o r e x te n s io n o f
all re la te d in te re s ts o f th a t p e rs o n ,
c re d it to th e d e p o s itin g b a n k .
e x c e e d s $ 5 0 0 ,0 0 0 , e x o e p t b y c o m p ly in g
(d)
F o r p u rp o s e s o f § 215.4 o f th is
p a ri, a n e x te n s io n o f c r e d it b y a m e m b e r w ith th e r e q u ire m e n ts -of tills p ara g ra p h
b a n k is c o n s id e r e d to h a v e b e e n m a d e
(b).
(3) A p p ro v a l b y th e b o a r d o f d ire c to rs
a t th e tim e t h e b a n k e n te rs in to a
u n d e r p a ra g ra p h s (b)(1) a n d (b)(2) o f th is
b in d in g c o m m itm e n t to m a k e th e
se c tio n is n o t re q u ire d for a n e x te n sio n
e x te n s io n o f c re d it.
fe) A p a r tic ip a tio n w ith o u t re c o u rs e is o f c r e d it th a t is m a d e p u r s u a n t to a lin e
o f c re d it th a t w a s a p p ro v e d u n d e r
c o n s id e re d to b e a n e x te n s io n o f c r e d it
p a ra g ra p h (b)(1) o f th is s e c tio n w ith in
b y th e p a r tic ip a tin g b a n k , n o t b y th e
14 m o n th s o f th e d a te o f th e e x te n s i on
o rig in a tin g b a n k .
(?) T an gible e c o n o m ic b e n e fit ru le —
o f c re d it. T h e e x te n s io n o f c re d it m u s t
{3) A n a c q u is itio n o f a n o te , d raft, b ill
a lso b e in c o m p lia n c e w ith th e
(1) In general. A n e x te n s io n o f c r e d it is
o f ex c h a n g e , o r o th e r e v id e n c e o f
c o n s id e re d m a d e t o a n in s id e r to th e
re q u ire m e n ts o f § 2 15.4(a) o f th is p a rt.
in d e b te d n e s s th ro u g h :
(4) P a rtic ip a tio n in t h e d is c u s s io n , o r
(I)
A m e rg e r o r c m is o lid a tio n o f b a n k s e x te n t fh at th e p ro c e e d s a r e tra n s fe rre d
o r a sim ila r tra n s a c tio n b y w h ic h a b a n k to th e in s id e r o r a re u s e d fo r th e ta n g ib le an y a tte m p t to in flu e n c e th e votin g , by
th e b o a rd o f d ire c to rs re g a rd in g a n
a c q u ire s a s se ts a n d a s s u m e s lia b ilitie s o f e c o n o m ic b e n e fit o f t h e in s id e r.
(2) E x cep tio n . A n e x te n s io n o f c re d it
e x te n s io n o f c r e d it c o n s titu te s in d ire c t
a n o th e r b a n k o r r im il a r o rg a n iz a tio n ; o r
p a rtic ip a tio n i n th e v o tin g b y th e b o a rd
is n o t c o n s id e r e d m a d e to a n in s id e r
(ii)
F o re c lo s u re cm c o lla te r a l o r
u n d e r p a ra g ra p h (iX l) o f t i n s se c tio n if:
o f d ir e c to r s o n an e x te n s io n o f cre d it.
sim ila r p ro c e e d in g fo r th e p ro te c tio n o f
(c) In d iv id u a l le n d in g lim it—N o
(i)
T h e c re d it is e x te n d e d o n te rm s
th e b a n k , p r o v id e d th a t s u c h
m e m b e r b a n k m a y e x te n d c r e d it to an y
th a t w o u ld sa tisfy t h e s ta n d a r d s e t fo rth
in d e b te d n e s s is n o t h e ld f o r a p e rio d o f
in s id e r o f th e b a n k o r in s id e r o f its
in § 2115.4(a) o f th is p a ri fo r e x te n s io n s
m o re th a n th r e e y e a rs fro m th e d a te o f
a ffilia te s in a n a m o u n t th a t, w h e n
o f c re d it to in s id e rs ; a n d
th e a c q u isitio n , su b je c t t o e x te n s io n b y
fn ) T h e p r o c e e d s o f th e e x te n s io n o f
ag g reg ated w ith th e a m o u n t o f all o th e r
th e a p p ro p ria te F e d e r a l b a n k in g ag e n cy
e x te n s io n s o f c r e d it b y th e m e m b e r b a n k
c re d it are u s e d in a b o n a f id e
for g o o d c a u s e ;
(4)(i) A n e n d o rs e m e n t o r g u a ra n te e for tra n s a c tio n to a c q u ire p r o p e r ty , g o o d s,
to th a t p e r s o n a n d to a ll r e la te d in te r e s ts
o r se rv ic e s from t h e in s id e r.
th e p ro te c tio n o f a b a n k o f a n y lo a n o r
o f th a t p e rso n , e x c e e d s th e le n d in g lim it

