The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Special Survey of Bank Stock Loams, Loans to O fficia ls and M a jo r Stockholders o f Other Banks, Insider Loans and O verdra fts 1/ ' # Statement by\ %/ l G eo rge A , L e M a is t r e , Chairman F e d e r a l D eposit Insurance Corporation L ibra ry MAR 2 0 1978 FEDERAL DEPOSIT INSURANCE CORPORATION B e fo re th e C om m ittee on Banking, Housing and Urban Affairs^ United States Senate M arch 16, 1978 s F E D E R A L D EPO SIT IN S U R A N C E C O R PO R A TIO N , 5 5 0 Seventeenth St. N.W., Washington, D.C. 20429 202-389-4221 M r . Chairman, I w elco m e the opportunity to provide m y own comments and evaluation o f the results o f the survey on bank stock loans, loans to o fficia ls and m a jo r stockholders o f other banks, loans to in sid ers of reporting banks and o v e rd ra fts . The survey represents a substantial undertaking by the fe d e ra l banking agencies, and one which I fe e l provides som e valuable insights into the dimensions and ch a ra cteris tic s o f in sider lending and o verd ra ft policies of c o m m e r c ia l banks. I would lik e to su m m arize a fe w of the highlights. Only 902 insured co m m ercia l banks, 6 .4 percent of aLl reporting banks, had loans secured by bank stock on their books as of September 30, 1977. A sm a lle r percentage (4. 2 percent) o f insured nonmem ber banks reported bank stock loans. The survey re vea led that bank stock lending is concentrated principally in unit banking states in the southwestern and central regions of the country. This is consistent with le g itim a te and understandable m otives fo r borrow ing to purchase bank stock. Unit banking states a re gen era lly ch a ra cterized by a re la t iv e ly la r g e number of sm all banks. The ability to b o rr o w against bank stock, with the stock servin g as co lla te ra l, fa cilita tes acquisition of an equity in te re s t in lo c a l banks by sm all in vestors. Thus, the veh icle of bank stock lending helps p r e s e r v e sm a lle r, lo c a lly owned, independent institutions and thereby prevents fu rth er concentration o f banking resou rces. In addition, by providing a source of liquidity to stockholders in sm all banks, bank stock loans m o r e read ily fa c ilita te changes in ownership to bring new management to banks when n ecess a ry. - 2 - While recognizin g that there a r e benefits associated with bank stock lending, such loans also pose a potential f o r m is c h ie f and in sid er abuse. The in sid er abuse m o st com m only associated with bank stock loans involves the use of correspondent balances to compensate the correspondent bank fo r a loan extended on p r e fe r e n tia l term s to an in sid er o f the depositing bank and which results in an economic detrim en t to that bank. To determ in e whether w idespread abuses cu rren tly ex ist in bank stock lending, i t is n ecess a ry to examine a ll the lending term s o f stock loans in each tim e period . Com parisons between in te re s t rates charged on the loans and the a v e r a g e prim e rates during the y e a r o f the loan o rigin ation p rovid e som e indication o f the magnitude of p r e fe r e n tia l treatm ent extended to in sid ers of oth er banks in connection with bank stock Loans. The survey showed that, since 1969, 7. 4 percent of rep orted stock loans was made below the a vera g e prim e rate. M o r e o v e r , since 1975, when m o st of these loans w e r e made, the proportion was 1.9 percent. The survey also showed that when a bank has a correspondent r e la tionship with an institution whose stock is pledged by the b o r r o w e r , the a v e r a g e size of the loan is l a r g e r and the in te re s t rate charged is somewhat lo w e r than when no correspondent relationship exists. H o w e ver, it is not possib le to conclude whether there a r e abuses of correspondent re la tio n ships without examining other in form ation such as the timing of the establish m ent of the correspondent relationship and whether the amount o f correspondent balances held a r e com m ensurate with the s e r v ic e s provided. H o w e ver, on balance, the survey data do not indicate to m e that such abuses as m ay exist in bank stock lending a re w idesp read in the banking system . - 3 - In m y testimony b e fo r e this Com m ittee on September 26, 1977, I commented on the extent of abuses relating to bank stock loans in insured nonmember banks. M y rem a rks w e r e based on a sample investigation of examination reports and a survey of banks under examination at that time. Because we found that only six banks out of 303, o r 2 percent, demonstrated p referen tia l p ractices involving correspondent balances, I concluded that such abuses may b e an isolated phenomenon. The data fr o m this la r g e r , m o re com plete survey r e v e a ls that 10 percen t o f the bank stock loans of nonmember institutions made to in sid ers o f other banks was made at in te rest rates c le a r ly below the a v e r a g e p r im e rate during the period of loan origination. The loans making up this 10 percen t w e r e extended both with and without a correspondent relationship. This additional evidence seem s to support m y e a r lie r conclusion that correspondent abuses associated with bank stock lending, although perhaps g r e a te r than I suspected e a r lie r , a re not prevalen t among insured nonmember banks. It is im portant to b ea r in mind that abuses related to correspondent relationships a re not lim ite d to those abuses arisin g out o f bank stock lending. The survey data p rovid e som e evidence of a link between in sider lending in general and correspondent banking, that is, a pattern o f system atically lo w e r in terest rates p r e v a il on loans to in sid ers o f other banks when the other bank has a correspondent relationship with the lending bank. This pattern holds true f o r state m e m b er, national and state nonmem ber banks. M ost o f the fix e d - r a t e loans to in sid ers of other banks with rates below the a v e r a g e p r im e rate w e r e made during periods ch a ra cterized by - 4 - tight money and rapidly changing in te re s t rates (1970, 1973, 1974, and the f i r s t half of 197 5). Under conditions of g r e a t uncertainty, such as occu rred during these periods, it might not have been unreasonable to make short-term loans at rates below p r im e to individuals with whom the lending bank has had business dealings fo r a long tim e. N e v e rth e le s s , special circumstances would still have to be dem onstrated to satisfy m e that p re fe r e n tia l treatment did not exist in such cases. I m ight add that state nonmem ber banks charged h igh er rates (both fixed and floating ra te s ) on loans to in sid ers o v e r the tim e period o f the survey than the national a ve ra g e as reported in the survey. This was true re g a rd le s s of whether correspondent balances w e r e maintained at the lending institution. O vera ll, I find that the survey tables p rovid e in terestin g and relevant, although as I have stated, in com plete inform ation on insider lending. Because o f the special caveats mentioned in the joint agency report, in form ation in the portion o f the survey dealing with o v e rd ra fts is not as re vea lin g . What is apparent to m e is that the volum e o f o v e rd ra fts is g r e a t e r than I would have expected. Banks reported a daily a v e ra g e of two m illio n o v e rd ra fts amounting to a daily a v e r a g e o f approxim ately $1.9 billion . Based on 1976 estim ates of the number and d o lla r volum e o f checks debited to the accounts of individuals and businesses, o v e rd ra fts represen ted 2 p ercen t of the number but 13 percent o f the d o lla r volum e o f daily checks. F o r reasons mentioned below, these fig u r e s m ay not r e fle c t f a i r l y the actual extent o f o v e rd