Full text of Federal Reserve Bank of New York Circulars : 9501. Regulation O

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FEDERAL RESERVE B A *
OF MEW YORK
S- Circular No. 9501 Tj
May 26, 1983

J

REGULATION O
Proposed Moles on Loams to Insiders

T o A ll S ta te M e m b e r B a n k s
in th e S e c o n d F e d e r a l R e s e r v e D is tr ic t:

The following statement was issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has proposed for public comment revisions of its rules regarding loans
by state member banks to certain insiders, to implement recent legislative changes.
The Board asked for comment by June 20, 1983.
The Gam-St Germain Depository Institutions Act of 1982 amended Section 22 of the Federal
Reserve Act, dealing with member bank credit to bank insiders, including executive officers, directors,
principal shareholders and their related interests.
Before passage of the Gam-St Germain Act, the Federal Reserve Act and the Board’s Regulation O
limited loans by a state member bank to executive officers to specific, dollar amounts for a home
mortgage, education of an executive officer’s children and for all other purposes. The new legislation
eliminated these specific dollar limitations, and the Board in October 1982 conformed Regulation O with
respect to home mortgage and education loans.
To further implement the provisions of the new legislation, the Board proposed:
— With respect to loans for purposes other than home mortgages or education a state member bank
would be permitted to lend to an executive officer up to $25,000 or 2.5 percent of its capital, whichever is
greater, with an overall limit of $100,000.
— Prior approval would be required of a state member bank’s board of directors for a loan to an
insider (including related interests of the insider) that, taken together with other such loans, exceeds
$25,000 or 5 percent of the bank’s capital.
— Lending to an insider could not exceed, in the aggregate, the limit of credit that may be extended
to any one borrower (15 percent of the bank’s capital and surplus for loans not fully collateralized and an
additional 10 percent of the bank’s capital and surplus for loans that are fully collateralized).
— Prior approval of the bank’s directors would be required for all loans exceeding $500,000 in the
aggregate.
Other Federal bank supervisors are similarly conforming their rules on insider lending to the new
legislation.

The text of the Board’s proposal will be published in the Federal Register; in addition, copies
may be obtained from our Circulars Division (Tel. No. 212-791-5216). Comments thereon should be
submitted by June 20, 1983, and may be sent to our Regulations Division.




A nthony M . Solo m o n,

President.

FEDERAL RESERVE SYSTEM
[1 2 C . F c R .

P a rt 215]

R e g u la tio n 0
[ D o c k e t Num ber R -0 4 6 9 ]
LOANS TO EXECUTIVE OFFICERS, DIRECTORS,
AND PRINCIPAL SHAREHOLDERS OF MEMBER BANKS
P r o p o s e d R u le

AGENCYs

B oard o f G o v ern o rs o f t h e F e d e r a l R e s e r v e S y ste m .

ACTION;

P r o p o se d R u le .

SUMMARY:

T he B o a r d o f G o v e r n o r s o f t h e

am end R e g u l a t i o n 0
bank t o

c e r ta in

and s e c t io n s
and 375b)

(1 2

C .F .R .

in s id e r s ,

2 1 5 ),

w h ic h

t o im p le m e n t c e r t a i n

and 2 2 (h )

of

th e F ed era l

t h a t w ere in c lu d e d

in

T itle

I n s titu tio n s

2 2 (g )

P art

F e d era l R eserve

A ct o f

1982

(P .

L.

governs

96

lo a n s

a m en d m en ts t o

R eserve

IV o f t h e

9 7 -3 2 0 ,

S y ste m p r o p o s e s

A ct

by

S ta t.

1 4 6 9 ).

a m em ber

12 U e S . C .

(1 2 U . S . C .

G a r n - S t G erm a in
The

to

§ 84,

§§ 3 7 5 a

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a m en d m en ts

i

r e la te

to

th e

lim ita tio n s

o ffic e r s ,

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on

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d o lla r

by

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lim ita tio n

m em ber
on lo a n s

am o u n t a b o v e w h ic h

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bank

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its

b y a m em ber b a n k t o

its

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d ir e c to r s

o f t h e mem ber

bank.
L is t o f S u b je c ts in
B an k s,

1 2 C .F .R . P a r t 2 1 5 s

B a n k in g ;

C r e d it,

R e p o r tin g

R e q u ir e m e n t s ;

S y ste m .
DATEs

C om m ents m u s t b e r e c e i v e d b y J u n e 2 0 ,




1983.