lin e o f c re d it, o r a n e x te n d in g o f c r e d it
i n a n y m a n n e r w h a ts o e v e r, a n d
in c lu d e s :
(1) A p u rc h a s e u n d e r r e p u rc h a s e
a g re e m e n t o f s e c u ritie s, o th e r assets, o r
o b lig a tio n s;
(2) A n a d v a n c e b y m e a n s o f a n
o v erd raft, c a s h ite m , o r o th e rw is e ;
(3} is s u a n c e o f a s ta n d b y le tte r o f
c re d it {or o th e r s im ila r a rra n g e m e n t
re g a rd le ss o f n a m e o r d e s c rip tio n ) o r a n
in e lig ib le a c c e p ta n c e , <as th o s e to o n s a re
d e fin e d i n § 2 08.8(d) o f t h i s c h a p te r,
(4) A n a c q u is itio n b y d is c o u n t,
p u rc h a s e , e x c h a n g e , o r o th e rw is e o f a n y
n o te , d ra ft, h ill o f ex c h a n g e , o r o th e r
e v id e n c e o f in d e b te d n e s s u p o n w h ic h
a n in s id e r m ay b e lia b le as m a k er,
d ra w e r, e n d o rs e r, g u a ra n to r, o r s u re ty ;
(5) A n in c re a se o f m i e x is tin g
in d e b te d n e s s , b u t n o t if t h e a d d itio n a l
fu n d s a re a d v a n c e d b y th e b a n k fo r its
o w n p ro te c tio n f o r
(i) A c c ru e d in te re s t; o r
(ii) T ax es, in s u ra n c e , o r o th e r
e x p e n s e s in c id e n ta l to th e e x is tin g
in d e b te d n e ss;
(6) A n a d v a n c e o f u n e a r n e d sa la ry o r
o th e r u n e a rn e d c o m p e n s a tio n for a
p e rio d i n e x c e s s o f 39 d a y s ; a n d
(7) A n y o th e r s im ila r tra n s a c tio n a s a
re s u lt o f w h ic h a p e r s o n b e c o m e s
o b lig a te d to p a y m o n e y lo r its
e q u iv a le n t) t o a b a n k , w h e th e r th e
o b lig a tio n a r is e s d ire c tly o r in d ire c tly ,
o r b e c a u s e o f a n e n d o rs e m e n t o n a n
o b lig a tio n o r o th e rw ise , o r b y an y m e a n s
w h a tso e v e r.
fb ) A n e x te n s io n o f c re d it d o e s n o t
in d u d e :
(1) A n a d v a n c e a g a in st a c c ru e d salary
o r o th e r a c c ru e d c o m p e n s a tio n , o r a n
a d v a n c e for d i e p a y m e n t o f a u th o riz e d
tra v e l o r o th e r e x p e n s e s in c u rre d o r to
b e in c u rre d o n b e h a lf o f th e b a n k ;
(2) A r e c e ip t b y a b a n k o f a c h e c k
d e p o s ite d in o r d e liv e re d to th e b a n k in
d i e u su a l-c o u rse o f b u s in e s s u n le s s it
re s u lts i n d i e c a rry in g o f a c a sh ite m Tor
o r th e gr an t in g o f a n o v e rd ra ft (o th er
th a n a n in a d v erten t o v e rd ra ft in a




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10100
Federal Register / Vo.1. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations

