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

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FEDERAL RESERVE BANK
OF NEW Y O R K

47

>

.

Io ' ) 3 Z

August 31, 1994

To All Depository Institutions in the Second Federal Reserve
District, and Others Maintaining Sets o f Board Regulations:

Enclosed is a copy o f a revised Regulation O pamphlet, "Loans to Executive Officers,
Directors, and Principal Shareholders o f Member Banks," as amended effective February 18, 1994.
The revised pamphlet supersedes the previous printing o f this regulation and any subsequent
amendments thereto.




Circulars Division

Board of Governors o f the Federal Reserve System

Regulation O
Loans to Executive Officers,
Directors, and Principal
Shareholders
of Member Banks
12 CFR 215; as amended effective February 18, 1994




M /0939^

Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of
the Federal Reserve District in which the inquiry arises.
June 1994




/ O

Contents

Page
Subpart A—Loans by Member Banks to
Their Executive Officers, Directors, and
Principal Shareholders
Section 215.1—Authority, purpose, and
scope........................................................
(a) Authority............................................
(b) Purpose and scope............................
Section 215.2—Definitions..........................
Section 215.3—Extension of c re d it............
Section 215.4— General prohibitions............
(a) Terms and creditworthiness..............
(b) Prior approval...................................
(c) Individual lending lim it.....................
(d) Aggregate lending limit.....................
(e) Overdrafts..........................................
Section 215.5—Additional restrictions on
loans to executive officers of member
banks........................................................
Section 215.6—Prohibition on knowingly
receiving unauthorized extension of
credit........................................................
Section 215.7—Extensions of credit
outstanding on March 10, 1979 ..............
Section 215.8—Records of member banks .
(a) In general..........................................
(b) Recordkeeping for insiders of
member bank.....................................
(c) Recordkeeping for insiders of
member bank’s affiliates...................
(d) Special rule for noncommercial
lenders...............................................
Section 215.9—Reports by executive
officers......................................................
Section 215.10—Report on credit to
executive officers.....................................
Section 215.11—Disclosure of credit from
member banks to executive officers and
principal shareholders..............................




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(a) Definitions.......................................... 9
(b) Public disclosure .............................. 9
(c) Maintaining records .......................... 9
Section 215.12—Reporting requirement
for credit secured by certain bank stock . 9
Section 215.13—Civil penalties................... 9
Subpart B—Reports on Indebtedness of
Executive Officers and Principal
Shareholders to Correspondent Banks
Section 215.20—Authority, purpose, and
scope........................................................
(a) Authority............................................
(b) Purpose and scope..........................
Section 215.21—Definitions.....................
Section 215.22—Report by executive
officers and principal shareholders . . . .
(a) Annual report...................................
(b) Contents of report ..........................
(c) Definitions........................................
(d) Retention of reports at member
b an k s...............................................
(e) Member bank’s responsibility.........
Section 215.23—Disclosure of credit
from correspondent banks to executive
officers and principal shareholders . . . .
(a) Public disclosure ............................
(b) Maintaining records ........................

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STATUTORY AUTHORITY
Revised Statutes section 5200 ...................
Federal Reserve Act section 2 2 ................
Bank Holding Company Act
Amendments of 1970 section 106 . . . .
Federal Deposit Insurance Act of 1950
section 7 . . .............................................

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/U / 0 7 3 A ^

Regulation O
Loans to Executive Officers, Directors,
and Principal Shareholders of Member Banks
12 CFR 215; as am ended effectiv e February 18, 1994

SUBPART A—LOANS BY MEMBER
BANKS TO THEIR EXECUTIVE
OFFICERS, DIRECTORS, AND
PRINCIPAL SHAREHOLDERS
SECTION 215.1—Authority, Purpose,
and Scope
(a) Authority. This subpart is issued pursuant
to sections ll(i), 22(g), and 22(h) of the Fed­
eral Reserve Act (12 USC 248(i), 375a, and
375b), 12 USC 1817(k), and section 306 of
the Federal Deposit Insurance Corporation Im­
provement Act of 1991 (Pub. L. No. 102-242,
105 Stat. 2236 (1991).
(b) Purpose and scope. This subpart A gov­
erns any extension of credit by a member
bank to an executive officer, director, or prin­
cipal shareholder of (1) the member bank, (2)
a bank holding company of which the member
bank is a subsidiary, and (3) any other subsid­
iary of that bank holding company. It also ap­
plies to any extension of credit by a member
bank to (1) a company controlled by such a
person and (2) a political or campaign com­
mittee that benefits or is controlled by such a
person. This subpart A also implements the
reporting requirements of 12 USC 375a con­
cerning extensions of credit by a member
bank to its executive officers and of 12 USC
1817(k) concerning extensions of credit by a
member bank to its executive officers or prin­
cipal shareholders, or the related interests of
such persons.

SECTION 215.2—Definitions
For the purpose of this subpart A, the follow­
ing definitions apply unless otherwise
specified:
(a) Affiliate means any company of which a
member bank is a subsidiary or any other sub­
sidiary of that company.
(b) Company means any corporation, partner­
ship, trust (business or otherwise), association,




joint venture, pool syndicate, sole proprietor­
ship, unincorporated organization, or any other
form of business entity not specifically listed
herein. However, the term does not include—
(1) an insured depository institution (as de­
fined in 12 USC 1813) or
(2) a corporation the majority of the shares
of which are owned by the United States or
by any state.
(c) (1) Control o f a company or bank means
that a person directly or indirectly, or acting
through or in concert with one or more
persons—
(i) owns, controls, or has the power to
vote 25 percent or more of any class of
voting securities of the company or bank;
(ii) controls in any manner the election
of a majority of the directors of the com­
pany or bank; or
(iii) has the power to exercise a control­
ling influence over the management or
policies of the company or bank.
(2) A person is presumed to have control,
including the power to exercise a control­
ling influence over the management or poli­
cies, of a company or bank if—
(i) the person is—
(A) an executive officer or director of
the company or bank and
(B) directly or indirectly owns, con­
trols, or has the power to vote more
than 10 percent of any class of voting
securities of the company or bank; or
(ii) (A) the person directly or indirectly
owns, controls, or has the power to
vote more than 10 percent of any class
of voting securities of the company or
bank, and
(B) no other person owns, controls, or
has the power to vote a greater per­
centage of that class of voting
securities.
(3) An individual is not considered to have
control, including the power to exercise a
controlling influence over the management
or policies, of a company or bank solely by
1

$ + / o? 3
§ 215.2
virtue of the individual’s position as an of­
ficer or director of the company or bank.
(4) A person may rebut a presumption es­
tablished by paragraph (c)(2) of this section
by submitting to the appropriate federal
banking agency (as defined in 12 USC
1813(q)) written materials that, in the
agency’s judgment, demonstrate an absence
of control.
(d) Director o f a member bank means any di­
rector of a member bank, whether or not re­
ceiving compensation. An advisory director is
not considered a director if the advisory
director—
(1) is not elected by the shareholders of the
company or bank,
(2) is not authorized to vote on matters
before the board of directors, and
(3) provides solely general policy advice to
the board of directors.
(e) (1) Executive officer of a company or bank
means a person who participates or has au­
thority to participate (other than in the ca­
pacity of a director) in major policymaking
functions of the company or bank, whether
or not the officer has an official title, the
title designates the officer an assistant, or
the officer is serving without salary or other
compensation.1 The chairman of the board,
the president, every vice president, the
cashier, the secretary, and the treasurer of a
company or bank are considered executive
officers, unless the officer is excluded, by
resolution of the board of directors or by
the bylaws of the bank or company, from
participation (other than in the capacity of a
director) in major policymaking functions
of the bank or company, and the officer
does not actually participate therein.
(2) Extensions of credit to an executive of­
ficer of an affiliate of a member bank (other
than a company that controls the bank)
1 The term is not intended to include persons who may
have official titles and may exercise a certain measure o f
discretion in the performance o f their duties, including dis­
cretion in the making o f loans, but who do not participate
in the determination o f major policies o f the bank or com ­
pany and whose decisions are limited by policy standards
fixed by the senior management o f the bank or company.
For example, the term does not include a manager or assis­
tant manager o f a branch o f a bank unless that individual
participates, or is authorized to participate, in major poli­
cymaking functions o f the bank or company.