F ederal

R eserve

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FOR

FURTHER

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96

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th e

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" o t h e r 53 l o a n s

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of

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J oh n son ,

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SUPPLEMENTARY INFORMATION:
D e p o s ito r y

J e n n ife r

at

or

a

2 .5

no tim e

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s e c tio n

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cent

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su ch

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d ir e c to r or p r in c ip a l
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a n d now

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approval

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in

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w h en

a

or to

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to

an

any r e la t e d

e x e c u tiv e

in te r e s t

a g g r e g a te d w ith

a ll

of

exceeds

in te r e s t
c a p ita l,

a g g r e g a te

fo r

su ch p e r s o n ,
w h ic h e v e r

is

o th e r

h ig h e r .

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th e p r io r

o ffic e r *

of

su ch p e r so n

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to

su ch

$ 2 5 ,0 0 0

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th e

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o f d ir e c to r s .
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bank

s h a ll

m ake

22 h ( l )
any

s h a r e h o ld e r s o r t o

in te r e s t

of

S ta tu tes

( 1 2 U .S .C .

S e c t io n 401

of

d e fin itio n

of

to

§ 84)
G am

F e d e r a l R eserv e A ct p r o v id e s

any

a l l o th e r

p erso n ,

th e

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su ch

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of

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in te r e s t o f

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on lo a n s t o

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th e

in

s e c tio n

in v ite d




to

p r in c ip a l

an am ount t h a t ,

or to

5200

of

any
th e

lim it

in

s e c tio n

5200

A p r il 1 5 , 1 9 8 3 , and th e p r o p o se d r u le

“l e n d i n g l i m i t "

in

r e la te d
R e v is e d

b orrow er by n a t io n a l
of

b an k s.
th e

am en d s t h e

R e g u la tio n O a c c o r d in g ly .

To a i d t h e B o a r d ' s c o n s i d e r a t i o n o f t h i s
am

in

su ch p e r s o n

a s in g le

in c r e a s e d

o ffic e r s ,

su ch p e r s o n s

l o a n s m ade t o

exceeds

A ct

e x e c u tiv e

t h a t n o member

s u b m it r e l e v a n t d a t a ,

m a tte r ,

v i e w s o r c o m m e n ts .

in te r e s te d

p erson s

Any s u c h m a t e r i a l s

-4 s h o u ld b e s u b m itte d i n

w r itin g

to

th e

F e d e r a l R e s e r v e S y s t e m , W a s h in g t o n ,
1983,

and s h o u ld

m ade a v a i l a b l e
in

s e c tio n

I n fo r m a tio n

in c lu d e

fo r

(1 2 C .F .R .

P u rsu a n t t o
5 U .S .C .

R eserve

S y ste m

e c o n o m ic
su b je c t

of

to

r e g u la tio n s

th e

to

be r e c e iv e d

B oard*s

R u le s

th e

by June 2 0 ,

S u ch m a t e r i a l w i l l

R e g a r d in g

except

be

a s p r o v id e d

A v a ila b ility

of

§ 2 6 1 .6 ( a ) ) .

§ 601

6 0 5 (b ) o f th e R e g u la to r y

et_ s e q . ) ,

c e r tifie s

th a t

th e

th e

s u b s ta n tia l

r e g u la tio n .

and w i l l

20551,

a n d c o p y in g u p o n r e q u e s t ,

th e

s e c tio n

im p a c t o n a

D. C .

B oard o f G ov ern o rs o f

d o c k e t num ber R - 0 4 6 9 .

in s p e c t io n

2 6 1 .6 ( a )

9 6 -3 5 4 ?

th e

S ec r e ta r y ,

B o a rd

G overnors

am en d m en ts w i l l
num ber o f

The

of

am en d m en ts

n o t have any p a r t ic u la r

F le x ib ility

s m a ll

not

of

have

e n titie s

w ill
e ffe c t

th e
a

F ederal

th a t

s m a ll

(P® L .

s ig n ific a n t

lib e r a liz e
on

A ct

w o u ld

be

e x is tin g
e n titie s

th a t

w o u ld b e s u b j e c t t h e r e t o .
A c c o r d in g ly ,
2 2 (h )

of

th e

p u rsu a n t

to

F ed era l R eserve A ct

its

a u th o r ity

(1 2 U .S .C .

under

§ 375a and 3 7 5 b ),

G o v e r n o r s p r o p o s e s t o am end R e g u l a t i o n O (1 2 C .F .R .
1.