n o te s, c e rtific a te s o f in d e b te d n e s s , or
o f th e m e m b e r b a n k s p e c ifie d in
T re a s u ry b ills o f th e U n ite d S tate s o r in
§ 2 1 5 .2(i) o f th is p a rt. T h is p ro h ib itio n
o th e r s u c h o b lig a tio n s fu lly g u a ra n te e d
d o e s n o t a p p ly to a n e x te n s io n o f c re d it
as to p rin c ip a l a n d in te re s t b y th e
b y a m e m b e r b a n k to a c o m p a n y o f
w h ic h th e m e m o e r b a n k is a su b sid ia ry
U n ite d S tates;
o r to a n y o th e r s u b s id ia ry o f th a t
(B) E x te n sio n s o f c re d it to o r s e c u re d
by u n c o n d itio n a l ta k e o u t c o m m itm e n ts
co m p a n y .
(dj A ggregate le n d in g lim it — (1)
o r g u a ra n te e s o f a n y d e p a rtm e n t,
G eneral lim it. A m e m b e r b a n k m a y n o t
ag e n cy , b u re a u , b o a rd , c o m m issio n or
e x te n d c re d it to a n y in s id e r o f th e b a n k
e s ta b lis h m e n t o f th e U n ite d S ta te s o r
o r in s id e r o f its a ffilia te s u n le s s th e
an y c o rp o ra tio n w h o lly o w n e d d ire c tly
e x te n s io n o f c re d it is in a n a m o u n t th a t,
o r in d ire c tly b y th e U n ite d S tates;
w h e n ag g reg ated w ith th e a m o u n t o f all
(C) E x te n sio n s o f c re d it s e c u re d b y a
o u ts ta n d in g e x te n sio n s o f c re d it b y th a t
p e rfe c te d s e c u rity in te re s t in a
b a n k to all s u c h in sid e rs, d o e s n o t
seg re g ate d d e p o s it a c c o u n t in th e
ex c ee d th e b a n k ’s u n im p a ire d c a p ita l
le n d in g b a n k ; o r
a n d u n im p a ir e d s u rp lu s (as d e fin e d in
(D) E x te n sio n s o f cre d it^ arisin g from
§ 215.2(i) o f th is p art).
th e d is c o u n t o f n e g o tia b le o r
(2) M em b er b an ks w ith d e p o sits o f
n o n n e g o tia b le in s ta llm e n t c o n s u m e r
less th an $ 100,000,000 . (i) A m e m b e r
p a p e r th a t is a c q u ire d from a n in s id e r
b a n k w ith d e p o s its o f le ss th a n
a n d c a rrie s a fu ll or p a rtia l re c o u rse
$ 1 0 0 ,0 0 0 ,0 0 0 m ay by a n a n n u a l
e n d o rs e m e n t o r g u a ra n te e by th e
re s o lu tio n o f its b o a rd o f d ire c to rs
in s id e r, p ro v id e d th a t:
in c re a se th e g en e ral lim it s p e c ifie d in
(1) T h e fin a n c ia l c o n d itio n o f e a c h
p a ra g ra p h (d)(1) o f th is se c tio n to a lev el m a k e r o f s u c h c o n s u m e r p a p e r is
n o t to ex c ee d tw o tim e s th e b a n k ’s
re a so n a b ly d o c u m e n te d in th e b a n k ’s
u n im p a ire d c a p ita l a n d u n im p a ire d
files o r k n o w n to its o fficers;
s u rp lu s , if:
(2) A n o ffic er o f th e b a n k d e s ig n a te d
(A) T h e b o a rd o f d ire c to rs d e te rm in e s
for th a t p u rp o s e b y th e b o a rd o f
th a t s u c h h ig h e r lim it is c o n s is te n t w ith
d ire c to rs o f th e b a n k c e rtifie s in w ritin g
p ru d e n t, safe, a n d so u n d b a n k in g
th a t th e b a n k is re ly in g p rim a rily u p o n
p ra c tic e s in lig h t o f th e b a n k ’s
th e re s p o n s ib ility o f e a c h m a k e r for
e x p e rie n c e in le n d in g to its in s id e rs a n d
p a y m e n t o f th e o b lig a tio n a n d n o t u p o n
is n e c e s sa ry to a ttra c t o r re ta in d ire c to rs
a n y e n d o rs e m e n t o r g u a ra n te e b y th e
o r to p re v e n t re stric tin g th e a v a ila b ility