2



s l
Regulation O

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shall not be subject to sections 215.4,
215.6, and 215.8 of this part, provided
that—
(i) the executive officer of the affiliate is
excluded (by name or by title) from par­
ticipation in major policymaking func­
tions of the member bank by resolutions
of the boards of directors of both the af­
filiate and the member bank, and does
not actually participate in such major
policymaking functions; and
(ii) the executive officer is not otherwise
subject to such requirements as a director
or principal shareholder.
(f) Foreign bank has the meaning given in 12
USC 3101(7).
(g) Immediate family means the spouse of an
individual, the individual’s minor children,
and any of the individual’s children (including
adults) residing in the individual’s home.
(h) Insider means an executive officer, direc­
tor, or principal shareholder, and includes any
related interest of such a person.
(i) The lending limit for a member bank is an
amount equal to the limit on loans to a single
borrower established by section 5200 of the
Revised Statutes,1 12 USC 84. This amount is
2
15 percent of the bank’s unimpaired capital
and unimpaired surplus in the case of loans
that are not fully secured, and an additional
10 percent of the bank’s unimpaired capital
and unimpaired surplus in the case of loans
that are fully secured by readily marketable
collateral having a market value, as deter­
mined by reliable and continuously available
price quotations, at least equal to the amount
of the loan. The lending limit also includes
any higher amounts that are permitted by sec­
tion 5200 of the Revised Statutes for the types
of obligations listed therein as exceptions to
the limit. A member bank’s unimpaired capi­
tal and unimpaired surplus equals the sum
of—
(1) the “total equity capital” of the mem­
ber bank reported on its most recent consol2
Where state law establishes a lending limit for a state
member bank that is lower than the amount permitted in
section 5200 o f the Revised Statutes, the lending limit es­
tablished by applicable state laws shall be the lending limit
for the state member bank.

Regulation O
idated report of condition filed under 12
USC 1817(a)(3);
(2) any subordinated notes and debentures
that comply with requirements of the appro­
priate federal banking agency for addition
to the member bank’s capital structure and
are reported on its most recent consolidated
report of condition filed under 12 USC
1817(a)(3); and
(3) any valuation reserves created by
charges to the member bank’s income re­
ported on its most recent consolidated re­
port of condition filed under 12 USC
1817(a)(3).
(j) Member bank means any banking institu­
tion that is a member of the Federal Reserve
System, including any subsidiary of a member
bank. The term does not include any foreign
bank that maintains a branch in the United
States, whether or not the branch is insured
(within the meaning of 12 USC 1813(s)) and
regardless of the operation of 12 USC 1813(h)
and 12 USC 1828(j)(3)(B).
(k) Pay an overdraft on an account means to
pay an amount upon the order of an account
holder in excess of funds on deposit in the
account.
(/) Person means an individual or a company.
(m) (1) Principal shareholder means a person
(other than an insured bank) that directly or
indirectly, or acting through or in concert
with one or more persons, owns, controls,
or has the power to vote more than 10 per­
cent of any class of voting securities of a
member bank or company. Shares owned or
controlled by a member of an individual’s
immediate family are considered to be held
by the individual.
(2) A principal shareholder of a member
bank does not include a company of which
a member bank is a subsidiary.
(n) Related interest of a person means—
(1) a company that is controlled by that
person or
(2) a political or campaign committee that
is controlled by that person or the funds or
services of which will benefit that person.
(o) Subsidiary has the meaning given in 12




§ 215.3
USC 1841(d), but does not include a subsidi­
ary of a member bank.

SECTION 215.3— Extension of Credit
(a) An extension of credit is a making or re­
newal of any loan, a granting of a line of
credit, or an extending of credit in any man­
ner whatsoever, and includes—
(1) a purchase under repurchase agreement
of securities, other assets, or obligations;
(2) an advance by means of an overdraft,
cash item, or otherwise;
(3) issuance of a standby letter of credit (or
other similar arrangement regardless of
name or description) or an ineligible accept­
ance, as those terms are defined in section
208.8(d) of this part;
(4) an acquisition by discount, purchase,
exchange, or otherwise of any note, draft,
bill of exchange, or other evidence of in­
debtedness upon which an insider may be
liable as maker, drawer, endorser, guaran­
tor, or surety;
(5) an increase of an existing indebtedness,
but not if the additional funds are advanced
by the bank for its own protection for—
(i) accrued interest or
(ii) taxes, insurance, or other expenses
in c id e n ta l to th e e x is t in g in d e b te d n e s s ;
(6) an advance of unearned salary or other
unearned compensation for a period in ex­
cess of 30 days; and
(7) any other similar transaction as a result
of which a person becomes obligated to pay
money (or its equivalent) to a bank,
whether the obligation arises directly or in­
directly, or because of an endorsement on
an obligation or otherwise, or by any means
whatsoever.
(b) An extension of credit does not include—
(1) an advance against accrued salary or
other accrued compensation, or an advance
for the payment of authorized travel or
other expenses incurred or to be incurred on
behalf of the bank;
(2) a receipt by a bank of a check depos­
ited in or delivered to the bank in the usual
course of business unless it results in the
carrying of a cash item for or the granting
of an overdraft (other than an inadvertent
3

§ 215.3
overdraft in a limited amount that is
promptly repaid, as described in section
215.4(e) of this part;
(3) an acquisition of a note, draft, bill of
exchange, or other evidence of indebtedness
through—
(i) a merger or consolidation of banks or
a similar transaction by which a bank ac­
quires assets and assumes liabilities of
another bank or similar organization or
(ii) foreclosure on collateral or similar
proceeding for the protection of the bank,
provided that such indebtedness is not
held for a period of more than three
years from the date of the acquisition,
subject to extension by the appropriate
federal banking agency for good cause;
(4) (i) an endorsement or guarantee for the
protection of a bank of any loan or other
asset previously acquired by the bank in
good faith or
(ii) any indebtedness to a bank for the
purpose of protecting the bank against
loss or of giving financial assistance to it;
(5) indebtedness of $15,000 or less arising
by reason of any general arrangement by
which a bank—
(i) acquires charge or time credit ac­
counts or
(ii) makes payments to or on behalf of
participants in a bank credit card plan,
check credit plan, or similar open-end
credit plan, provided—
(A) the indebtedness does not involve
prior individual clearance or approval
by the bank other than for the purposes
of determining authority to participate
in the arrangement and compliance
with any dollar limit under the ar­
rangement, and
(B) the indebtedness is incurred under
terms that are not more favorable than
those offered to the general public;
(6) indebtedness of $5,000 or less arising
by reason of an interest-bearing overdraft
credit plan of the type specified in section
215.4(e) of this part; or
(7) a discount of promissory notes, bills of
exchange, conditional sales contracts, or
similar paper, without recourse.
(c) Non-interest-bearing deposits to the credit
4




Regulation O
of a bank are not considered loans, advances,
or extensions of credit to the bank of deposit;
nor is the giving of immediate credit to a
bank upon uncollected items received in the
ordinary course of business considered to be a
loan, advance, or extension of credit to the
depositing bank.
(d) For purposes of section 215.4 of this part,
an extension of credit by a member bank is
considered to have been made at the time the
bank enters into a binding commitment to
make the extension of credit.
(e) A participation without recourse is consid­
ered to be an extension of credit by the partic­
ipating bank, not by the originating bank.
(f) Tangible-economic-benefit rule.
(1) In general. An extension of credit is
considered made to an insider to the extent
that the proceeds are transferred to the in­
sider or are used for the tangible economic
benefit of the insider.
(2) Exception. An extension of credit is not
considered made to an insider under para­
graph (f)(1) of this part if—
(i) the credit is extended on terms that
would satisfy the standard set forth in
section 215.4(a) of this part for exten­
sions of credit to insiders; and
(ii) the proceeds of the extension of
credit are used in a bona fide transaction
to acquire property, goods, or services
from the insider.

SECTION 215.4— General Prohibitions
(a) Terms and creditworthiness. No member
bank may extend credit to any insider of the
bank or insider of its affiliates unless the ex­
tension of credit—
(1) is made on substantially the same terms
(including interest rates and collateral) as,
and following credit-underwriting proce­
dures that are not less stringent than, those
prevailing at the time for comparable trans­
actions by the bank with other persons that
are not covered by this part and who are
not employed by the bank, and
(2) does not involve more than the normal
risk of repayment or present other unfavora­
ble features.