ra fts . In m y September 26, 1977 testim ony b e fo r e this C om m ittee, I reported that of the 189 nonmem ber banks that w e r e examined during the week beginning - 5 - September 12, 1977, approxim ately 64 percent recorded o verd ra fts of in siders during the 90-day period preceding the examination date. By comparison, in the survey under discussion, about 44 percent of the 8, 580 state nonmember banks reported o v e rd ra fts o v e r $500, including 2,706 banks (31 percent) with o verd rafts o f their own in siders, 368 (4 percent) with o verd ra fts of in siders of other banks, and 735 (9 percen t) with o verd ra fts of public o ffic ia ls . The la r g e r o v e r a ll percentage of banks in the 189 sample of state nonmember banks reporting o verd ra fts o ccu rred because o verd ra fts o f under $500 w e re included. N e v e rth e le s s , the percentages o f nonmember banks reporting overdrafts of in siders o f other banks and public o ffic ia ls w e re about the same in both surveys. Although o v e rd ra fts a re perm itted by a la r g e percentage of banks, abuse o r violations o f law a re not w idespread. In our re v ie w of o v e rd ra ft practices f r o m a survey o f 261 bank examination reports which we conducted last fa ll, we d is c o v e re d that exam iners c r it ic iz e approxim ately 3 percen t of a ll insured state nonmember banks f o r bank in sid er o v e rd ra ft abuses. F u rth erm o re, we noted that m ost o verd ra fts a r e not c r itic iz e d because the in sid ers' accounts a re seldom overd raw n f o r m o re than a fe w days, and overdrafts occu r infrequently. O verdra fts that a re substantial o r p e r s is t o ver tim e a re c r it ic iz e d in the examination rep ort as a m a tter of course. It is not possible to com pare the size, duration and frequency of overd ra fts on an individual basis f r o m data reported in the survey tables. F o r this reason I am skeptical about how meaningful data in Table 5A showing a substantial number o f banks with la rg e , f r e e o verd ra fts of - 6 - in siders are in addressing the question of o v e rd ra ft abuses. S im ila r ly , Table 7, which appears to show a p o licy o f leniency with re ga rd to w aiving fe e s and charges to in sid ers of the bank on their o v e rd ra fts , does not take account o f the relationship between size and frequency of o v e rd ra fts f o r each person and the fe e p o licy im posed. H o w ever, no re a l sense o f the extent o f potential abuses relating to o v e rd ra fts is possible without com paring bank o v e r d r a ft p o licies f o r in s id e rs and others. o f the special survey. Such an inquiry extends beyond the scope Th ese and other m atters related to the su rvey w ill be explored by exam in ers. Examination procedu res and the re p o rt of examination w ill be re v ie w e d in light of the survey to determ ine what changes should be undertaken. Fo llo w -u p P r o c e d u re s The issue of what constitutes abuse by in sid ers o f their relationship with their financial institution evokes som e disagreem en t. M y own v ie w and the predominant one at the FDIG is that in sid er conduct is abusive and constitutes an unsafe o r unsound banking p ra c tic e when an in s id e r obtains a ben efit which is not available to a noninsider o th erw is e s im ila r ly situated and which results in an econom ic detrim en t to the bank. W here a bank’ s board tolera tes abusive conduct, unquestionably f i r m s u p erviso ry action should be taken. A s the Supreme Court has stated, the broad visitation al pow er o f fe d e r a l bank exam in ers is perhaps the m o st e ffe c tiv e weapon o f fe d e r a l regulation of banking (s e e United States v. Philadelphia National Bank,* 374 U. S. 321, 329 (1965)). I would lik e to outline some of the steps that the FDIC has taken, and anticipates taking, to fo llo w up on p o ssib le abusive p ra c tic es indicated by the - 7 - survey data. A s a f i r s t step, the Corporation, in conjunction with the C o m p tro ller of the Currency and the F e d e ra l R e s e r v e System, undertook a telephone survey of those banks that reported la r g e o ve rd ra fts . This was done because of the inform ation gaps on o verd ra fts in the survey as was indicated in the joint agency staff report. O riginally, it was planned to contact all those banks that reported overd ra fts o f $50,000 and above. H ow ever, because of time constraints, the telephone ca lls actually made w e r e lim ited to those banks reporting o v e r drafts of $100,000 o r m o r e . Of the 191 banks reporting such overd ra fts, 130 w e r e contacted. O vera ll, the results of the telephone follow -u p show that 103 of the 130 banks should not have been included in the survey on o ve rd ra fts , la r g e ly because o f reporting e r r o r s o r because the o verd ra fts reported w e r e not, in m y judgment, o verd ra fts . Of the 130 banks contacted, 38 eith er had no exposure because the o v e rd ra ft was c o v e re d in a tim e ly fashion o r because the bank was n ever obligated to pay the o verd ra ft. It should be kept in mind that, in virtu a lly e v e r y state, banks by statute, clea rin g house rule, o r a greem en t have a certain p eriod o f tim e to return o r dishonor a demand item without incurring a le g a l obligation to pay it. In 20 of the 38 banks, the facts ascertained fr o m the telephone survey indicated that the o verd ra fts reported w e r e co v e re d within the ge n e ra lly accepted tim e fr a m e in which the bank could have returned the item . This tim e fr a m e is usually r e fe r r e d to as the "midnight deadline. " Thus, the 20 banks w e r e apparently n e v e r le g a lly obligated to pay the - 8 - o verd ra fts reported. In any event, even i f they could be considered o v e r drafts, in all 20 cases they w e r e outstanding only one day. Of the remaining 18 banks, overd ra fts in 8 w e re co v e re d by timely tra n sfers fr o m oth er bank accounts in the reporting bank, but w e r e reported as o ve rd ra fts because o f delays in posting the deposit to the c u s to m e r’ s checking accounts; overd ra fts in 8 w e r e the result of delays in disbursing loan proceeds o f a p r io r a lrea d y approved loan to the cu s to m e r's checking account; and overd ra fts in 2 resulted fr o m computer e r r o r which had the effl o f not posting the deposit to the p ro p e r account in a tim ely manner. Another 65 o f the 130 banks erro n eo u sly reported o v e rd ra fts to cor porate in te rests of in sid ers. The survey instructions did not include c o r porate in terests within the reporting requ irem en ts. fo re , by definition, constitute a reporting e r r o r . Th ese 65 banks there Although shortness of tim precluded detailed questioning about the nature of each co rp o ra te overdraft some questions w e r e asked which re vea led the sam e lack o f exposure on the part o f these banks as the 38 discussed above. Thus, 28 o f the 65 corporate o ve rd ra fts w e r e c o v e r e d b e fo r e the midnight deadline and 12 others w ere rep orted because of delays in: (1) posting intra-bank tra n sfers; (2) disbursii p r io r approved loan proceed s; o r y|f w ir e tra n sfers f r o m other banks. In 7 o f the 130 contacted, the banks experienced no exposure on the o v e rd ra fts because they w e r e c o v e r e d by w ir e tra n sfers. In each of these 7 ca ses, the w ir e tra n s fe r was delayed f o r technical reasons. In 6 of the other instances, the bank reported, o r the F D I C ’ s computer picked up, an in c o r r e c t amount which, i f reported c o r r e c t ly , would have reduced each of the 6 below the $50, 000 le v e l. - 9 With re s p e c t to the remaining 14 o f the 130 banks contacted, 6 appear to in volve an abusive p ractice. H ow ever, the inform ation obtained fr o m the telephone contacts indicated that c o