in sid e r; a n d
o f c re d it in sm a ll c o m m u n itie s;
(3) T h e m a k e r o f th e in s tru m e n t is n o t
(B) T h e re s o lu tio n se ts fo rth th e facts
an in sid e r.
a n d re a so n in g o n w h ic h th e b o a rd o f
(ii) T h e e x c e p tio n s in p a ra g ra p h s
d ire c to rs b a s e s th e fin d in g , in c lu d in g
(d)(3)(i)(A ) th ro u g h (d)(3)(i)(C) o f th is
th e a m o u n t o f th e b a n k ’s le n d in g to its
se c tio n a p p ly o n ly to th e a m o u n ts o f
in s id e rs as a p e rc e n ta g e o f th e b a n k ’s
su c h e x te n s io n s o f c re d it th a t are
u n im p a ire d c a p ita l a n d u n im p a ire d
s e c u re d in th e m a n n e r d e s c rib e d
s u rp lu s as o f th e d a te o f th e re so lu tio n ;
th e re in .
(C) T h e b a n k m e ets o r e x c e e d s, on a
(e)
O verd ra fts. (1) N o m e m b e r b a n k
fu lly -p h a se d in b asis, a ll a p p lic a b le
m ay p a y a n o v e rd ra ft o f a n e x e c u tiv e
c a p ita l re q u ire m e n ts e s ta b lis h e d b y th e
o fficer o r d ire c to r o f th e b a n k 3 o n a n
a p p ro p ria te F e d e ra l b a n k in g agency;
a c c o u n t at th e b a n k , u n le s s th e p a y m e n t
an d
o f fu n d s is m a d e in a c c o rd a n c e w ith :
(D) T h e b a n k re c e iv e d a sa tisfa c to ry
(1) A w ritte n , p re a u th o riz e d , in te re stc o m p o site ra tin g in its m o st re c e n t
b e a rin g e x te n s io n o f c re d it p la n th a t
re p o rt o f e x a m in a tio n .
sp e c ifie s a m e th o d o f re p a y m e n t; or
(ii)
If a m e m b e r b a n k h a s a d o p te d a
(ii) A w ritte n , p r e a u th o riz e d tra n sfe r
re s o lu tio n a u th o riz in g a h ig h e r lim it
o f fu n d s from a n o th e r a c c o u n t o f th e
p u rs u a n t to p a ra g ra p h (d)(2)(i) o f th is
a c c o u n t h o ld e r a t th e b an k .
se c tio n a n d s u b se q u e n tly fails to m e e t
(2) T h e p ro h ib itio n in p a ra g ra p h (e)(1)
th e re q u ire m e n ts o f p a ra g ra p h
o f th is se c tio n d o e s n o t a p p ly to
(d)(2)(i)(C) o r (d)(2)(i)(D) o f th is se c tio n ,
p a y m e n t o f in a d v e rte n t o v e rd ra fts o n a n
th e m e m b e r b a n k s h a ll n o t e x te n d an y
a c c o u n t in a n aggregate a m o u n t o f
a d d itio n a l c re d it (in c lu d in g a re n e w a l o f $ 1 ,0 0 0 o r less, p ro v id e d :
an y e x istin g e x te n sio n o f c re d it) to a n y
(i)
T h e a c c o u n t is n o t o v e rd ra w n for
in s id e r o f th e b a n k o r its a ffilia te s u n le ss m o re th a n 5 b u s in e s s d ay s; a n d
s u c h e x te n s io n or re n e w a l is c o n s is te n t
w ith th e g e n e ra l lim it in p a ra g ra p h
-’ This prohibition does not apply to the payment
by a member bank of an overdraft of a principal
(d)(1) o f th is se ctio n .
shareholder of the member bank, unless the
(3) E x cep tio n s, (i) T h e g e n e ra l lim it
principal shareholder is also an executive officer or
sp e c ifie d in p a ra g ra p h (d)(1) o f th is
director. This prohibition also does not apply to the
se c tio n d o e s n o t a p p ly to th e fo llo w in g :
payment by a member bank of an overdraft of a
(A)
E x te n sio n s o f c re d it s e c u re d b y a related interest of an executive officer, director, or
principal shareholder of the member bank.
p e rfe c te d se c u rity in te re s t in b o n d s,