§ 215.4

Regulation O
(b) Prior approval.
(1) No member bank may extend credit
(which term includes granting a line of
credit) to any insider of the bank or insider
of its affiliates in an amount that, when ag­
gregated with the amount of all other exten­
sions of credit to that person and to all re­
lated interests of that person, exceeds the
higher of $25,000 or 5 percent of the mem­
ber bank’s unimpaired capital and
unimpaired surplus, unless—
(i) the extension of credit has been ap­
proved in advance by a majority of the
entire board of directors of that bank, and
(ii) the interested party has abstained
from participating directly or indirectly in
the voting.
(2) In no event may a member bank extend
credit to any insider of the bank or insider
of its affiliates in an amount that, when ag­
gregated with all other extensions of credit
to that person, and all related interests of
that person, exceeds $500,000, except by
complying with the requirements of this
paragraph (b).
(3) Approval by the board of directors
under paragraphs (b)(1) and (b)(2) of this
section is not required for an extension of
credit that is made pursuant to a line of
c r e d it th a t w a s

a p p r o v e d u n d e r p ara g ra p h

(b)(1) of this section within 14 months of
the date of the extension of credit. The ex­
tension of credit must also be in compli­
ance with the requirements of section
215.4(a) of this part.
(4) Participation in the discussion, or any
attempt to influence the voting, by the
board of directors regarding an extension of
credit constitutes indirect participation in
the voting by the board of directors on an
extension of credit.
(c) Individual lending limit. No member bank
may extend credit to any insider of the bank
or insider of its affiliates in an amount that,
when aggregated with the amount of all other
extensions of credit by the member bank to
that person and to all related interests of that
person, exceeds the lending limit of the mem­
ber bank specified in section 215.2(i) of this
part. This prohibition does not apply to an ex­
tension of credit by a member bank to a com­




pany of which the member bank is a subsidi­
ary or to any other subsidiary of that
company.
(d) Aggregate lending limit.
(1) General limit. A member bank may not
extend credit to any insider of the bank or
insider of its affiliates unless the extension
of credit is in an amount that, when aggre­
gated with the amount of all outstanding
extensions of credit by that bank to all of
its insiders, does not exceed the bank’s
unimpaired capital and unimpaired surplus
(as defined in section 215.2(i) of this part).
(2) Member banks with deposits o f less
than $100,000,000.
(i) A member bank with deposits of less
than $100,000,000 may by resolution of
its board of directors increase the general
limit specified in paragraph (d)(1) of this
section to a level not to exceed two times
the bank’s unimpaired capital and
unimpaired surplus, if—
(A) the board of directors determines
that such higher limit is consistent with
prudent, safe, and sound banking prac­
tices in light of the bank’s experience
in lending to its insiders and is neces­
sary to attract or retain directors or to
prevent restricting the availability of
credit in small communities;
(B) the resolution sets forth the facts
and reasoning on which the board of
directors bases the finding, including
the amount of the bank’s lending to its
insiders as a percentage of the bank’s
unimpaired capital and unimpaired sur­
plus as of the date of the resolution;
(C) the bank meets or exceeds, on a
fully phased-in basis, all applicable
capital requirements established by the
appropriate federal banking agency;
and
(D) the bank received a satisfactory
composite rating in its most recent re­
port of examination.
(ii) If a member bank has adopted a res­
olution authorizing a higher limit pursu­
ant to paragraph (d)(2)(i) of this section
and subsequently fails to meet the re­
quirements of paragraphs (d)(2)(i)(C) or
(d)(2)(i)(D) of this section, the member
5

1
§ 215.4
bank shall not extend any additional
credit (including a renewal of any ex­
isting extension of credit) to any insider
of the bank or its affiliates unless such
extension or renewal is consistent with
the general limit in paragraph (d)(1) of
this section.
(3) Exceptions.
(i) The general limit specified in para­
graph (d)(1) of this section does not ap­
ply to the following:
(A) extensions of credit secured by a
perfected security interest in bonds,
notes, certificates of indebtedness, or
Treasury bills of the United States or
in other such obligations fully guaran­
teed as to principal and interest by the
United States;
(B) extensions of credit to or secured
by unconditional takeout commitments
or guarantees of any department,
agency, bureau, board, commission or
establishment of the United States or
any corporation wholly owned directly
or indirectly by the United States;
(C) extensions of credit secured by a
perfected security interest in a segre­
gated deposit account in the lending
bank; or
(D) extensions of credit arising from
the discount of negotiable or nonnegotiable installment consumer paper that
is acquired from an insider and carries
a full or partial recourse endorsement
or guarantee by the insider, provided
that—
(7) the financial condition of each
maker of such consumer paper is
reasonably documented in the bank’s
files or known to its officers;
(2) an officer of the bank designated
for that purpose by the board of di­
rectors of the bank certifies in writ­
ing that the bank is relying primarily
upon the responsibility of each
maker for payment of the obligation
and not upon any endorsement or
guarantee by the insider; and
(3) the maker of the instrument is
not an insider.
(ii) The exceptions in paragraphs
(d)(3)(i)(A) through (d)(3)(i)(C) of this
6



Regulation O
section apply only to the amount of such
extensions of credit that are secured in
the manner described herein.
(e) Overdrafts.
(1) No member bank may pay an overdraft
of an executive officer or director of the
bank3 on an account at the bank, unless the
payment of funds is made in accordance
with—
(i) a written, preauthorized, interest-bear­
ing extension of credit plan that specifies
a method of repayment or
(ii) a written, preauthorized transfer of
funds from another account of the ac­
count holder at the bank.
(2) The prohibition in paragraph (e)(1) of
this section does not apply to payment of
inadvertent overdrafts on an account in an
aggregate amount of $1,000 or less,
provided—
(i) the account is not overdrawn for more
than five business days, and
(ii) the member bank charges the execu­
tive officer or director the same fee
charged any other customer of the bank
in similar circumstances.

SECTION 215.5— Additional
Restrictions on Loans to Executive
Officers of Member Banks
The following restrictions on extensions of
credit by a member bank to any of its execu­
tive officers apply in addition to any restric­
tions on extensions of credit by a member
bank to insiders of itself or its affiliates set
forth elsewhere in this part. The restrictions of
this section apply only to executive officers of
the member bank and not to executive officers
of its affiliates.
(a) No member bank may extend credit to
any of its executive officers, and no executive
officer of a member bank shall borrow from
or otherwise become indebted to the bank, ex3 This prohibition does not apply to the payment by a
member bank o f an overdraft o f a principal shareholder o f
the member bank, unless the principal shareholder is also
an executive officer or director. This prohibition also does
not apply to the payment by a member bank o f an over­
draft o f a related interest o f an executive officer, director,
or principal shareholder o f the member bank.

c

Regulation O
cept in the amounts, for the purposes, and
upon the conditions specified in paragraphs (c)
and (d) of this section.
(b) No member bank may extend credit in an
aggregate amount greater than the amount per­
mitted in paragraph (c)(3) of this section to a
partnership in which one or more of the
bank’s executive officers are partners and, ei­
ther individually or together, hold a majority
interest. For the purposes of paragraph (c)(3)
of this section, the total amount of credit ex­
tended by a member bank to such partnership
is considered to be extended to each executive
officer of the member bank who is a member
of the partnership.

/O V 30-

§ 215.7

bank to any of its executive officers shall
be—
(1) promptly reported to the member
bank’s board of directors;
(2) in compliance with the requirements of
section 215.4(a) of this part;
(3) preceded by the submission of a de­
tailed current financial statement of the ex­
ecutive officer; and
(4) made subject to the condition in writing
that the extension of credit will, at the op­
tion of the member bank, become due and
payable at any time that the officer is in­
debted to any other bank or banks in an
aggregate amount greater than the amount
specified for a category of credit in para­
graph (c) of this section.

(c) A member bank is authorized to extend
credit to any executive officer of the bank—
(1) in any amount to finance the education
of the executive officer’s children;
(2) with the specific prior approval of the
board of directors, in any amount to finance
or refinance the purchase, construction,
maintenance, or improvement of a residence
of the executive officer, provided—
(i) the extension of credit is secured by a
first lien on the residence and the resi­
dence is owned (or expected to be owned
after the extension of credit) by the exec­
utive officer; and
(ii) in the case of a refinancing, that only
the amount thereof used to repay the
original extension of credit, together with
the closing costs of the refinancing, and
any additional amount thereof used for
any of the purposes enumerated in this
paragraph (c)(2), are included within this
category of credit;
(3) in any amount, if the extension of
credit is secured in a manner described in
paragraphs (d)(3)(i)(A) through (d)(3)(i)(C)
of section 215.4 of this part; and
(4) for any other purpose not specified in
paragraphs (c)(1) through (c)(3) of this sec­
tion, if the aggregate amount of extensions
of credit to that executive officer under this
paragraph does not exceed at any one time
the higher of 2.5 percent of the bank’s capi­
tal and unimpaired surplus or $25,000, but
in no event more than $100,000.