rre c tio n has been made in 5 of the 6 instances either through a change in ownership of the bank, a change in p o licy at the bank, o r resignation o r d ism issa l of the in d iv i duals involved. In 1 case, an in te rest charge was imposed. In the other 8, the o verd ra fts w e r e those of in siders who w e r e significant custom ers of the bank, and the o ve rd ra fts w e r e of short duration (no m o re than 5 days) in a ll but one case. In 2 o f these cases, rates above the bank's norm al lending rates w e r e charged. In the one instance which extended beyond 5 days, the o v e r d r a ft was outstanding f o r at lea st 60 days but was c o lla te ra lize d by m arketable secu rities and was 1 of the 2 on which in terest was charged (the in te rest rate was 10 percent). In summ ary, based upon this lim ited and hurried telephone follow -up of reported o verd ra fts o f $100,000 o r m o re , it seem s c le a r that the numbers in the tables do not accu rately p o rtra y industry p ra c tic e and m ay be m i s leading. F u rth e rm o re , only 3 of 86 banks reporting no in te re s t rate assessed against the o v e r d r a ft showed evidence of abusive p referen tia l treatment. In 1 of the 3, the o v e r d r a ft was co v e re d in 3 days. The FDIC w ill instruct its Regional O ffices to in vestigate each state nonmember bank w here abusive o v e r d r a ft p ra c tic es a re indicated by the survey data, re g a rd le ss of the amount reported. In a m o r e gen era l follow -up, the Corporation w ill identify each state nonmember bank which reported anything in the survey which im p lie s a possible abusive p ractice with re s p e c t to loans secured by the stock of other - 10 - banks o r bank bolding companies; loans to in sid ers of the lending bank; loans to in sid ers o f other banks; and o v e rd ra fts to in sid ers of the bank, to in siders o f other banks, and to public o ffic ia ls . A l i s t o f these banks w ill be forwardec to the appropriate Regional O ffice with instructions to take w hatever steps, a re n e c e s s a r y to determ in e whether the bank has in fa c t engaged in, o r is engaging in, any o f these p ra c tic es. This li s t w ill include a ll those state nonm em ber banks identified in the survey which extended c r e d it to their own in siders at rates of in te re s t c le a r ly below the a v e r a g e p r im e rate. The lis t also w ill include those banks on both ends o f stock loans tra n s actions which in volved low in te re s t rates and a demand deposit balance placed at the lending bank by the bank whose stock secures the loan. In addition, in those cases w h ere abusive p ra c tic e s exist, the Regional O ffice s w ill be instructed to point out to the bank how c o r r e c tio n can and should b e effected and then to ensure that c o r r e c tio n is taken. If n ecessary, fo r m a l enforcem ent action w ill be instituted. A s you w ill re c a ll, in m y testim ony b e fo r e this C o m m ittee on Septem ber 26, 1977, I discussed at length the variou s guidelines provided to exam in ers and the examination m ethodologies em ployed to a s s is t in the detec tion o f abuses relating to in sid ers of a bank; p o ssib le p r e fe r e n tia l treatment accorded to in s id e rs o f other banks, e sp ecia lly in connection with bank stock loans and compensating balances; loans to fa v o re d cu stom ers; and o verd ra fts (s e e H earin gs b e fo r e the Senate C om m ittee on Banking, Housing and Urban A ffa ir s , 95th C o n g ., I s t S e s s . , pp. 57-79, and 89-99, Sept. 26, 27, and 28, 1977). The FDIC b e lie v e s that the cu rren t guidelines and examination - 11 - techniques a re adequate to detect the va st m a jo rity of these types of abusive p ractices. F u rth erm o re, I am confident that our exam iners assiduously and conscientiously s triv e to root out abuses com m itted in these and other areas by banks under the F D IC 's d ir e c t supervision by c a re fu lly commenting on them in the reports o f examination. In the cou rse o f each examination, exam iners a re required to lis t all loans to o ffic e r s o f other banks, except fo r loans of insignificant amounts, on FDIC F o r m 6500/23. The f o r m was included as an exhibit to m y testimony b e fo r e this C om m ittee on September 26, 1977 in the Hearings print r e fe r r e d to p revio u sly on page 122. Loans secured by stock of other banks, which in the agg reg ate amount to 5 percen t o r m o r e of each bank’ s outstanding shares, must also be lis te d at each examination by exam iners on FDIC F o r m 6500/22. This fo r m was also reprinted in the Hearing print o f' September 26, 1977 on page 121. F u rth erm o re, Section 7(j ) of the F e d e r a l Deposit Insurance A c t (12 U. S. C. 1817 (j)) requ ires that fe d e ra l authorities be notified when there is a change of control of an insured bank o r when there is a loan secured by 25 percen t o r m o re of an insured bank's outstand ing stock. To detect o verd ra fts to in sid ers, a lis t of bank d ir e c to r s , o ffic e r s and em ployees is obtained fr o m the bank o r i t is developed independently by exam iners o r by som e combination o f the two preceding methods. tion o f in sid er re la tiv e s is a d ifficu lt p r o ce ss. Id en tifica H ow ever, an adequate lis t usually can be put together by review in g the stock le d g e r, in sid er transactions re co rd s, and the minutes o f m eetings o f the loan com m ittee and the board of - d ir e c to r s . 12 - A n y o v erd ra fts to in sid ers a re fla gged to ensure follow -u p action at a la te r point in the examination. The o v e r d r a ft listing is also com pared with loans to individuals made by other departments of the bank to determ in e t ie - in relationships. A ls o , since the issuance of the F D IC 's in s id e r regu la tion, which s p e c ific a lly mandates re c o rd keeping requ irem ents f o r in sid er transactions, the identification o f o verd ra fts , as w e ll as other in sid er a ctivities, has been enhanced. E x a m in er r e v ie w and analysis of o v e rd ra fts also resu lt in the detection o f o v e rd ra fts to o ffic e r s , d ir e c t o r s and stockholders of other banks. Large o v e rd ra fts and frequent use of o v e rd ra fts a r e flagged autom atically f o r an appraisal o f repaym ent capacity. F u rth e rm o re , it is standard proceduce to determ in e the o b lig o r 's place o f em ploym ent and position f o r those o verd ra fts that a re r e la t iv e ly la r g e and a re not repaid during the co u rse of an exam ina tion. This procedu re perm its detection of o v e rd ra fts to other bankers. I b e lie v e that these p rocedu res a r e ge n e ra lly successful in detecting in s id e r abuses. N e v e rth e le s s , in ligh t o f som e o f the findings in the special survey, I have instructed the staff to re v ie w in detail and, w h ere n ecess a ry, to take o r recom m en d any requ isite actions to im p ro v e the cu rren t guidelines provided to exam in ers and examination techniques used in the supervision of in s id e r o r other p r e fe r e n tia l p ra c tic e s . We a re also in the p ro c e s s of evalu ating the p r a c tic a lity and u tility of incorporating the data gathered f r o m these various sources into our com puter base f o r ready a ccess and analytical review in keeping track o f trends. - 13 - Regulation and Recom mended L eg isla tio n I do wish to emphasize that the FDIC is deeply concerned about and responds v ig o ro u s ly to o verrea ch in g and abusive conduct by bank in siders. Although I do not b e lie v e that data fr o m the survey indicate basic weaknesses in the bank regu latory structure, I do b e lie v e that the tools of law and public policy must evo lve apace with changing tim es and events. To underscore the* fact that I am not wedded to the existing fr a m e w