(ii)
T h e m e m b e r b a n k c h a rg es th e
e x e c u tiv e o ffic er o r d ire c to r th e sa m e fee
c h a rg e d a n y o th e r c u s to m e r o f th e b a n k
in s im ila r c irc u m sta n c e s.
§ 2 1 5 .5 Additional restrictions on loans to
executive officers of mem ber banks.

T h e fo llo w in g re s tric tio n s o n
e x te n s io n s o f c re d it b y a m e m b e r b a n k
to a n y o f its e x e c u tiv e o ffic ers a p p ly in
a d d itio n to a n y re s tric tio n s on
e x te n s io n s o f c re d it b y a m e m b e r b a n k
to in s id e rs o f its e lf o r its a ffilia te s set
fo rth e ls e w h e re in th is p a rt. T h e
re s tric tio n s o f th is se c tio n a p p ly o n ly to
e x e c u tiv e o ffic ers o f th e m e m b e r b a n k
a n d n o t to e x e c u tiv e o fficers o f its
affilia te s.
(a) N o m e m b e r b a n k m a y e x te n d
c re d it to a n y o f its e x e c u tiv e o fficers,
a n d n o e x e c u tiv e o fficer o f a m e m b e r
b a n k s h a ll b o rro w from o r o th e rw is e
b e c o m e in d e b te d to th e b a n k , e x c e p t in
th e a m o u n ts , for th e p u rp o s e s , a n d u p o n
th e c o n d itio n s sp e c ifie d in p a ra g ra p h s
(c) a n d (d) o f th is se c tio n .
(b) N o m e m b e r b a n k m ay e x te n d
c re d it in a n ag g reg ate a m o u n t g rea ter
th a n th e a m o u n t p e rm itte d in p a ra g ra p h
(c)(3) o f th is se c tio n to a p a rtn e rs h ip in
w h ic h o n e o r m o re o f th e b a n k ’s
e x e c u tiv e o fficers are p a rtn e rs a n d ,
e ith e r in d iv id u a lly o r to g e th e r, h o ld a
m a jo rity in te re st. F o r th e p u rp o s e s o f
p a ra g ra p h (c)(3) o f th is se c tio n , th e to ta l
a m o u n t o f c r e d it e x te n d e d b y a m e m b e r
b a n k to s u c h p a rtn e rs h ip is c o n s id e re d
to b e e x te n d e d to e a c h e x e c u tiv e officer
o f th e m e m b e r b a n k w h o is a m e m b e r
o f th e p a rtn e rs h ip .
(c) A m e m b e r b a n k is a u th o riz e d to
e x te n d c re d it to a n y e x e c u tiv e o fficer o f
th e b a n k :
(1) In a n y a m o u n t to fin a n c e th e
e d u c a tio n o f th e e x e c u tiv e o ffic e r’s
c h ild re n ;
(2) W ith th e sp e c ific p rio r a p p ro v a l of
th e b o a rd o f d ire c to rs, in a n y a m o u n t to
fin a n c e o r re fin a n c e th e p u rc h a s e ,
c o n s tru c tio n , m a in te n a n c e , or
im p ro v e m e n t o f a re s id e n c e o f th e
e x e c u tiv e o fficer, p ro v id e d :
(i) T h e e x te n s io n o f c re d it is s e c u re d
b y a first lie n o n th e re s id e n c e a n d th e
re s id e n c e is o w n e d (or e x p e c te d to be
o w n e d a fte r th e e x te n s io n o f c re d it) by
th e e x e c u tiv e officer; a n d
(ii) In th e c a se o f a re fin a n c in g , th a t
o n ly th e a m o u n t th e re o f u se d to re p a y
th e o rig in a l e x te n s io n o f c re d it, to g e th e r
w ith th e c lo sin g c o sts o f th e re fin a n c in g ,
a n d a n y a d d itio n a l a m o u n t th e re o f u se d
for a n y o f th e p u rp o s e s e n u m e ra te d in
th is p a ra g ra p h (c)(2), a re in c lu d e d
w ith in th is c a te g o ry o f c re d it;
(3) In a n y a m o u n t, if th e e x te n s io n of
c re d it is s e c u re d in a m a n n e r d e s c rib e d
in § 215.4(d)(3)(i)(A ) th ro u g h (d)(3)(i)(C)
o f th is p a rt; a n d

/O f0 b
Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations
(4)
F o r a n y o th e r p u r p o s e n o t
s p e c ifie d in p a ra g ra p h s (c)(1) th ro u g h
(c)(3) o f th is se c tio n , if th e aggregate
a m o u n t o f e x te n s io n s o f c re d it to th a t
e x e c u tiv e o fficer u n d e r th is p a ra g ra p h
d o es n o t e x c e e d at a n y o n e tim e th e
h ig h e r o f 2.5 p e r c e n t o f th e b a n k ’s
c a p ita l a n d u n im p a ir e d s u r p lu s o r
$25,000, b u t in n o e v e n t m o re th a n
$ 100 , 000 .

(d)
A n y e x te n s io n o f c re d it b y a
m e m b er b a n k to a n y o f its e x e c u tiv e
officers s h a ll be:
(1) P ro m p tly re p o rte d to th e m e m b e r
b a n k ’s b o a rd o f d ire c to rs;
(2) In c o m p lia n c e w ith th e
re q u ire m e n ts o f § 215.4(a) o f th is p a rt;
(3) P re c e d e d b y th e su b m is s io n o f a
d e ta ile d c u rre n t fin a n c ia l s ta te m e n t o f
th e e x e c u tiv e officer; a n d
(4) M ad e su b je ct to th e c o n d itio n in
w ritin g th a t th e e x te n s io n o f c re d it w ill,
at th e o p tio n o f th e m e m b e r b a n k ,
b e c o m e d u e a n d p a y a b le at a n y tim e
th a t th e o fficer is in d e b te d to a n y o th e r
b a n k o r b a n k s in a n aggregate a m o u n t
g re a te r th a n th e a m o u n t s p e c ifie d fo r a
categ o ry o f c re d it in p a ra g ra p h (c) o f th is
se ctio n .

§ 215.6 Prohibition on knowingly receiving
unauthorized extension of credit
N o e x e c u tiv e officer, d ire c to r, o r
p rin c ip a l s h a re h o ld e r o f a m e m b e r b a n k
o r a n y o f its a ffilia te s s h a ll k n o w in g ly
rec eiv e (o r k n o w in g ly p e rm it a n y o f th a t
p e rs o n ’s re la te d in te re s ts to rec eiv e )
from a m e m b e r b a n k , d ire c tly o r
in d ire c tly , a n y e x te n s io n o f c re d it n o t
a u th o riz e d u n d e r th is p a rt.
§ 215.7 Extensions of credit outstanding
on March 10,1979.