(a) Any extension of credit that was outstand­
ing on March 10, 1979, and that would, if
made on or after March 10, 1979, violate sec­
tion 215.4(c) of this part, shall be reduced in
amount by March 10, 1980, to be in compli­
ance with the lending limit in section 215.4(c)
of this part. Any renewal or extension of such
an extension of credit on or after March 10,
1979, shall be made only on terms that will
bring the extension of credit into compliance
with the lending limit of section 215.4(c) of
this part by March 10, 1980. However, any
extension of credit made before March 10,
1979, that bears a specific maturity date of
March 10, 1980, or later, shall be repaid in
accordance with its repayment schedule in ex­
istence on or before March 10, 1979.

(d) Any extension of credit by a member

(b) If a member bank is unable to bring all




SECTION 215.6—Prohibition on
Knowingly Receiving Unauthorized
Extension of Credit
No executive officer, director, or principal
shareholder of a member bank or any of its
affiliates shall knowingly receive (or know­
ingly permit any of that person’s related inter­
ests to receive) from a member bank, directly
or indirectly, any extension of credit not au­
thorized under this part.

SECTION 215.7—Extensions of Credit
Outstanding on March 10, 1979

7

§ 215.7
extensions of credit outstanding on March 10,
1979, into compliance as required by para­
graph (a) of this section, the member bank
shall promptly report that fact to the Comp­
troller of the Currency, in the case of a na­
tional bank, or to the appropriate Federal Re­
serve Bank, in the case of a state member
bank, and explain the reasons why all the ex­
tensions of credit cannot be brought into com­
pliance. The Comptroller or the Reserve Bank,
as the case may be, is authorized, on the basis
of good cause shown, to extend the March 10,
1980, date for compliance for any extension
of credit for not more than two additional
one-year periods.

SECTION 215.8— Records of M ember
Banks
(a) In general. Each member bank shall main­
tain records necessary for compliance with the
requirements of this part.
(b) Recordkeeping for insiders of the member
bank. Any recordkeeping method adopted by
a member bank shall—
(1) identify, through an annual survey, all
insiders of the bank itself; and
(2) maintain records of all extensions of
credit to insiders of the bank itself, includ­
ing the amount and terms of each such ex­
tension of credit.
(c) Recordkeeping for insiders of the member
bank’s affiliates. Any recordkeeping method
adopted by a member bank shall maintain
records of extensions of credit to insiders of
the member bank’s affiliates by—
(1) Survey method.
(i) identifying, through an annual survey,
each insider of the member bank’s affili­
ates; and
(ii) maintaining records of the amount
and terms of each extension of credit by
the member bank to such insiders; or
(2) Borrower-inquiry method.
(i) requiring as part of each extension of
credit that the borrower indicate whether
the borrower is an insider of an affiliate
of the member bank; and
(ii) maintaining records that identify the
amount and terms of each extension of
8



Regulation 0
credit by the member bank to borrowers
so identifying themselves.
(3) Alternative recordkeeping methods for
insiders o f affiliates. A member bank may
employ a recordkeeping method other than
those identified in paragraphs (c)(1) and
(c)(2) of this section if the appropriate iden­
tified in paragraphs (c)(1) and (c)(2) of this
section if the appropriate federal banking
agency determines that the bank’s method
is at least as effective as the identified
methods.
(d) Special rule for noncommercial lenders. A
member bank that is prohibited by law or by
an express resolution of the board of directors
of the bank from making an extension of
credit to any company or other entity that is
covered by this part as a company is not re­
quired to maintain any records of the related
interests of the insiders of the bank or its af­
filiates or to inquire of borrowers whether
they are related interests of the insiders of the
bank or its affiliates.

SECTION 215.9— Reports by Executive
Officers
Each executive officer of a member bank who
becomes indebted to any other bank or banks
in an aggregate amount greater than the
amount specified for a category of credit in
section 215.5(c) of this part, shall, within 10
days of the date the indebtedness reaches such
a level, make a written report to the board of
directors of the officer’s bank. The report
shall state the lender’s name, the date and
amount of each extension of credit, any secur­
ity for it, and the purposes for which the pro­
ceeds have been or are to be used.

SECTION 215.10— Report on Credit to
Executive Officers
Each member bank shall include with (but not
as part of) each report of condition (and copy
thereof) filed pursuant to 12 USC 1817(a)(3) a
report of all extensions of credit made by the
member bank to its executive officers since
the date of the bank’s previous report of
condition.

Regulation O
SECTION 215.11— Disclosure of Credit
from Member Banks to Executive
Officers and Principal Shareholders
(a) Definitions. For the purposes of this sec­
tion, the following definitions apply:
(1) “Principal shareholder o f a member
bank” means any person4 (other than an in­
sured bank, or a foreign bank as defined in
12 USC 3101(7)) that, directly or indirectly,
owns, controls, or has power to vote more
than 10 percent of any class of voting se­
curities of the member bank. The term in­
cludes a person that controls a principal
shareholder (e.g., a person that controls a
bank holding company). Shares of a bank
(including a foreign bank), bank holding
company, or other company owned or con­
trolled by a member of an individual’s im­
mediate family are presumed to be owned
or controlled by the individual for the pur­
poses of determining principal shareholder
status.
(2) “Related interest” means—
(i) any company controlled by a person;
or
(ii) any political or campaign committee
the funds or services of which will bene­
fit a person or that is controlled by a per­
son. For the purpose of this section and
subpart B, a related interest does not in­
clude a bank or a foreign bank (as de­
fined in 12 USC 3101(7)).
(b) Public disclosure.
(1) Upon receipt of a written request from
the public, a member bank shall make
available the names of each of its executive
officers and each of its principal sharehold­
ers to whom, or to whose related interests,
the member bank had outstanding as of the
end of the latest previous quarter of the
year, an extension of credit that, when ag­
gregated with all other outstanding exten­
sions of credit at such time from the mem­
ber bank to such person and to all related
interests of such person, equaled or ex­
ceeded 5 percent of the member bank’s
capital and unimpaired surplus or $500,000,
whichever amount is less. No disclosure
4 The term “stockholder o f record” appearing in 12 USC
1972(2)(G) is synonymous with the term “person.”




/)-(■ /d

§ 215.20

under this paragraph is required if the ag­
gregate amount of all extensions of credit
outstanding at such time from the member
bank to the executive officer or principal
shareholder of the member bank and to all
related interests of such a person does not
exceed $25,000.
(ii) A member bank is not required to dis­
close the specific amounts of individual ex­
tensions of credit.
(c) Maintaining records. Each member bank
shall maintain records of all requests for the
information described in paragraph (b) of this
section and the disposition of such requests.
These records may be disposed of after two
years from the date of the request.

SECTION 215.12—Reporting
Requirement for Credit Secured by
Certain Bank Stock
Each executive officer or director of a mem­
ber bank the shares of which are not publicly
traded shall report annually to the board of
directors of the member bank the outstanding
amount of any credit that was extended to the
executive officer or director and that is se­
cured by shares of the member bank.

SECTION 215.13—Civil Penalties
Any member bank, or any officer, director,
employee, agent, or other person participating
in the conduct of the affairs of the bank, that
violates any provision of this part (other than
section 215.11 of this part) is subject to civil
penalties as specified in section 29 of the Fed­
eral Reserve Act (12 USC 504).

SUBPART B—REPORTS ON
INDEBTEDNESS OF EXECUTIVE
OFFICERS AND PRINCIPAL
SHAREHOLDERS TO
CORRESPONDENT BANKS
SECTION 215.20—Authority, Purpose,
and Scope
(a) Authority. This subpart is issued pursuant
9

§ 215.20
to section ll(i) of the Federal Reserve Act
(12 USC 248(i) and 12 USC 1972(2)(F)(vi).
(b) Purpose and scope. This subpart imple­
ments the reporting requirements of title VIII
of the Financial Institutions Regulatory and
Interest Rate Control Act of 1978 (FIRA)
(Pub. L. 95-630), as amended by the Gam-St
Germain Depository Institutions Act of 1982
(Pub. L. 97-320), 12 USC 1972(2) (G). Title
VIII prohibits (1) preferential lending by a
bank to executive officers, directors, and prin­
cipal shareholders of another bank when there
is a correspondent account relationship be­
tween the banks, and (2) the opening of a cor­
respondent account relationship between banks
when there is a preferential extension of credit
by one of the banks to an executive officer,
director, or principal shareholder of the other
bank.