o r k and approaches o f bank regulation, the FD IC published f o r comm ent on January 30, 1978 proposed amendments to the C orp oration 's regulations dealing with in sider transactions. Included in the proposal a re a number o f substantive amendments: 1. A new p rovis ion specifying that an in sid er transaction is an unsafe o r unsound p ra c tic e i f it is p re fe r e n tia l and results in, o r is lik e ly to result in, loan lo s s e s , e x c e s s iv e cost, undue risk, o r other economic detrim en t to the bank. The amendment also would c la r ify that the FDIC w ill take appro p riate s u p erviso ry action against a bank whose in sid er transactions a re found to be unsafe o r unsound and that technical com pliance with the regulation's requirem ents would not be a basis f o r justifying an oth erw ise unsafe o r unsound in sid er transaction. Thus, the proposed amendments would make it c le a r that the F D IC w ill not tole ra te any in sid er transaction that affords p re fe re n tia l treatm ent to an in s id e r o r person related to an in s id e r and results, o r is lik e ly to result, in econom ic detrim en t to the bank. 2. accounts. A new p rovis ion would be added relating s p e c ific a lly to correspondent A survey finding that troubles m e is that lo w e r rates a re charged on loans to in sid ers when a correspondent relationship exists with the in s id e r's - 14 - bank than when such a relationship does not exist. To determ in e whether an abuse exists in such cases, we would re qu ire each in sid er to re p o r t in w riting to the bank's board o f d ir e c t o r s all extensions o f c r e d it that a re (a) made by a financial institution with which the bank maintains a c o r r e spondent account, and (b) m ade f o r the purpose o f enabling the in sid er to purchase, c a r r y o r own a b en efic ia l in te re s t in sec u rities issued by the bank, its holding company, o r any other insured bank o r holding company. The bank's board would be requ ired to re v ie w , at le a s t annually, a ll o f the bank's corresponden t accounts with oth er financial institutions to ensure that these accounts a re f a i r and in the best in terests of the bank. In making the re v ie w , the board would have to con sider, among oth er things, bank stock loans rep orted by in s id e r s . F u r th e r m o re , any deposit placed by a bank in another financial institution so lely to compensate that institution f o r making a loan to an in s id e r of the depositing bank would, ipso fa c to , be considered an in sid er transaction. 3. The proposed amendments would expand the definition o f "p erson related to an in s id e r " and substantially r e v is e the definition o f "business transactions. " 4. Under the proposed re visio n , the bank's board of d ir e c to r s would be requ ired to r e v ie w and approve in s id e r transactions when p r a c tic a l p r io r to consummation o f the transaction. In any case, r e v ie w and approval would be requ ired no la t e r than the next re g u la rly scheduled board m eeting following consummation o f the transaction. - 15 - T h ere a re other amendments to the in sid er regulation which a re m ainly of a cla rify in g nature o r a r e intended to tighten the regulation. O verdrafts by in siders of a bank have been and a r e included within the meaning of in sider transactions under the amended regulation. We have attached f o r your con venience a copy of the January 30, 1978 press re le a s e on the proposed amendments to the FD IC in s id e r regulation as w e ll as the entire proposal its e lf. Focusing s p e c ific a lly on the amendments addressed to bank stock loans and correspondent accounts, the approach proposed would ensure meaningful analysis of the bank’ s correspondent relationships by boards of d ire c to rs and would thereby significantly m in im iz e the likelihood of abuse. Of even g r e a te r importance, this approach would also provid e FDIC exam iners with a better and m o r e convenient data base f o r use in detecting other abuses associated with bank stock loans. A s I have a lrea d y testified, I also support passage o f se v e ra l proposed amendments to the statutory pow ers o f the fe d e ra l banking agencies which a re now pending in C on gress. We u rg e the enactment of S. 71. Our cease end d esist pow er under Section 8(b) o f the F e d e r a l D eposit Insurance A c t would be m o r e effective i f it could be used d ir e c tly against the individual o r individuals responsible fo r the co m m issio n o f the abusive p ra c tic e. In addition, to suspend o r rem o ve certain individuals under Section 8(e) of the F D I A ct, the FDIC has the burden o f proving, among other things, that the individual's act involved personal - 16 - dishonesty, a burden o f proo f not unlike that requ ired in a c r im in a l p r o c e e d ing. It is a d iffic u lt burden to c a r r y and, th e re fo re , inhibits the usefulness of the suspension o r re m o v a l pow er. S. 71, as recen tly passed by the Senate, would la r g e ly rem edy these shortcom ings and ge n e ra lly enhance our ability to deal with abuse. Thus, the proposed amendments to Section 8 would enable the FD IC to p roceed d ir e c tly against o ffic e r s , d ir e c to r s and persons in control of a bank who abuse the resou rces o f the bank. S. 71 would also p e r m it suspension o r re m o v a l o f o ffic e r s , d ir e c to r s and oth er persons fr o m participating in a bank’ s a ffa irs w h ere th eir actions evince a w illfu l d is r e g a r d o f the bank's safety and soundness. Although this amendment would c e r ta in ly be an im p ro vem e n t o v e r the cu rren t heavy burden o f showing personal dishonesty, w e would p r e f e r a le s s burdensom e test. A s we indicated in our comments on S. 71, we would p r e fe r , in addition to the person al dishonesty standard, to be able to suspend o r re m o v e the individual within the cla ss c o v e r e d who o perates o r manages the bank in a g r o s s ly n egligent manner, o r threatens the safety and soundness of the bank by evincing a continuing d is r e g a r d f o r its financial safety. We also fa v o r the various c iv i l penalty provision s contained in S. 71, e s p e c ia lly the p ro v is io n authorizing the im position o f a m on etary penalty against individuals and banks f o r vio la tio n o f a fin al cea se and d e s is t o rd e r. S im ila rly , the proposed amendments to Section 22 o f the F e d e r a l R e s e r v e A ct, which would im p ose additional re s tric tio n s on loans extended by state m e m b e r and nonm em ber banks to their own o ffic e r s , d ir e c t o r s and m a jo r stockholders and to corporations a ffilia ted with those individuals, a re d es ira b le. - 17 - Another d es ira b le le g is la tiv e provision is that which allows the three fe d e ra l bank regu latory agencies to disapprove changes in bank control on the basis o f express standards spelled out in the statute. Although I assume the power to disapprove changes in control would be used sparingly, this type of legislation, i f p r o p e r ly employed, would enable the agencies to anticipate and avoid problem s which they can only react to at present. I b e lie v e that its m e re presen ce would have a fa r-r e a c h in g d eterren t effect and would m in im ize certain types of abuses. We would be happy to coordinate drafting of such legislation with this C om m ittee A s I have stated on many occasions, I have long fa vo red the elimination of the prohibition on the payment of in te re s t on demand deposits as w e ll as the elimination o f in te re s t rate ceilin gs ge n e ra lly on loans and deposits. I w ill not burden you at this time with the details of my rationale on this subject. Suffice it to say that it is m y f i r m b e lie f that allowing the payment of in