(a) A n y e x te n s io n o f c r e d it th a t w a s
o u ts ta n d in g o n M a rc h 10, 1979, a n d th a t
w o u ld , i f m a d e o n o r afte r M a rc h 10,
1979, v io la te § 215.4(c) o f th is p a rt, s h a ll
b e re d u c e d in a m o u n t b y M a rc h 10,
1980, to b e in c o m p lia n c e w ith th e
le n d in g lim it in § 215.4(c) o f th is p art.
A n y re n e w a l o r e x te n s io n o f s u c h a n
e x te n sio n o f c re d it o n o r afte r M a rc h 10,
1979, s h a ll b e m a d e o n ly o n te rm s th a t
w ill b rin g th e e x te n s io n o f c re d it in to
c o m p lia n c e w ith th e le n d in g lim it o f
§ 215.4(c) o f th is p a rt by M a rc h 10,
1980. H o w ev er, a n y e x te n s io n o f c re d it
m a d e b efo re M a rc h 1 0 ,1 9 7 9 , th a t b e a rs
a sp e cific m a tu rity d a te o f M a rc h 10,
1980, o r la ter, s h a ll b e re p a id in
a c c o rd a n c e w ith its re p a y m e n t s c h e d u le
in e x iste n c e o n o r b efo re M a rc h 10,
1979.
(b) If a m e m b e r b a n k is u n a b le to
b rin g a ll e x te n s io n s o f c re d it
o u tsta n d in g o n M a rc h 1 0 ,1 9 7 9 , in to
c o m p lia n c e a s re q u ir e d b y p a ra g ra p h (a)
o f th is se c tio n , th e m e m b e r b a n k s h a ll
p ro m p tly re p o rt th a t fac t to th e



C o m p tro lle r o f th e C u rre n c y , i n t h e c a se
o f a n a tio n a l b a n k , o r to th e a p p ro p ria te
F e d e ra l R eserv e B a n k , in th e case o f a
S tate m e m b e r b a n k , a n d e x p la in th e
re a so n s w h y a ll th e e x te n s io n s o f c r e d it
c a n n o t b e b ro u g h t in to c o m p lia n c e . T h e
C o m p tro lle r or th e R e serv e B ank, a s th e
case m a y be, is a u th o riz e d , o n th e b a s is
o f g o o d c a u se sh o w n , to e x te n d th e
M a rc h 1 0 ,1 9 8 0 , d a te for c o m p lia n c e for
an y e x te n sio n o f c re d it for n o t m o re
th a n tw o a d d itio n a l o n e -y e a r p e rio d s.
§2 1 5.8

Records of m em ber banks.

(a) In general. E a c h m e m b e r b a n k
s h a ll m a in ta in re c o rd s n e c e s sa ry for
c o m p lia n c e w ith th e re q u ir e m e n ts o f
th is p art.
(b) Recordkeeping far insiders of the
member bank. A n y re c o rd k e e p in g
m e th o d a d o p te d b y a m e m b e r b a n k
sh a ll:
(1) Id e n tify , th ro u g h a n a n n u a l
su rv ey , all in s id e rs o f th e b a n k itself;
and
(2) M a in ta in r e c o rd s o f a ll e x te n sio n s
o f c re d it to in s id e rs o f th e b a n k itse lf,
in c lu d in g th e a m o u n t a n d te rm s o f e a c h
su c h e x te n sio n o f c r e d i t
(c) Recordkeeping for insiders of the
member bank’s affiliates. A n y
re c o rd k e e p in g m e th o d a d o p te d b y a
m e m b e r b a n k sh aH m a in ta in re c o rd s o f
e x te n sio n s o f c re d it to in s id e rs o f th e
m e m b e r b a n k ’s affilia te s by :
(1) Survey method, (i) Id e n tify in g ,
th ro u g h a n a n n u a l s u r v e y , e a c h in s id e r
o f th e m e m b e r b a n k ’s affilia te s; a n d
(ii) M a in ta in in g re c o rd s o f th e a m o u n t
a n d te rm s o f e a c h e x te n s io n o f c r e d it b y
th e m e m b e r b a n k t o s u c h in s id e rs ; o r
(2) Borrower inquiry method, (i)
R e q u irin g a s p a r t o f e a c h e x te n s io n o f
c re d it th a t th e b o rro w e r in d ic a te
w h e th e r th e b o rro w e r is a n in s id e r o f a n
affilia te o f th e m e m b e r b a n k ; a n d
(ii) M a in ta in in g re c o rd s th a t id e n tify
th e a m o u n t a n d te rm s o f e a c h e x te n s io n
o f c re d it b y th e m e m b e r b a n k to
b o rro w e rs so id e n tify in g th e m se lv e s.
(3) Alternative recordkeeping methods
for insiders o f affiliates. A m e m b e r b a n k
m a y e m p lo y a re c o rd k e e p in g m e th o d
o th e r th a n th o s e id e n tifie d in
p a ra g ra p h s (c)(1) a n d (c)(2) o f th is
se c tio n if th e a p p r o p r ia te F e d e ra l
b a n k in g ag e n c y d e te rm in e s th a t th e
b a n k ’s m e th o d is a t le a st as effectiv e a s
th e id e n tifie d m e th o d s.
(d) Special rule for non-commercial
lenders. A m e m b e r b a n k th a t is
p ro h ib ite d b y la w o r b y a n e x p re ss
re s o lu tio n o f th e b o a r d o f d ir e c to r s o f
th e b a n k from m a k in g a n e x te n s io n o f
c re d it to a n y c o m p a n y o r o th e r e n tity
th a t is c o v e re d b y th is p a rt a s a
c o m p a n y is n o t r e q u ir e d to m a in ta in
a n y re c o rd s o f th e r e la te d in te re s ts o f
th e in s id e rs o f th e b a n k o r its affilia te s