By r e v i s i n g s e c t i o n
2 1 5 .2
*

2 1 5 .2 ( f ) t o

s e c tio n s

P art 215)

read a s fo llo w s :

DEFINITIONS
*

*

*

*

( f ) L e n d in g l i m i t .
I b i s s e c t i o n i s a m en d ed b y
d e l e t i n g th e se c o n d s e n t e n c e and r e p l a c i n g i t w ith
th e fo llo w in g :
T h i s a m ou n t i s 1 5 p e r c e n t o f t h e
b a n k ' s u n im p a ir e d c a p i t a l a n d u n im p a ir e d s u r p l u s i n
th e c a s e o f lo a n s t h a t a re n o t f u l l y s e c u r e d by
r e a d i l y m a r k e ta b le c o l l a t e r a l h a v in g a m a r k e t v a l u e
a t l e a s t e q u a l t o t h e am ount o f t h e l o a n , a n d an
a d d i t i o n a l 1 0 p e r c e n t o f t h e b a n k ' s u n im p a ir e d
c a p i t a l a n d u n im p a ir e d s u r p l u s i n t h e c a s e o f l o a n s
th a t are fu lly
s e c u r e d by r e a d i l y m a r k e ta b le
c o l l a t e r a l h a v in g a m a rk et v a l u e , a s d e te r m in e d b y
r e lia b le
and
c o n tin u o u s ly
a v a ila b le
p r ic e
q u o t a t io n s , a t l e a s t e q u a l t o t h e am ount o f t h e
lo a n .




2 2 (g )

th e

an d

B o a rd o f

a s fo llo w s :

-5 2.

By r e v i s i n g s e c t i o n

2 1 5 .4 ( b ) ( 1 )

to

read a s fo llo w s :

2 1 5 . 4 GENERAL PROHIBITIONS
*

*

*

&

*

(b )
P r i o r A p p r o v a l.
(1 )
No mem ber b a n k may
e x ten d c r e d it or g r a n t a li n e o f c r e d it t o any o f
i t s e x e c u tiv e o f f i c e r s , d ir e c t o r s , o r p r in c ip a l
s h a r e h o ld e r s o r t o any r e la t e d i n t e r e s t o f t h a t
p e r s o n i n a n am o u n t t h a t ,
w hen a g g r e g a t e d w i t h t h e
am ount o f a l l o t h e r e x t e n s i o n s o f c r e d i t t o t h a t
p e r s o n and t o a l l r e l a t e d i n t e r e s t s o f t h a t p e r s o n ,
e x c e e d s $ 2 5 , 0 0 0 o r 5 p e r c e n t o f t h e m em ber b a n k ' s
c a p i t a l , w h ic h e v e r i s
h ig h e r , u n le s s
(i)
th e
e x te n s io n o f c r e d it o r li n e o f c r e d it h a s been
a p p roved in ad v a n ce by a m a jo r ity o f th e e n t i r e
b o a rd o f d i r e c t o r s o f t h a t b a n k , and ( i i ) t h e
i n t e r e s t e d p a r t y h a s a b s t a i n e d fr o m p a r t i c i p a t i n g
d ir e c t ly or in d ir e c t ly in th e v o tin g .
In no e v e n t
may a m ember b a n k e x t e n d c r e d i t t o a n y o f i t s
e x e c u tiv e
o ffic e r s ,
d ir e c to r s
or
p r in c ip a l
s h a r e h o ld e r s o r t o any r e la t e d i n t e r e s t o f su ch a
p e r s o n i n a n a m ou n t t h a t , w hen a g g r e g a t e d w i t h a l l
o t h e r e x t e n s io n s o f c r e d i t t o su ch p e r s o n and a l l
r e la t e d i n t e r e s t s o f t h a t p e r s o n , e x c e e d s $ 5 0 0 ,0 0 0 ,
e x c e p t u p o n c o m p l i a n c e w it h t h e r e q u i r e m e n t s i n
su b p a ra g ra p h s ( i ) and ( i i ) o f t h i s p a r a g r a p h .
*
3.

*

*

By r e v i s i n g s e c t i o n

*

*

2 1 5 .4 ( c ) ( 3 )

to

read a s fo llo w s :

2 1 5 . 5 ADDITIONAL RESTRICTIONS
ON LOANS TO EXECUTIVE OFFICERS
OF MEMBER BANKS
*
(c )

*

*

*

*

*

*

(3 )
f o r any o th e r p u rp o se n o t
in s e c t io n 2 1 5 .5 ( c ) ( 1 ) and ( 2 ) , i f th e a g g r e g a te
a m ou n t o f l o a n s t o t h a t o f f i c e r u n d e r t h i s
p a ra g ra p h d o e s n o t e x c e e d a t any on e tim e 2 .5 p e r
c e n t o f t h e b a n k 's c a p i t a l o r $ 2 5 ,0 0 0 , w h ic h e v e r i s
g r e a t e r , b u t i n n o e v e n t m ore t h a n $ 1 0 0 , 0 0 0 .
*

May 1 7 ,

B oard o f
1983.




G overnors

*
of

*
th e

*

s p e c ifie d

*

F ed era l R eserve

(s ig n e d )

S y ste m ,

W i l l i a m W. W i l e s

W i l l i a m W. W i l e s
4 * ln £ 2 t