te rest on correspondent balances would be a m a jo r step in m inim izing the potential fo r abuse a risin g out o f the use of correspondent balances in connection with bank stock loans. In summ ary, I p e r c e iv e that the m ost pressing le g is la tiv e need at present is the passage of S. 71, with perhaps the amendment I suggested previou sly regardin g the a gen cies' suspension and rem o va l pow er. of S. 71 would significantly buttress existing enforcem ent tools. # # # # Passage PR-8-78 (1-30-78) FOR IMMEDIATE RELEASE FDIC PROPOSES AMENDMENTS TO INSIDER TRANSACTION REGULATION Chairman George A. LeMaistre of the Federal Deposit Insurance Corporation today announced that the Board of Directors has proposed amendments to Section 337.3 of the Corporation's regulations which deals with "insider transactions" of FDICinsured State-chartered banks that are not members of the Federal Reserve System (insured State nonmember banks). The insider transaction regulation, which has been in effect since May 1, 1976, is intended to minimize abusive self-dealing and overreaching by bank insiders through the establishment of procedures designed to ensure that bank boards of directors supervise insider transactions effectively, and to better enable FDIC examiners to identify and analyze insider transactions. The proposed amendments would (1) specify the circumstances under which the FDIC considers an insider transaction to be an unsafe or unsound banking practice, (2) make clear that the FDIC will take appropriate supervisory action when it determines that an insider transaction is an unsafe or unsound banking practice, (3) clarify what transactions are subject to the regulation's requirements, (4) clarify the regulation’s recordkeeping requirements, and (5) prescribe specific reporting and review requirements with respect to correspondent accounts and certain bank stock loans. Chairman LeMaistre stated that "The proposed amendments are designed to emphasize and clarify the FDIC's policy with respect to insider transactions. The Corporation believes that transactions with insiders, their close relatives, or their business interests are not improper per se. Accordingly, the proposed amendments seek to treat as unsafe or unsound banking practices those transactions in which insiders or their interests receive preferential treatment not afforded to noninsiders under comparable circumstances and which result in, or are likely to result in, loan loss, excessive cost, undue risk, or other economic detriment to the bank. Upon determin ing that a bank has entered into an insider transaction which is an unsafe or unsound banking practice, the Corporation will take appropriate supervisory action against the bank — ranging from informal efforts to obtain voluntary correction to formal proceedings under Section 8 of the FDI Act." (Section 8 of the FDIC Act provides, among other things, for the issuance of cease and desist orders against banks that engage in unsafe or unsound banking practices.) One of the principal proposed amendments is a specific provision relating to correspondent accounts. The new provision would require each insider to report in writing to the bank's board of directors all bank stock loans made to the insider and certain of the insider's relatives by a financial institution with which the bank maintains a correspondent account. The bank's board of directors would be required to review, at least annually, all of the bank's correspondent - more - F E D E R A L D EPO SIT IN SU R A N C E CO R PO R A TIO N , 5 5 0 Seventeenth St. N.W., Washington, D.C. 20429 202-389-4221 2 accounts to ensure that such accounts are fair to and in the best interest of the bank. In making the review, the board would be required to consider all relevant facts, including the bank stock loans reported by the bank’s insiders. In addition, a number of other amendments are proposed, some having substantive effect and some simply for purposes of clarity. All the proposed amendments are being published for comment in the FEDERAL REGISTER. Interested persons are invited to submit written data, views, or arguments regarding the proposed amend ments no later than March 10, 1978, to the Office of the Executive Secretary, Federal Deposit Insurance Corporation, 550-17th Street, N.W., Washington, D. C. 20429. All written comments submitted will be made available for public inspection. A copy of the proposed amendments as submitted for publication in the FEDERAL REGISTER is available from the Corporation's Information Office at the above address. // // // Distribution: Insured State Nonmember Banks (Commercial and Mutual) // // FEDERAL DEPOSIT INSURANCE CORPORATION [12 C . F .R . Part 337] UNSAFE AND UNSOUND BANKING PRACTICES In s id e r T ra n s a c tio n s AGENCY: Federal D e p o s it In s u r a n c e C o r p o r a t i o n ACTION: P r o p o s e d amendments t o r e g u l a t i o n . ( FD IC ) . SUMMARY: The FDIC p r o p o s e s t o amend 12 C . F . R . § 337 .3 d e a l i n g w i t h " i n s i d e r t r a n s a c t i o n s " o f in s u re d S t a t e nonmember banks t o : ( 1 ) s p e c i f y t h e c i r c u m s t a n c e s under which t h e FDIC c o n s i d e r s an i n s i d e r t r a n s a c t i o n t o be an u n s a fe o r unsound b a n k in g p r a c t i c e ; ( 2 ) make c l e a r t h a t th e FDIC w i l l t a k e a p p r o p r i a t e s u p e r v i s o r y a c t i o n when i t d e t e r m i n e s t h a t an i n s i d e r / t r a n s a c t i o n i s an u n safe o r unsound b a n k in g p r a c t i c e ; ( 3 ) c l a r i f y what t r a n s a c t i o n s a r e s u b je c t to th e r e g u l a t i o n 's re q u ire m e n ts ; (4 ) c l a r i f y th e regu l a t i o n ' s r e c o r d k e e p i n g r e q u i r e m e n t s ; and ( 5 ) p r e s c r i b e s p e c i f i c r e p o r t i n g and r e v i e w r e q u ir e m e n t s w i t h r e s p e c t t o c o r r e s p o n d e n t , a c c o u n ts and c e r t a i n bank s t o c k l o a n s . The p r o p o s e d amendments a r e g e n e r a l l y d e s ig n e d t o c l a r i f y t h e F D IC 's p o l i c y w i t h r e s p e c t t o i n s i d e r t r a n s a c t i o n s and t o respond t o a u e s t i o n s t h a t h ave been r a i s e d s i n c e t h e F D I C 's i n s i d e r t r a n s a c t i o n r e g u l a t i o n to o k e f f e c t on May 1, 1976. DATE: Comments must b e r e c e i v e d on o r b e f o r e March 10, 1978. ADDRESS: I n t e r e s t e d p e r s o n s a r e i n v i t e d t o su bm it w r i t t e n d a t a , v ie w s o r argum ents r e g a r d i n g t h e p r o p o s e d amendments t o t h e O f f i c e o f t h e E x e c u t i v e S e c r e t a r y , F e d e r a l D e p o s it In s u r a n c e C o r p o r a t i o n , 550 1 7 th S t r e e t , N. W ., W a s h in g to n , D. C. 20429. A l l w r i t t e n comments s u b m itt e d w i l l be made a v a i l a b l e f o r p u b l i c i n s p e c t i o n a t th e a b o ve a d d r e s s . FOR FURTHER INFORMATION CONTACT: Alan J. K a p l a n , A t t o r n e y , F e d e r a l D e p o s i t In s u r a n c e C o r p o r a t i o n , 550 17th S t r e e t , N. W ., W a s h in g to n , D. C. 20429, t e l e p h o n e (2 0 2 ) 389 -4 4 3 3 . SUPPLEMENTARY INFORMATION: THE F D I C 's i n s i d e r t r a n s a c t i o n r e g u l a t i o n (12 C . F . R . § 3 3 7 .3 ) t o o k e f f e c t on May 1, 1976. As was s t a t e d a t th e tim e o f i t s p r o p o s a l and a d o p t i o n , t h e r e g u l a t i o n i s aimed a t m i n i m i z i n g a b u s iv e s e l f - d e a l i n g by " i n s i d e r s " o f in s u re d S t a t e nonmember banks th r o u g h t h e e s t a b l i s h m e n t o f p r o c e d u r e s d e s i g n e d ( 1 ) t o en s u re t h a t bank b o a r d s o f d i r e c t o r s s u p e r v i s e i n s i d e r t r a n s a c t i o n s e f f e c t i v e l y and ( 2 ) t o b e t t e r e n a b le FDIC e x a m in e r s t o i d e n