8841

o r to in q u ire o f b o rro w e rs w h e th e r th e y
are re la te d in te re s ts o f th e in s id e rs o f
th e b a n k o r its a ffilia te s.
§ 215.9

Reports b y executive officers.

E ac h e x e c u tiv e o ffic e r o f a m e m b e r
b a n k w h o b e c o m e s in d e b te d to an y
o th e r b a n k o r b a n k s in a n aggregate
a m o u n t g re a te r th a n th e a m o u n t
s p e c ifie d for a c a te g o ry o f c re d it in
§ 215.5(c) o f th is p a rt, s h a ll, w ith in 10
d a y s o f th e d a te th e in d e b te d n e s s
re a c h e s s u c h a le v e l, m a k e a w ritte n
re p o rt to th e b o a rd o f d ire c to rs o f th e
o ffic e r’s b a n k . T h e re p o r t s h a ll sta te th e
le n d e r ’s n a m e , th e d a te a n d a m o u n t o f
e a c h e x te n s io n o f c r e d it, a n y s e c u rity for
it, a n d th e p u rp o s e s fo r w h ic h th e
p ro c e e d s h a v e b e e n o r a re to b e u se d .
§ 215.10
officers.

Reports on credit to executive

E a c h m e m b e r b a n k s h a ll in c lu d e w ith
(b u t n o t as p a rt of) e a c h re p o rt o f
c o n d itio n (a n d c o p y th e re o f) file d
p u r s u a n t to 1 2 U.1S.C. 1817(a)(3) a re p o rt
o f a ll e x te n s io n s o f c re d it m a d e b y th e
m e m b e r b a n k to its e x e c u tiv e o fficers
sin c e th e d a t e o f th e b a n k ’s p re v io u s
re p o rt o f c o n d itio n .
§ 215.11 Disclosure of credit from m em ber
banks to executive officers and principal
shareholders.

(a)
Definitions. F o r th e p u rp o s e s of
th is se c tio n , th e fo llo w in g d e f in itio n s
a p p ly :

(1) Principal shareholder o f a member
bank m e a n s a n y p e r s o n 4 o th e r th a n a n
in s u r e d b a n k , o r a fo re ig n b a n k as
d e fin e d in 12 U .S.C . 3101(7), th a t,
d ire c tly o r in d ire c tly , o w n s, c o n tro ls, o r
h a s p o w e r to v o te m o re th a n 10 p e rc e n t
o f a n y c la ss o f v o tin g se c u ritie s o f th e
m e m b e r b a n k . T h e te rm in c lu d e s a
p e rs o n th a t c o n tro ls a p r in c ip a l
s h a re h o ld e r (e.g., a p e rs o n th a t c o n tro ls
a b a n k h o ld in g c o m p a n y ). S h a re s o f a
b a n k (in c lu d in g a fo re ig n b a n k ), b a n k
h o ld in g c o m p a n y , o r o th e r c o m p a n y
o w n e d o r c o n tro lle d b y a m e m b e r o f a n
in d iv id u a l’s im m e d ia te fam ily are
p re s u m e d to b e o w n e d o r c o n tro lle d b y
th e in d iv id u a l fo r th e p u rp o s e s o f
d e te rm in in g p r in c ip a l s h a re h o ld e r
sta tu s.
(2) Related interest m e a n s:
(i) A n y c o m p a n y c o n tro lle d b y a
p e rso n ; or
(ii) A n y p o litic a l o r c a m p a ig n
c o m m itte e th e fu n d s o r se rv ic e s o f
w h ic h w ill b e n e fit a p e rs o n o r th a t is
c o n tro lle d b y a p e rs o n . F o r th e p u rp o s e
o f th is 's e c tio n a n d s u b p a rt B o f th is p a rt,
a re la te d in te re s t d o e s n o t in c lu d e a *12
4 The term “stockholder of record” appearing in
12 U.S.C. 1972{2){G) is synonymous with the term
"person.”