SECTION 215.21—Definitions
For the purposes of this subpart, the following
definitions apply unless otherwise specified:
(a) “Bank" has the meaning given in 12 USC
1971 and 1972, and includes a branch or
agency of a foreign bank, or a commercial
lending company controlled by a foreign bank
or by a company that controls a foreign bank,
where the branch or agency is maintained in a
state of the United States or in the District of
Columbia or the commerical lending company
is organized under state law.
(b) “Company, ” “control of a company or
bank, ” “executive officer, ” extension o f
credit,” “immediate family," and “
person”
have the meanings provided in subpart A.
(c) “Correspondent account” is an account
that is maintained by a bank with another
bank for the deposit or placement of funds. A
correspondent account does not include—
(1) time deposits at prevailing market rates,
and
(2) an account maintained in the ordinary
course of business solely for the purpose of
effecting federal funds transactions at pre­
vailing market rates or making Eurodollar
placements at prevailing market rates.
(d) “Correspondent bank” means a bank that
10




&

/° 7 3 A

Regulation O

maintains one or more correspondent accounts
for a member bank during a calendar year that
in the aggregate exceed an average daily bal­
ance during that year of $100,000 or 0.5 per­
cent of such member bank’s total deposits (as
reported in its first consolidated report of con­
dition during that calendar year), whichever
amount is smaller.
(e) “Principal shareholder" and “related in­
terest” have the meanings provided in section
215.10 of subpart A.

SECTION 215.22—Report by Executive
Officers and Principal Shareholders
(a) Annual report. If during any calendar year
an executive officer or principal shareholder
of a member bank or a related interest of such
a person has outstanding an extension of
credit from a correspondent bank of the mem­
ber bank, the executive officer or principal
shareholder shall, on or before January 31 of
the following year, make a written report to
the board of directors of the member bank.5
(b) Contents o f report. The report required by
this section shall include the following
information:
(1) the maximum amount of indebtedness
of the executive officer or principal share­
holder and of each of that person’s related
interests to each of the member banks’s
correspondent banks during the calendar
year;
(2) the amount of indebtedness of the exec­
utive officer or principal shareholder and of
each of that person’s related interests out­
standing to each of the member bank’s cor­
respondent banks as of ten business days
before the report required by this section is
filed;6 and
(3) a description of the terms and condi5 Persons reporting under this section are not required to
include information on extensions o f credit that are fully
described in a report by a person they control or a person
that controls them, provided they identify their relationships
with such other person.
6 If the amount o f indebtedness outstanding to a corre­
spondent bank 10 days before the filing o f the report is not
available or cannot be readily ascertained, an estimate o f
the amount o f indebtedness may be filed with the report,
provided that the report is supplemented within the next 30
days with the actual amount o f indebtedness.

Regulation O
tions (including the range of interest rates,
the original amount and date, maturity date,
payment terms, security, if any, and any
other unusual terms or conditions) of each
extension of credit included in the indebted­
ness reported under paragraph (b)(1) of this
section.
(c) Definitions. For the purposes of this
section—
(1) “Indebtedness” means an extension of
credit, but does not include:
(i) commercial paper, bonds, and deben­
tures issued in the ordinary course of
business; and
(ii) consumer credit (as defined in 12
CFR 226.2(a)(12)) in an aggregate
amount of $5,000 or less from each of
the member bank’s correspondent banks,
provided the indebtedness is incurred
under terms that are not more favorable
than those offered to the general public.
(2) “Maximum amount of indebtedness”
means, at the option of the reporting per­
son, either (i) the highest outstanding in­
debtedness during the calendar year for
which the report is made, or (ii) the highest
end of the month indebtedness outstanding
during the calendar year for which the re­
port is made.
(d) Retention o f reports at member banks.
The reports required by this section shall be
retained at the member bank for a period of
three years. The Reserve Bank or the Comp­
troller, as the case may be, may require these
reports to be retained by the bank for an addi­
tional period of time. The reports filed under
this section are not required by this regulation
to be made available to the public and shall
not be filed with the Reserve Bank or the
Comptroller unless specifically requested.
(e) Member bank’s responsibility. Each mem­
ber bank shall advise each of its executive of­
ficers and each of its principal shareholders
(to the extent known by the bank) of the re­




0 /O

? 3 O

-

§ 215.23

ports required by this section and make avail­
able to each of these persons a list of the
names and addresses of the member bank’s
correspondent banks.

SECTION 215.23—Disclosure of Credit
from Correspondent Banks to Executive
Officers and Principal Shareholders
(a) Public disclosure.
(i) Upon receipt of a written request from
the public, a member bank shall make
available the names of each of its executive
officers and each of its principal sharehold­
ers to whom, or to whose related interests,
any correspondent bank of the member
bank had outstanding, at any time during
the previous calendar year, an extension of
credit that, when aggregated with all other
outstanding extensions of credit at such
time from all correspondent banks of the
member bank to such person and to all re­
lated interests of such person, equaled or
exceeded 5 percent of the member bank’s
capital and unimpaired surplus or $500,000,
whichever amount is less. No disclosure
under this paragraph is required if the ag­
gregate amount of all extensions of credit
outstanding from all correspondent banks of
the member bank to the executive officer or
principal shareholder of the member bank
and to all related interests of such a person
does not exceed $25,000 at any time during
the previous calendar year.
(ii) A member bank is not required to dis­
close the specific amounts of individual ex­
tensions of credit.
(b) Maintaining records. Each member bank
shall maintain records of all requests for the
information described in paragraph (a) of this
section and the disposition of such requests.
These records may be disposed of after two
years from the date of the request.

11




Statutory Authority

Ps-\ 1673^-

(c) The limitations contained in subsection (a)
shall be subject to the following exceptions:
(1) Loans or extensions of credit arising
from the discount of commercial or busi­
SECTION 5200— Lending Limits
ness paper evidencing an obligation to the
person negotiating it with recourse shall not
( a ) (1) The total loans and extensions of
be subject to any limitation based on capital
credit by a national banking association to a
and surplus.
person outstanding at one time and not
(2) The purchase of bankers’ acceptances
fully secured, as determined in a manner
of the kind described in section 13 of the
consistent with paragraph (2) of this subsec­
Federal Reserve Act and issued by other
tion, by collateral having a market value at
banks shall not be subject to any limitation
least equal to the amount of the loan or
based on capital and surplus.
extension of credit shall not exceed 15 per
(3) Loans and extensions of credit secured
centum of the unimpaired capital and
by bills of lading, warehouse receipts, or
unimpaired surplus of the association.
similar documents transferring or securing
(2) The total loans and extensions of credit
title to readily marketable staples shall be
by a national banking association to a per­
subject to a limitation of 35 per centum of
son outstanding at one time and fully se­
capital and surplus in addition to the gen­
cured by readily marketable collateral hav­
eral limitations if the market value of the
ing a market value, as determined by
staples securing each additional loan or ex­
reliable and continuously available price
tension of credit at all times equals or ex­
quotations, at least equal to the amount of
ceeds 115 per centum of the outstanding
the funds outstanding shall not exceed 10
amount of such loan or extension of credit.
per centum of the unimpaired capital and
The staples shall be fully covered by insur­
unimpaired surplus of the association. This
ance whenever it is customary to insure
limitation shall be separate from and in ad­
such staples.
dition to the limitation contained in para­
(4) Loans or extensions of credit secured
graph (1) of this subsection.
by bonds, notes, certificates of indebtedness,
(b) For the purposes of this section—
or Treasury bills of the United States or by
(1) the term “ loans and extensions of
other such obligations fully guaranteed as to
credit” shall include all direct or indirect
principal and interest by the United States
advances of funds to a person made on the
shall not be subject to any limitation based
basis of any obligation of that person to re­
on capital and surplus.
pay the funds or repayable from specific
(5) Loans or extensions of credit to or se­
property pledged by or on behalf of the
cured by unconditional takeout commit­
person and, to the extent specified by the
ments or guarantees of any department,
Comptroller of the Currency, such term
agency, bureau, board, commission, or es­
shall also include any liability of a national
tablishment of the United States or any cor­
banking association to advance funds to or
poration wholly owned directly or indirectly
on behalf of a person pursuant to a contrac­
by the United States shall not be subject to
tual commitment; and
any limitation based on capital and surplus.
(2) the term “person” shall include an indi­
(6) Loans or extensions of credit secured
vidual, sole proprietorship, partnership, joint
by a segregated deposit account in the lend­
venture, association, trust, estate, business
ing bank shall not be subject to any limita­
trust, corporation, sovereign government or
tion based on capital and surplus.
agency, instrumentality, or political subdivi­
(7) Loans or extensions of credit to any fi­
sion thereof, or any similar entity or
nancial institution or to any receiver, con­
servator, superintendent of banks, or other
organization.
REVISED STATUTES