t i f y and a n a l y z e such t r a n s a c t i o n s . The r e g u l a t i o n s e e k s t o a c h i e v e t h e s e g o a l s b y p r e s c r i b i n g r e v i e w , a p p r o v a l , and r e c o r d k e e p i n g r e q u ir e m e n t s w i t h r e s p e c t t o c e r t a i n t r a n s a c t i o n s w hich a r e d e f i n e d in th e r e g u l a t i o n as "in s id e r tra n s a c tio n s ." - 2 - In a d d i t i o n , t h e r e g u l a t i o n c u r r e n t l y in e f f e c t s t a t e s t h a t n o t w it h s t a n d in g c o m p lia n c e w it h th e p r e s c r i b e d r e v i e w and a p p r o v a l r e q u i r e m e n t s , t h e FDIC w i l l ta k e a p p r o p r i a t e s u p e r v i s o r y a c t i o n ( i n c l u d i n g , in an a p p r o p r i a t e c a s e , t h e i n s t i t u t i o n o f fo r m a l p r o c e e d i n g s under S e c t i o n 8 o f th e F e d e r a l D e p o s it In su ra n ce A c t ) a g a i n s t th e bank, i t s o f f i c e r s , d i r e c t o r s , o r t r u s t e e s i f t h e FDIC d e t e r m in e s t h a t an i n s i d e r t r a n s a c t i o n i s i n d i c a t i v e o f u n s a fe o r unsound p r a c t i c e s . The r e g u l a t i o n l i s t s s e v e r a l f a c t o r s which t h e FDIC w i l l c o n s i d e r in d e t e r m in in g the p r e s e n c e o f u n s a fe o r unsound banking p r a c t i c e s i n v o l v i n g in s id e r t r a n s a c t io n s , but does not s p e c i f i c a l l y d e s c r ib e the c ir c u m s t a n c e s under which an i n s i d e r t r a n s a c t i o n w i l l be c o n s id e r e d an u n s a fe o r unsound ban king p r a c t i c e . S in ce th e r e g u l a t i o n to o k e f f e c t , q u e s t i o n s h ave been r a i s e d from tim e t o tim e as t o t h e p r o p e r i n t e r p r e t a t i o n o f v a r i o u s p r o v i s i o n s and as t o th e FDIC e n fo r c e m e n t p o l i c y w it h r e s p e c t to t h o s e i n s i d e r t r a n s a c t i o n s t h a t may i n v o l v e a b u s iv e s e lf-d e a lin g . A c c o r d i n g l v , th e FDIC has r e v ie w e d th e r e g u l a t i o n in l i g h t o f t h e p u r p o s e s i t was d e s ig n e d t o s e r v e and now p r o p o s e s to amend th e r e g u l a t i o n t o b e t t e r a c h i e v e th o s e p u rp o se s and t o prom ote g r e a t e r c l a r i t y and u n d e r s t a n d in g . Numerous p r o v i s i o n s o f th e r e g u l a t i o n have been r e w r i t t e n f o r p u rp o se s o f c l a r i t y and r e a d a b i l i t y , w it h o u t a f f e c t i n g t h e s u b s ta n c e o f the r e g u l a t i o n . H ow ever, a number o f s u b s t a n t i v e amendments a re a l s o p r o p o s e d , t h e most s i g n i f i c a n t o f which a r e d e s c r i b e d as f o l l o w s : 1. A new d e f i n i t i o n would be added, d e f i n i n g the term " p r e f e r e n t i a l " as i t i s a p p l i e d t o i n s i d e r t r a n s a c t i o n s . Under t h i s d e f i n i t i o n , an i n s i d e r t r a n s a c t i o n i s p r e f e r e n t i a l i f , in l i g h t o f a l l t h e c ir c u m s t a n c e s , an i n s i d e r o r p erso n r e l a t e d t o an i n s i d e r o b t a i n s a b e n e f i t o r a d v a n ta g e which would n o t be a f f o r d e d in a co m p a ra b le a r m 's l e n g t h t r a n s a c t i o n to a n o n in s id e r o f co m p a ra b le c r e d i t w o r t h i n e s s o r o t h e r w i s e s im ila r ly s itu a te d . 2. A new p r o v i s i o n would be added to s p e c i f y t h o s e c ir c u m s t a n c e s under which t h e FDIC c o n s i d e r s an i n s i d e r t r a n s a c t i o n t o be an u n s a fe o r unsound bankina p r a c t i c e . Under t h i s p r o v i s i o n , an i n s i d e r t r a n s a c t i o n i s an u n s a fe o r unsound bank ing p r a c t i c e i f t h e t r a n s a c t i o n i s p r e f e r e n t i a l and r e s u l t s i n , or i s l i k e l y t o r e s u l t i n , lo a n l o s s , e x c e s s i v e c o s t , undue r i s k , or o t h e r econom ic d e t r i m e n t t o the bank. The r e g u l a t i o n would a l s o make c l e a r t h a t t h e FDIC w i l l ta k e a p p r o p r i a t e s u p e r v i s o r y a c t i o n a g a i n s t a bank whose i n s i d e r t r a n s a c t i o n s a r e found t o be u n s a fe o r unsound. Depending on t h e n a t u r e o f t h e t r a n s a c t i o n and th e c ir c u m s t a n c e s i n v o l v e d , such s u p e r v i s o r y a c t i o n may ra n g e from i n f o r m a l e f f o r t s t o o b t a i n v o l u n t a r y c o r r e c t i o n t o , in an a p p r o p r i a t e c a s e , i n s t i t u t i o n o f fo rm a l p r o c e e d in g s under S e c t i o n 8 o f th e F e d e r a l D e p o s it In s u ra n c e A c t . T e c h n ic a l c o m p lia n c e w it h t h e r e g u l a t i o n ' s r e v i e w , a p p r o v a l , and r e c o r d k eep in g r e q u ir e m e n t s would n o t be c o n s i d e r e d j u s t i f i c a t i o n f o r an i n s i d e r t r a n s a c t i o n which i s an u n s a fe o r unsound banking or a c t i c e . -3- Thus , in o r d e r t o d i s p e l any c o n f u s i o n t h a t way e x i s t w it h r e s p e c t t o th e c u r r e n t r e g u l a t i o n , th e p ro p o s e d amend ments would make i t c l e a r t h a t th e FDIC w i l l n ot t o l e r a t e any i n s i d e r t r a n s a c t i o n t h a t a f f o r d s p r e f e r e n t i a l t r e a t m e n t t o an i n s i d e r or a p e r s o n r e l a t e d t o an i n s i d e r and r e s u l t s i n , or i s l i k e l y t o r e s u l t i n , econ om ic d e t r i m e n t t o th e bank. In s u re d S t a t e nonmember banks can and sh ou ld e x p e c t such t r a n s a c t i o n s , sh ou ld t h e y o c c u r , t o be th e s u b j e c t o f exam in er comment and FDIC s u p e r v i s o r y a c t i o n . W ith r e f e r e n c e t o t h e f a c t o r s enum erated in s u b s e c t i o n ( g ) o f t h e c u r r e n t r e g u l a t i o n which th e FDIC w i l l c o n s i d e r in d e t e r m in in g th e p r e s e n c e o f u n s a fe o r unsound o a n k in g p r a c t i c e s i n v o l v i n g i n s i d e r t r a n s a c t i o n s , two o f t h o s e f a c t o r s have been d e l e t e d in t h e p r o p o s e d amendments in f a v o r o f a r e v i s e d s i n g l e stan d ard. I t sh ou ld be e m p h a s iz e d , h o w e v e r , t h a t t h e r e v i s e d s i n g l e s ta n d a r d i s n o t in t e n d e d t o be n a r ro w e r in s c o p e than t h e t h r e e f a c t o r s enum erated in p r e s e n t s u b s e c t i o n ( g ) . I t sh o u ld a l s o oe em ph a sized t h a t any i n s i d e r t r a n s a c t i o n t n a t m eets t h e s t a t e d c r i t e r i a w i l l be c o n s i d e r e d an u n s a fe or unsouno b a n kin g p r a c t i c e , r e g a r d l e s s o f th e d o l l a r amount o f th e tra n s a c tio n . The i n c l u s i o n in t h e r e g u l a t i o n o f a s c h e d u le o f minimum d o l l a r amounts which " t r i g g e r " th e r e g u l a t i o n ' s r e v i e w , a p p r o v a l , and r e c o r d k e e p i n g r e q u ir e m e n t s in no way l i m i t s th e F D IC ' s a b i l i t y t o t a k e s u p e r v i s o r y a c t i o n a g a i n s t a bank t h a t e n t e r s i n t o an i n s i d e r t r a n s a c t i o n which i s an u n s a fe o r unsound ban king p r a c t i c e , even i f t h e d o l l a r amount o f t h e t r a n s a c t i o n f a l l s o e lo w t h e a p p l i c a b l e " t r i g g e r i n g am ount." 3. A new p r o v i s i o n would be added r e l a t i n g s p e c i f i c a l l y to co rresp o n d en t accou n ts. I t would r e q u i r e each i n s i d e r t o r e p o r t in w r i t i n g t o th e b a n k 's board o f d i r e c t o r s a l l lo a n s o r o t h e r e x t e n s i o n s o f c r e d i t t h a t a r e Doth ( a ) made by a f i n a n c i a l i n s t i t u t i o n w it h w hich t h e bank m a in t a in s a c o