10700
8842

Federal Register / Vol. 59, No. 37 / Thursday, February 24, 1994 / Rules and Regulations

b a n k o r a foreign b a n k (as d e fin e d in 12
U .S.C . 3101(7)).
(b) P u blic disclo su re. (1) U p o n re c e ip t
o f a w ritte n re q u e st from th e p u b lic , a
m e m b e r b a n k s h a ll m a k e a v a ila b le th e
n a m e s o f ea c h o f its e x e c u tiv e o fficers
a n d e a c h o f its p r in c ip a l sh a re h o ld e rs to
w h o m , o r to w h o se re la te d in te re sts , th e
m e m b e r b a n k h a d o u ts ta n d in g as of th e
e n d o f th e la test p re v io u s q u a rte r o f th e
y ea r, a n e x te n sio n o f c re d it th a t, w h e n
ag g reg ated w ith all o th e r o u ts ta n d in g
e x te n s io n s o f c re d it at s u c h tim e from
th e m e m b e r b a n k to s u c h p e rso n a n d to
all re la te d in te re sts o f s u c h p e rso n ,
e q u a le d o r ex c e e d e d 5 p e rc e n t o f th e
m e m b e r b a n k ’s c a p ita l a n d u n im p a ire d
s u r p lu s of $500,000, w h ic h e v e r a m o u n t
is less. N o d isc lo su re u n d e r th is
p a ra g ra p h is re q u ire d if th e aggregate
a m o u n t o f all e x te n sio n s o f c re d it
o u ts ta n d in g at s u c h tim e from th e
m e m b e r b a n k to th e e x e c u tiv e o fficer or
p r in c ip a l s h a re h o ld e r o f th e m e m b e r
b a n k a n d to all re la te d in te re sts o f su c h
a p e rs o n d o e s n o t ex c e e d $25,000.
(2)
A m e m b e r b a n k is n o t re q u ire d to
d is c lo s e th e sp e cific a m o u n ts of
in d iv id u a l e x te n sio n s o f c re d it.
(c) M ain tain in g reco rd s. E ac h m e m b e r
b a n k s h a ll m a in ta in re c o rd s o f all
re q u e s ts for th e in fo rm a tio n d e s c rib e d
in p a ra g ra p h (b) o f th is se c tio n a n d th e
d is p o s itio n o f s u c h re q u e sts. T h e se
re c o rd s m a y b e d is p o s e d o f afte r tw o
y e a rs from th e d a te o f th e re q u e st.
§ 215.12 Reporting requirement for credit
secured by certain bank stock.

E ach e x e c u tiv e officer o r d ire c to r o f a
m e m b e r b a n k th e sh a re s o f w h ic h are
n o t p u b lic ly tra d e d s h a ll re p o rt
a n n u a lly to th e b o a rd o f d ire c to rs o f th e
m e m b e r b a n k th e o u ts ta n d in g a m o u n t o f
a n y c re d it th a t w a s e x te n d e d to th e
e x e c u tiv e o fficer o r d ire c to r a n d th a t is
s e c u re d b y sh a re s o f th e m e m b e r b a n k .
§ 2 1 5.1 3

Civil penalties.

A n y m e m b e r b a n k , o r an y officer,
d ire c to r, e m p lo y ee , ag e n t, or o th e r
p e rs o n p a rtic ip a tin g in th e c o n d u c t o f
th e affairs o f th e b a n k , th a t v io la te s a n y
p ro v is io n o f th is p a rt (o th e r th a n
§ 215.11 o f th is p art) is su b je c t to c iv il
p e n a ltie s as s p e c ifie d in se c tio n 29 of
th e F e d e ra l R eserve A c t (12 U .S.C . 504).

Subpart B—[Amended]
§215.21

[Amended]

3.
S ectio n 215.21 is a m e n d e d by
re m o v in g “ 18 4 1 (c)” w h e re it a p p e a rs in
p a ra g ra p h (a) a n d a d d in g in its p la c e
“ 1971 a n d 1 9 7 2 ” a n d b y re m o v in g
fo o tn o te 10 a n d re d e s ig n a tin g fo o tn o te s
11 a n d 12 as fo o tn o te s 5 a n d 6.



§21 5.2 2

[Amended]

4.
S e c tio n 215 .2 2 is a m e n d e d by
re m o v in g “ 12 CFR 2 2 6 .2 (p )” w h e re it
a p p e a rs in p a ra g ra p h (c)(l)(ii) a n d
a d d in g in its p la c e “ 12 CFR
2 2 6 .2 (a)(1 2 )” .
By order of the Board of Governors of the
Federal Reserve System, February 15,1994.
Dated: February 15,1994.
W illiam W. Wiles,
Secretary of the Board.
[FR Doc. 94-3860 Filed 2-18-94; 3:20 pm)
BILLING CODE 621 0-0 1-P