13

1 0 * 7 3 *

Statutory Authority
agent in charge of the business and property
of such financial institution, when such
loans or extensions of credit are approved
by the Comptroller of the Currency, shall
not be subject to any limitation based on
capital and surplus.
(8) (A) Loans and extensions of credit aris­
ing from the discount of negotiable or
nonnegotiable installment consumer paper
which carries a full recourse endorsement
or unconditional guarantee by the person
transferring the paper shall be subject
under this section to a maximum limita­
tion equal to 25 per centum of such capi­
tal and surplus, notwithstanding the col­
lateral requirements set forth in
subsection (a)(2).
(B) If the bank’s files or the knowledge
of its officers of the financial condition of
each maker of such consumer paper is
reasonably adequate, and an officer of the
bank designated for that purpose by the
board of directors of the bank certifies in
writing that the bank is relying primarily
upon the responsibility of each maker for
payment of such loans or extensions of
credit and not upon any full or partial
recourse endorsement or guarantee by the
transferor, the limitations of this section
as to the loans or extensions of credit of
each such maker shall be the sole appli­
cable loan limitations.
(9) (A) Loans and extensions of credit se­
cured by shipping documents or instru­
ments transferring or securing title cover­
ing livestock or giving a lien on livestock
when the market value of the livestock
securing the obligation is not at any time
less than 115 per centum of the face
amount of the note covered, shall be sub­
ject under this section, notwithstanding
the collateral requirements set forth in
subsection (a)(2), to a maximum limita­
tion equal to 25 per centum of such capi­
tal and surplus.
(B) Loans and extensions of credit which
arise from the discount by dealers in
dairy cattle of paper given in payment for
dairy cattle, which paper carries a full re­
course endorsement or unconditional
guarantee of the seller, and which are se­
cured by the cattle being sold, shall be
14




Regulation O
subject under this section, notwithstand­
ing the collateral requirements set forth
in subsection (a)(2), to a limitation of 25
per centum of such capital and surplus.
(10) Loans or extensions of credit to the
Student Loan Marketing Association shall
not be subject to any limitation based on
capital and surplus.
(d) (1) The Comptroller of the Currency may
prescribe rules and regulations to administer
and carry out the purposes of this section,
including rules or regulations to define or
further define terms used in this section and
to establish limits or requirements other
than those specified in this section for par­
ticular classes or categories of loans or ex­
tensions of credit.
(2) The Comptroller of the Currency also
shall have authority to determine when a
loan putatively made to a person shall for
purposes of this section be attributed to an­
other person.
[12 USC 84. As amended by acts o f June 22, 1906 (34
Stat. 451); Sept. 24, 1918 (40 Stat. 967); Oct. 22, 1919 (41
Stat. 296); Feb. 25, 1927 (44 Stat. 1229); May 20, 1933
(48 Stat. 72); June 16, 1933 (48 Stat. 191); Aug. 23, 1935
(49 Stat. 713); June 11, 1942 (56 Stat. 356); July 15, 1949
(63 Stat. 440); Aug. 25, 1958 (72 Stat. 841); Sept. 9, 1959
(72 Stat. 488 ); Sept. 28, 1962 (7 6 Stat. 672); Joint
Resolution o f May 25, 1967 (81 Stat. 29); June 23, 1972
(86 Stat. 270); Oct. 15,1982 (96 Stat. 1508); and Jan. 12,
1983 (96 Stat. 2509).]

FEDERAL RESERVE ACT
SECTION 22—Offenses of Examiners,
Member Banks, Officers, and Directors
:jc

if;

(g) Loans to executive officers by members
banks.
(1) Except as authorized under this subsec­
tion, no member bank may extend credit in
any manner to any of its own executive of­
ficers. No executive officer of any member
bank may become indebted to that member
bank except by means of an extension of
credit which the bank is authorized to make
under this subsection. Any extension of
credit under this subsection shall be

Regulation O
promptly reported to the board of directors
of the bank, and may be made only if—
(A) the bank would be authorized to
make it to borrowers other than its
officers;
(B) it is on terms not more favorable
than those afforded other borrowers;
(C) the officer has submitted a detailed
current financial statement; and
(D) it is on condition that it shall be­
come due and payable on demand of the
bank at any time when the officer is in­
debted to any other bank or banks on ac­
count of extensions of credit of any one
of the three categories respectively re­
ferred to in paragraphs (2), (3), and (4)
in an aggregate amount greater than the
amount of credit of the same category
that could be extended to him by the
bank of which he is an officer.
(2) With the specific prior approval of its
board of directors, a member bank may
make a loan to any executive officer of the
bank if, at the time the loan is made—
(A) it is secured by a first lien on a
dwelling which is expected, after the
making of the loan, to be owned by the
officer and used by him as his residence,
and
(B) no other loan by the bank to the of­
ficer under authority of this paragraph is
outstanding.
(3) A member bank may make extensions
of credit to any executive officer of the
bank, to finance the education of the chil­
dren of the officer.
(4) A member bank may make extensions
of credit not otherwise specifically author­
ized under this subsection to any executive
officer of the bank, in an amount prescribed
in a regulation of the member bank’s appro­
priate Federal banking agency.
(5) Except to the extent permitted under
paragraph (4), a member bank may not ex­
tend credit to a partnership in which one or
more of its executive officers are partners
having either individually or together a ma­
jority interest. For the purposes of para­
graph (4), the full amount of any credit so
extended shall be considered to have been
extended to each officer of the bank who is
a member of the partnership.




0 /O 7 3 &

-

Statutory Authority

(6) Whenever an executive officer of a
member bank becomes indebted to any
bank or banks (other than the one of which
he is an officer) on account of extensions of
credit of any one of the three categories re­
spectively referred to in paragraphs (2), (3),
and (4) in an aggregate amount greater than
the aggregate amount of credit of the same
category that could lawfully be extended to
him by the bank, he shall make a written
report to the board of directors of the bank,
stating the date and amount of each such
extension of credit, the security therefor,
and the purposes for which the proceeds
have been or are to be used.
(7) This subsection does not prohibit any
executive officer of a member bank from
endorsing or guaranteeing for the protection
of the bank any loan or other asset previ­
ously acquired by the bank in good faith or
from incurring any indebtedness to the bank
for the purpose of protecting the bank
against loss or giving financial assistance to
it.
(8) Each day that any extension of credit in
violation of this subsection exists is a con­
tinuation of the violation for the purposes
of section 8 of the Federal Deposit Insur­
ance Act.
(9) Each member bank shall include with
(but not as part of) each report of condition
and copy thereof filed under section 7(a)(3)
of the Federal Deposit Insurance Act a re­
port of all loans under authority of this sub­
section made by the bank since its previous
report of condition.
(10) The Board of Governors of the Fed­
eral Reserve System may prescribe such
rules and regulations, including definitions
of terms as it deems necessary to effectuate
the purposes and to prevent evasions of this
subsection.
[12 USC 375a. As added by act o f June 16, 1933 (48 Stat.
182); amended by Public Resolution approved June 14,
1935 (49 Stat. 375); and by acts o f Aug. 23, 1935 (49 Stat.
716); April 25, 1938 (52 Stat. 223); June 20, 1939 (53 Stat.
842); July 3, 1967 (81 Stat. 109); Nov. 10, 1978 (92 Stat.
3665); and Oct. 15, 1982 (96 Stat. 1522).]