r re s p o n d e n t a c c o u n t , and ( b ) made f o r t h e p u rp o s e o f e n a b l i n g th e i n s i d e r , th e i n s i d e r ' s s p o u s e , o r any r e l a t i v e o f th e i n s i d e r who l i v e s in t h e i n s i d e r ' s home t o p u r c h a s e , c a r r y , or own a b e n e f i c i a l i n t e r e s t in s e c u r i t i e s is s u e d by t h e bank, i t s h o l d i n g company, o r any o t h e r in s u r e d bank o r h o l d i n g company o f an in s u r e d bank. The r e p o r t would s t a t e t h e term s and c o n d i t i o n s o f t h e l o a n , i n c l u d i n g c e r t a i n s p e c i f i e d i n f o r m a t i o n , and would be k e p t w it h t h e b a n k 's i n s i d e r t r a n s a c tio n record s. The b a n k 's board o f d i r e c t o r s would be r e q u i r e d t o r e v i e w a t l e a s t a n n u a l l y , a l l o f t h e b a n k 's c o r r e s p o n d e n t a c c o u n ts w it h o t h e r f i n a n c i a l i n s t i t u t i o n s . The p u rp o se o f t h e r e v i e w would be t o en su re t h a t such a c c o u n ts a r e f a i r t o and in th e b e s t i n t e r e s t s o f t h e bank. In making th e r e v i e w , t h e board would be r e q u i r e d t o c o n s i d e r a l l r e l e v a n t f a c t s , i n c l u d i n g th e bank s t o c k lo a n s r e p o r t e d by i n s i d e r s . In a d d i t i o n t o t h i s s p e c i f i c p r o v i s i o n , any d e p o s i t p la c e d by a bank in a n o th e r f i n a n c i a l i n s t i t u t i o n t o com pensate t h a t i n s t i t u t i o n f o r making a lo a n t o an i n s i d e r o f t h e bank would be c o n s i d e r e d an " i n s i d e r t r a n s a c t i o n " under amended p a ra g ra p h ( a ) ( b ) ( i i i ) and would t h e r e f o r e be s u b j e c t t o t h e r e g u l a t i o n ' s r e v i e w , a p p r o v a l and r e c o r d k e e p i n g r e q u i r e m e n t s . -4 - 4. The d e f i n i t i o n o f '‘ p e r s o n r e l a t e d t o an i n s i d e r " would be expanded t o i n c l u d e c e r t a i n r e l a t i v e s o f an i n s i d e r n ot c o v e r e d by t h e p r e s e n t r e g u l a t i o n ( e . g . , b r o t h e r s , s i s t e r s , s p o u s e 's p a r e n t s ) . 5. The d e f i n i t i o n o f " b u s in e s s t r a n s a c t i o n s " would be s u b s ta n tia lly re v is e d . I n s t e a d o f l i s t i n g c e r t a i n exam ples o f such t r a n s a c t i o n s , as th e p r e s e n t r e g u l a t i o n d o e s , th e r e v i s e d r e g u l a t i o n would s im p ly d e f i n e " b u s i n e s s t r a n s a c t i o n " to mean " a n y a r r a n g e m e n t , a c t i v i t y , o r t r a n s a c t i o n , " e x c e p t th o s e s p e c i f i c a l l y e x c lu d e d . The " e x c e p t i o n s " r e l a t i n g to t r u s t a c t i v i t i e s and a c t i v i t i e s und ertaken in th e c a p a c i t y o f s e c u r i t i e s t r a n s f e r a g e n t o r m u n ic ip a l s e c u r i t i e s d e a l e r would be d e l e t e d . In a d d i t i o n , t h e e x c e p t i o n f o r " c r e d i t card t r a n s a c t i o n s " would be r e s t r i c t e d t o t h o s e which a re "p u rsu a n t t o s ta n d a rd c r e d i t p r o v i s i o n s a p p l i e d and e n fo r c e d e q u a l l y as t o a l l c r e d i t c a r d cu sto m ers o f t h e b a n k ," and the e x c e p t i o n f o r " d e p o s i t a c c o u n t a c t i v i t i e s " would be r e s t r i c t e d t o t h o s e " i n v o l v i n g t h e bank as d e p o s i t o r y ( o t h e r than payment b y t h e bank o f i n t e r e s t on t im e d e p o s i t s o f $100,000 o r m o r e ) . " 6. The d e f i n i t i o n o f " s e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s , " c u r r e n t l y in a f o o t n o t e , would be p la c e d in t h e main tex t. 7. In th e d e f i n i t i o n o f " i n s i d e r t r a n s a c t i o n , " th e p h ra se " i n u r e s t o t h e t a n g i b l e econ om ic b e n e f i t o f " would be changed t o " r e s u l t s in econom ic b e n e f i t t o . " I t is b e lie v e d t h a t t h e new la n g u a g e would b e more e a s i l y u n d e r s to o d . 8. The b a n k 's board o f d i r e c t o r s would be r e q u i r e d to r e v i e w and a p p r o v e an i n s i d e r t r a n s a c t i o n p r i o r t o consummation o f th e t r a n s a c t i o n , u n le s s p r i o r r e v i e w and a p p r o v a l a r e c l e a r l y i m p r a c t i c a l , in w hich c a s e r e v i e w and a p p r o v a l would be r e q u i r e d to o ccu r no l a t e r than th e n e x t r e g u l a r l y s c h e d u le d board m e e tin g f o l l o w i n g consummation o f t h e t r a n s a c t i o n . In t h o s e c a s e s in which a p p r o v a l i s g i v e n f o l l o w i n g consummation o f t h e t r a n s a c t i o n , t h e b o a r d ' s m in u tes would b e r e q u i r e d t o in c lu d e a s t a t e m e n t o f the r e a s o n s why t h e bo a rd found p r i o r r e v i e w and a p p r o v a l t o be c le a r ly im p ra c tic a l. 9. The f o l l o w i n g a d d i t i o n a l amendments t o th e r e g u l a t i o n ' s r e v i e w and a p p r o v a l r e q u ir e m e n t s a r e p r o p o s e d : ( a ) t h e ph rase " [ a n i n s i d e r t r a n s a c t i o n ] i n v o l v i n g a s s e t s o r s e r v i c e s h a v in g a f a i r m a rk et v a l u e amounting t o more th a n " would be r e p l a c e d by th e p h ra se " [ a n i n s i d e r t r a n s a c t i o n t h a t ] i n v o l v e s an amount g r e a t e r t h a n , " a lo n g v/ith a c l a r i f y i n g f o o t n o t e ; ( b ) t h e m in u tes o f th e m e e t in g a t which a p p r o v a l i s g i v e n would be r e a u i r e d t o e x p r e s s l y i n d i c a t e t h a t t h e board r e c o g n i z e d t h e t r a n s a c t i o n to be an i n s i d e r t r a n s a c t i o n ; and ( c ) r e v i e w and a p p r o v a l o f a " s e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s " would be r e q u i r e d to occur a t l e a s t a n n u a l l y . -5 10. The r e g u l a t i o n ' s r e c o r d k e e p i n g p r o v i s i o n s would be amended in th e f o l l o w i n g r e s p e c t s : ( a j each f i l e c o n t a i n in g documents o r i n f o r m a t i o n r e l a t i n g t o an i n s i d e r t r a n s a c t i o n would h ave t o b e c o n s p i c u o u s ly marked as such and would have t o b e c r o s s - r e f e r e n c e d t o t h e m in u te s o f t h e m e e tin g a t w hich t h e b o a rd a p p rove d th e t r a n s a c t i o n ? and ( b ) each such f i l e would b e r e q u i r e d t o i n c l u d e s u f f i c i e n t i n f o r m a t i o n and d o c u m e n t a tio n t o e n a b le t h e b o a rd t o make an in fo rm e d d e c i s i o n as t o a p p r o v a l o r d i s a p p r o v a l , i n c l u d i n g such i n f o r m a t i o n and d o c u m e n ta tio n as t h e bank would r e q u i r e o f a n o n i n s i d e r in a c o m p a ra b le t r a n s a c t i o n . 