(h) Extensions o f credit to executive officers,
directors, and principal shareholders o f mem­
ber banks.
(1) No member bank may extend credit to
15

Statutory Authority
any of its executive officers, directors, or
principal shareholders, or to any related in­
terest of such a person, except to the extent
permitted under paragraphs (2), (3), (4), and
( 6).
(2) A member bank may extend credit to
its executive officers, directors, or principal
shareholders, or to any related interest of
such a person, only if the extension of
credit—
(A) is made on substantially the same
terms, including interest rates and collat­
eral, as those prevailing at the time for
comparable transactions by the bank with
persons who are not executive officers,
directors, principal shareholders, or em­
ployees of the bank;
(B) does not involve more than the nor­
mal risk of repayment or present other
unfavorable features; and
(C) the bank follows credit underwriting
procedures that are not less stringent than
those applicable to comparable transac­
tions by the bank with persons who are
not executive officers, directors, principal
shareholders, or employees of the bank.
(3) A member bank may extend credit to a
person, described in paragraph (1) in an
amount that, when aggregated with the
amount of all other outstanding extensions
of credit by that bank to each such person
and that person’s related interests, would
exceed an amount prescribed by regulation
of the appropriate Federal banking agency
(as defined in section 3 of the Federal De­
posit Insurance Act) only if—
(A) the extension of credit has been ap­
proved in advance by a majority vote of
that bank’s entire board of directors; and
(B) the interested party has abstained
from participating, directly or indirectly,
in the deliberations or voting on the ex­
tension of credit.
(4) A member bank may extend credit to
any executive officer, director, or principal
shareholder, or to any related interest of
such a person, only if the extension of
credit is in an amount that, when aggre­
gated with the amount of all outstanding
extensions of credit by that bank to that
person and that person’s related interests,
would not exceed the limits on loans to a




Regulation O
single borrower established by section 5200
of the Revised Statutes. For purposes of
this paragraph, section 5200 of the Revised
Statutes shall be deemed to apply to a State
member bank as if the State member bank
were a national banking association.
(5) (A) A member bank may extend credit
to any executive officer, director, or prin­
cipal shareholder, or to any related inter­
est of such a person, if the extension of
credit is in an amount that, when aggre­
gated with the amount of all outstanding
extensions of credit by that bank to its
executive officers, directors, principal
shareholders, and those persons’ related
interests would not exceed the bank’s
unimpaired capital and unimpaired
surplus.
(B) The Board may, by regulation, pre­
scribe a limit that is more stringent than
that contained in subparagraph (A).
(C) The Board may, by regulation, make
exceptions to subparagraph (A) for mem­
ber banks with less than $100,000,000 in
deposits if the Board determines that the
exceptions are important to avoid con­
stricting the availability of credit in small
communities or to attract directors to
such banks. In no case may the aggregate
amount of all outstanding extensions of
credit to a bank’s executive officers, di­
rectors, principal shareholders, and those
persons’ related interests be more than 2
times the bank’s unimpaired capital and
unimpaired surplus.
(6) (A) If any executive officer or director
has an account at the member bank, the
bank may not pay on behalf of that per­
son an amount exceeding the funds on
deposit in the account.
(B) Subparagraph (A) does not prohibit a
member bank from paying funds in ac­
cordance with—
(i) a written preauthorized, interestbearing extension of credit specifying a
method of repayment; or
(ii) a written preauthorized transfer of
funds from another account of the ex­
ecutive officer or director at that bank.
(7) No executive officer, director, or. princi­
pal shareholder shall knowingly receive (or
knowingly permit any of that person’s re-

Q

Regulation O
lated interests to receive) from a member
bank, directly or indirectly, any extension
of credit not authorized under this
subsection.
(8) For purposes of this subsection, any ex­
ecutive officer, director, or principal share­
holder (as the case may be) of any com­
pany of which the member bank is a
subsidiary, or of any other subsidiary of
that company, shall be deemed to be an ex­
ecutive officer, director, or principal share­
holder (as the case may be) of the member
bank.
(9) For purposes of this subsection:
(A) (i) Except as provided in clause (ii),
the term “company” means any corpo­
ration, partnership, business or other
trust, association, joint venture, pool
syndicate, sole proprietorship, unincor­
porated organization, or other business
entity.
(ii) The term “company” does not
include—
(I) an insured depository institution
(as defined in section 3 of the Fed­
eral Deposit Insurance Act); or
(II) a corporation the majority of the
shares of which are owned by the
United States or by any State.
(B) A person controls a company or
bank if that person, directly or indirectly,
or acting through or in concert with 1 or
more persons—
(i) owns, controls, or has the power to
vote 25 percent or more of any class
of the company’s voting securities;
(ii) controls in any manner the election
of a majority of the company’s direc­
tors; or
(iii) has the power to exercise a con­
trolling influence over the company’s
management or policies.
(C) A person is an “executive officer” of
a company or bank if that person partici­
pates or has authority to participate (other
than as a director) in major policymaking
functions of the company or bank.
(D) (i) A member bank extends credit by
making or renewing any loan, granting
a line of credit, or entering into any
similar transaction as a result of which
a person becomes obligated (directly or




Statutory Authority

indirectly, or by any means whatso­
ever) to pay money or its equivalent to
the bank.
(ii) The Board may, by regulation,
make exceptions to clause (i) for trans­
actions that the Board determines pose
minimal risk.
(E) The term “member bank” includes
any subsidiary of a member bank.
(F) The term “principal shareholder”—
(i) means any person that directly or
indirectly, or acting through or in con­
cert with one or more persons, owns,
controls, or has the power to vote
more than 10 percent of any class of
voting securities of a member bank or
company; and
(ii) does not include a company of
which a member bank is a subsidiary.
(G) A “related interest” of a person is—
(i) any company controlled by that
person; and
(ii) any political or campaign commit­
tee that is controlled by that person or
the funds or services of which will
benefit that person.
(H) The term “subsidiary” has the same
meaning as in section 2 of the Bank
Holding Company Act of 1956.
(10) The Board of Governors of the Fed­
eral Reserve System may prescribe such
regulations, including definitions of terms,
as it determines to be necessary to effectu­
ate the purposes and prevent evasions of
this subsection.
[12 USC 375b. As added by act o f Nov. 10, 1978 (92 Stat.
3644) and amended by acts o f Oct. 15, 1982 (96 Stat.
1520, 1522); Dec. 19, 1991 (105 Stat. 2355); and Oct. 28,
1992 (106 Stat. 3895, 4086).]

BANK HOLDING COMPANY ACT
AMENDMENTS OF 1970
SECTION 106—Tie-In Arrangements
*

*

*

*

*

(b)(1) A bank shall not in any manner extend
credit, lease or sell property of any kind, or
furnish any service, or fix or vary the con17

fi-f-/ d 7 3 2 Statutory Authority
sideration for any of the foregoing, on the
condition or requirement—
(A) that the customer shall obtain some
additional credit, property, or service
from such bank other than a loan, dis­
count, deposit, or trust service;
(B) that the customer shall obtain some
additional credit, property, or service
from a bank holding company of such
bank, or from any other subsidiary of
such bank holding company;
(C) that the customer provide some addi­
tional credit, property, or service to such
bank, other than those related to and usu­
ally provided in connection with a loan,
discount, deposit, or trust service;
(D) that the customer provide some addi­
tional credit, property, or service to a
bank holding company of such bank, or
to any other subsidiary of such bank
holding company; or
(E) that the customer shall not obtain
some other credit, property, or service
from a competitor of such bank, a bank
holding company of such bank, or any
subsidiary of such bank holding com­
pany, other than a condition or require­
ment that such bank shall reasonably im­
pose in a credit transaction to assure the
soundness of the credit. The Board may
by regulation or order permit such excep­
tions to the foregoing prohibition as it
considers will not be contrary to the pur­
poses of this section.
(2) (A) No bank which maintains a corre­
spondent account in the name of another
bank shall make an extension of credit to
an executive officer or director of, or to
any person who directly or indirectly or
acting through or in concert with one or
more persons owns, controls, or has the
power to vote more than 10 per centum
of any class of voting securities of, such
other bank, or to any related interest of
such person, unless such extension of
credit is made on substantially the same
terms, including interest rates and collat­
eral as those prevailing at the time for
comparable transactions with other per­
sons and does not involve more than the
normal risk of repayment or present other
unfavorable features.
18




Regulation O
(B) No bank shall open a correspondent
account at another bank while such bank
has outstanding an extension of credit to
an executive officer or director of, or
other person who directly or indirectly or
acting through or in concert with one or
more persons owns, controls, or has the
power to vote more than 10 per centum
of any class of voting securities of, the
bank desiring to open the account, or to
any related interest of such person, unless
such extension of credit was made on
substantially the same terms, including
interest rates and collateral as those pre­
vailing at the time for comparable trans­
actions with other persons and does not
involve more than the normal risk of re­
payment or present other unfavorable
features.
(C) No bank which maintains a corre­
spondent account at another bank shall
make an extension of credit to an execu­
tive officer or director of, or to any per­
son who directly or indirectly acting
through or in concert with one or more
persons owns, controls, or has the power
to vote more than 10 per centum of any
class of voting securities of, such other
bank, or to any related interest of such
person, unless such extension of credit is
made on substantially the same terms, in­
cluding interest rates and collateral as
those prevailing at the time for compara­
ble transactions with other persons and
does not involve more than the normal
risk of repayment or present other unfa­
vorable features.
(D) No bank which has outstanding an
extension of credit to an executive officer
or director of, or to any person who di­
rectly or indirectly or acting through or
in concert with one or more persons
owns, controls, or has the power to vote
more than 10 per centum of any class of
voting securities of, another bank, or to
any related interest of such person shall
open a correspondent account at such
other bank, unless such extension of
credit was made on substantially the
same terms, including interest rates and
collateral as those prevailing at the time
for comparable transactions with other

/6 V 3z> Regulation O
persons and does not involve more than
the normal risk of repayment or present
other unfavorable features.
(E) For purposes of this paragraph, the
term “extension of credit” shall have the
same meaning given it in section 23A of
the Federal Reserve Act and the term
“executive officer” shall have the same
meaning given it under section 22(g) of
the Federal Reserve Act.
(F) (i) Any bank which violates or any
officer, director, employee, agent, or
other person participating in the con­
duct of the affairs of such bank who
violates any provision of section
106(b)(2) shall forfeit and pay a civil
penalty of not more than $1,000 per
day for each day during which such
violation continues: Provided, That the
agency having authority to impose a
civil money penalty may, in its discre­
tion, compromise, modify, or remit any
civil money penalty which is subject to
imposition or has been imposed under
such authority. The penalty may be as­
sessed and collected by the Comptrol­
ler of the Currency in the case of a
national bank, the Board in the case of
a State member bank, or the Federal
Deposit Insurance Corporation in the
case of an insured nonmember State
bank, by written notice. As used in
this section, the term “violates” in­
cludes without any limitation any ac­
tion (alone or with another or others)
for or toward causing, bringing about,
participating in, counselling, or aiding
or abetting a violation.
(ii) In determining the amount of the
penalty the Comptroller of the Cur­
rency, the Board or the Federal De­
posit Insurance Corporation, as the
case may be, shall take into account
the appropriateness of the penalty with
respect to the size of the financial re­
sources and good faith of the bank or
person charged, the gravity of the vio­
lation, the history of previous viola­
tions, and such other matters as justice
may require.
(iii) The bank or person assessed shall
be afforded an opportunity for agency




Statutory Authority
hearing, upon request made within ten
days after issuance of the notice of as­
sessment. In such hearing, all issues
shall be determined on the record pur­
suant to section 554 of title 5, United
States Code. The agency determination
shall be made by final order which
may be reviewed only as provided in
subsection (iv). If no hearing is re­
quested as herein provided, the assess­
ment shall constitute a final and unap­
pealable order.
(iv) Any bank or person against whom
an order imposing a civil money pen­
alty has been entered after agency
hearing under this section may obtain
review by the United States court of
appeals for the circuit in which the
home office of the bank is located, or
the United States Court of Appeals for
the District of Columbia Circuit, by fil­
ing a notice of appeal in such court
within twenty days from the service of
such order, and simultaneously sending
a copy of such notice by registered or
certified mail to the Comptroller of the
Currency, the Board or the Federal De­
posit Insurance Corporation, as the
case may be. The Comptroller of the
Currency, the Board or the Federal De­
posit Insurance Corporation, as the
case may be, shall promptly certify
and file in such court the record upon
which the penalty was imposed, as
provided in section 2112 of title 28,
United States Code. The findings of
the Comptroller of the Currency, the
Board or the Federal Deposit Insurance
Corporation, as the case may be, shall
be set aside if found to be unsupported
by substantial evidence as provided by
section 706(2)(E) of title 5, United
States Code.
(v) If any bank or person fails to pay
an assessment after it has become a fi­
nal and unappealable order, or after the
court of appeals has entered final judg­
ment in favor of the agency, the
Comptroller of the Currency, the Board
or the Federal Deposit Insurance Cor­
poration, as the case may be, shall re­
fer the matter to the Attorney General,
19

]f^ r l0 7 3 j2 .
Statutory Authority
who shall recover the amount assessed
by action in the appropriate United
States district court. In such action the
validity and appropriateness of the fi­
nal order imposing the penalty shall
not be subject to review.
(vi) The Comptroller of the Currency,
the Board and the Federal Deposit In­
surance Corporation shall promulgate
regulations establishing procedures
necessary to implement this section.
(vii) All penalties collected under au­
thority of this section shall be covered
into the Treasury of the United States.
(viii) All penalties collected under au­
thority of this section shall be covered
into the Treasury of the United States.
(G) (i) Each executive officer and each
stockholder of record who directly or
indirectly owns, controls, or has the
power to vote more than 10 per cen­
tum of any class of voting securities of
an insured bank shall make a written
report to the board of directors of such
bank for any year during which such
executive officer or shareholder has
o u ts ta n d in g a n e x t e n s io n of c r e d it fr o m
a bank which maintain a corresponding
account in the name of such bank.
Such report shall include the following
information:
(1) the maximum amount of indebt­
edness to the bank maintaining the
correspondent account during such
year of (a) such executive officer or
stockholder of record, (b) each com­
pany controlled by such executive
officer or stockholder, or (c) each
political campaign committee the
funds or services of which will ben­
efit such executive officer or stock­
holder, or which is controlled
by such executive officer or
stockholder;
(2) the amount of indebtedness to
the bank maintaining the correspon­
dent account outstanding as of a
date not more than ten days prior to
the date of filing of such report of
(a) such executive officer or stock­
holder of record, (b) each company
controlled by such executive officer

20



Regulation O
or stockholder, or (c) each political
campaign committee the funds or
services of which will benefit such
executive officer or stockholder;
(J) the range of interest rates
charged on such indebtedness of
such executive officer or stockholder
of record; and
(4) the terms and conditions of such
indebtedness of such executive of­
ficer or stockholder of record.
(ii) The appropriate Federal banking
agencies are authorized to issue rules
and regulations, including definitions
of terms, to require the reporting and
public disclosure of information by any
bank or executive officer or principal
shareholder thereof concerning any ex­
tension of credit by a correspondent
bank to the reporting bank’s executive
officers or principal shareholders, or
the related interests of such persons.
(H) For the purpose of this paragraph—
(i) the term “bank” includes a mutual
savings bank;
(ii) the term “related interests of such
persons” includes any company con­
trolled by such executive officer, direc­
tor, or person, or any political or cam­
paign committee the funds or services
of which will benefit such executive
officer, director, or person or which is
controlled by such executive officer,
director, or person; and
(iii) the terms “control of a company”
and “company” have the same mean­
ing as under section 22 (h) of the Fed­
eral Reserve Act (12 U.S.C. 375b).
[12 USC 1972. As amended by acts o f N ov. 10, 1978 (92
Stat. 3690) and Oct. 15, 1982 (96 Stat. 1520, 1523, 1526).]

FEDERAL DEPOSIT INSURANCE
ACT
SECTION 7—Change in Control of
Banks
*

*

*

*

*

(k) Annual report to Federal banking agency.

Regulation O
The appropriate Federal banking agencies are
authorized to issue rules and regulations, in­
cluding definitions of terms, to require the re­
porting and public disclosure of information
by a bank or any executive officer or principal
shareholder thereof concerning extensions of




Statutory Authority
credit by the bank to any of its executive of­
ficers or principal shareholders, or the related
interests of such persons.
[12 USC 1817(k). As added by act o f Nov. 10, 1978 (92
Stat. 3683) and amended by act o f Oct. 15, 1982 (96 Stat.
1527).]

21