11. The e x i s t i n g p r o v i s i o n r e l a t i n g t o th e d i s c o v e r y b y t h e bank o f an i n s i d e r r e l a t i o n s h i p a f t e r e n t e r i n g i n t o a t r a n s a c t i o n r e q u i r i n g r e v i e w and a p p r o v a l would be d e l e t e d . A c c o r d i n g l y , t h e Board o f D i r e c t o r s o f t h e F e d e r a l D e p o s it In s u r a n c e C o r p o r a t i o n h e r e b y p r o p o s e s t o amend 12 C . F . R . P a r t 337 by r e v i s i n g § 337.3 t o re a d as f o l l o w s : S ec tio n 337.3 I n s i d e r (a) D e fin itio n s . T ra n s a c tio n s . (1 ) Bank. The term "ba n k " means an in s u re d S t a t e nonmember c o m m e rc ia l o r mutual s a v i n g s bank and any m a j o r i t y - o w n e d s u b s i d i a r y o f such bank. (2 ) Per so n . The term " p e r s o n " means a c o r p o r a t i o n , p a r t n e r s h ip , a s s o c i a t i o n , o r o th e r b u s in e s s e n t it y ? a tr u s t? or a n atu ra l p erson . (3 ) C o n t r o l . The term " c o n t r o l " ( i n c l u d i n g th e term s " c o n t r o l l in g " , ' ' c o n t r o l l e d b y " , and "u n d e r common c o n t r o l w i t h " ) means t h e p o s s e s s i o n , d i r e c t l y o r i n d i r e c t l y , o f t h e power t o d i r e c t o r c a u s e t h e d i r e c t i o n o f management and p o l i c i e s o f a p e r s o n , w h e th er th r o u g h t h e o w n e r s h ip o f v o t i n g s e c u r i t i e s , by p r o x y t o v o t e such s e c u r i t i e s , b y c o n t r a c t , o r o t h e r w i s e . (4 ) In s id e r. (i) The term " i n s i d e r " means: Any d i r e c t o r o r t r u s t e e o f (ii) o r has a u t h o r i t y t o p a r t i c i p a t e th e bank? a bank? Any o f f i c e r o r em p lo y ee o f a bank who p a r t in m a jo r p o l i c y - m a k i n g f u n c t i o n s o f (iii) Any p e r s o n who has d i r e c t o r i n d i r e c t c o n t r t h e v o t i n g r i g h t s o f t e n p e r c e n t o r more o f t h e s h a r e s o f any c l a s s o f v o t i n g s t o c k o f a bank? o r (iv ) Any p e r s o n who o t h e r w i s e c o n t r o l s a bank. - (5 ) Person r e la t e d t o an in s id e r * ' means: 6 - t o an i n s i d e r . The term “ p e rs o n r e l a t e d (i) A c o r p o r a tio n , p a rtn e rs h ip , a s s o c ia t io n , oth er b u s in e s s e n t i t y , o r t r u s t which c o n t r o l s , i s c o n t r o l l e d b y , o r i s under common c o n t r o l w it h an i n s i d e r ; and (ii) A n a t u r a l p e rs o n who i s (A ) an i n s i d e r ' s spouse ( e x c e p t where l e g a l l y (B ) a p a r e n t o r s t e p p a r e n t o f an i n s i d e r ' s sep a ra ted ); s p o u se; (C ) an i n s i d e r ' s p a r e n t , s t e p p a r e n t , c h i l d , s t e p c h i l d , b ro t h e r , s t e p b r o t h e r , h a l f - b r o t h e r , s i s t e r , s t e p s i s t e r t or h a l f - s i s t e r ; o r in t h e (D ) any o t h e r r e l a t i v e o f an i n s i d e r who l i v e s i n s i d e r ' s home. (6 ) B u s in e s s t r a n s a c t i o n . The term “ b u s in e s s t r a n s a c t i o n " means any a r r a n g e m e n t, a c t i v i t y , o r t r a n s a c t i o n , e x c e p t : c h a rita b le t r a n s a c t i o n s ; d e p o s i t a c c o u n t a c t i v i t i e s i n v o l v i n g th e bank as d e p o s i t o r y ( o t h e r than payment by t h e bank o f i n t e r e s t on tim e d e p o s i t s o f $100,000 or m o r e ); s a f e k e e p i n g t r a n s a c t i o n s ; and c r e d i t ca rd t r a n s a c t i o n s p u rs u a n t t o sta n d a rd c r e d i t p r o v i s i o n s a p p l i e d and e n f o r c e d e q u a l l y a s t o a l l c r e d i t c a rd cu stom ers o f t h e bank. (7 ) S e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s . The phrase " s e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s " I n c lu d e s b u s in e s s t r a n s a c t i o n s w hich a r e in s u b s ta n c e p a r t o f an i n t e g r a t e d b u s in e s s a rran gem en t o r r e l a t i o n s h i p , such as b o r r o w in g s under a s i n g l e l i n e o f c r e d i t , la w f i r m b i l l i n g s , o r r e c u r r i n g t r a n s a c t i o n s o f a s i m i l a r n a tu re w i t h i n a h o ld in g company sy s te m . (8 ) In s id e r tra n s a c tio n . The term " i n s i d e r t r a n s a c t i o n ” means any b u s in e s s t r a n s a c t i o n o r s e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s betw een a bank and: (i) (ii) an in s id er o f th e bank ? a per son r e i a te d t o an in s i d e r o f t h e bank ; any o the r per son where th e t r a n s a c t i o n r e s u l t s ( iii) in econom i<: b e n e f:I t t o an in s id e r o f t h e ban k o r a p e rs o n r e l a t e d an i n s i d e r o f t h e bank ; o r to any o the r per son where th e t r a n s a c t i o n i s engaged ( iv ) in o r made in co n tem p la t io n o f such p e r s o n b ecom ing an i n s i d e r o f the b a n k . (9 ) P r e fe r e n tia l. An i n s i d e r t r a n s a c t i o n i s " p r e f e r e n t i a l " i f , in l i g h t o f a l l t h e c ir c u m s t a n c e s , an i n s i d e r o r p e r s o n r e l a t e d t o an i n s i d e r o b t a i n s a b e n e f i t o r a d v a n ta g e which would n o t be a f f o r d e d in a co m p a ra b le a r m 's l e n g t h t r a n s a c t i o n t o a n o n in s id e r o f com p a r a b le c r e d i t w o r t h i n e s s o r o t h e r w i s e s i m i l a r l y s i t u a t e d . -7(b) U n s a fe or Unsound Bankin g P r a c t i c e s T r a n s a c t i o n s;_S u p e r v i s o r y A c t i o n . In v o lv in g In s id e r (1 ) An i n s i d e r t r a n s a c t i o n i s an u n s a fe o r unsound banking p r a c t i c e i f t h e t r a n s a c t i o n i s p r e f e r e n t i a l and r e s u l t s i n , o r i s l i k e l y t o r e s u l t i n , lo a n l o s s , e x c e s s i v e c o s t , undue r i s k , o r o t h e r econ om ic d e t r i m e n t t o t h e bank. (2 ) The C o r p o r a t i o n w i l l ta k e a p p r o p r i a t e s u p e r v i s o r y a c t i o n a g a i n s t a ban k, i t s o f f i c e r s , o r i t s d i r e c t o r s o r t r u s t e e s when th e C o r p o r a t i o n d e t e r m in e s t h a t an i n s i d e r t r a n s a c t i o n , a l o n e o r when a g g r e g a t e d w i t h o t h e r i n s i d e r t r a n s a c t i o n s , i s an u n s a fe o r unsound ban kin g p r a c t i c e . Such s u p e r v i s o r y a c t i o n may c o n s i s t o f in fo r m a l e f f o r t s t o o b t a i n v o l u n t a r y c o r r e c t i o n o f t h e u n s a fe o r unsound ban kin g p r a c t i c e o r , in an a p p r o p r i a t e c a s e , may i n v o l v e i n s t i t u t i o n o f fo r m a l p r o c e e d i n g s under S e c t i o n 8 o f t h e F e d e r a l D e p o s it In s u r a n c e A c t . C om p lian ce w it h t h e r e v i e w , a p p r o v a l , and r e c o r d k e e p i n g r e q u ir e m e n t s o f t h i s s e c t i o n w i l l n o t r e l i e v e t h e o f f i c e r s , d i r e c t o r s , o r t r u s t e e s o f a bank o f t h e i r d u t i e s t o conduct t h e b a n k 's o p e r a t i o n s in a s a f e and sound manner, and w i l l n o t be c o n s i d e r e d j u s t i f i c a t i o n f o r an i n s i d e r t r a n s a c t i o n which i s found t o be an u n s a fe o r unsound b a n k in g p r a c t i c e . (c) R e v ie w and A p p r o v a l o f C e r t a i n In s id e r T ra n s a c tio n s . (1 ) A b a n k 's b o a rd o f d i r e c t o r s o r b o a rd o f t r u s t e e s s h a l l s p e c i f i c a l l y r e v i e w and a p p r o v e each i n s i d e r t r a n s a c t i o n t h a t , e i t h e r a l o n e o r when a g g r e g a t e d in a c c o r d a n c e w it h p a ra g ra p h ( d ) o f t h i s s e c t i o n , i n v o l v e s an amount 1/ g r e a t e r than (i) in t o t a l a s s e t s ; $ 2 0 ,0 0 0 , if t h e bank has n o t more than $100,000,000 $ 5 0 ,0 0 0 , i f t h e bank has more than $100,000,000 ( ii) b u t n o t more than $50 0,00 0,000 in t o t a l a s s e t s ; o r ( iii) in t o t a l a s s e t s . $ 1 0 0 ,0 0 0 , if t h e bank has more than $50 0,00 Such r e v i e w and a p p r o v a l s h a l l o ccu r p r i o r t o consummation o f t h e t r a n s a c t i o n , u n le s s p r i o r r e v i e w and a p p r o v a l a r e c l e a r l y i m p r a c t i c a l , in which c a s e r e v i e w and a p p r o v a l s h a l l o ccu r no l a t e r than th e n e x t r e g u l a r l y s c h e d u le d m e e t in g o f t h e b a n k 's b o a rd o f d i r e c t o r s or board o f t r u s t e e s f o l l o w i n g consummation o f t h e t r a n s a c t i o n . 1/ I f t h e t r a n s a c t i o n i n v o l v e s a d is b u r s e m e n t o f fu n ds o r an o b l i g a t i o n t o d i s b u r s e fu n d s b y t h e ban k, th e n t h e "amount" r e f e r r e d t o in th e t e x t i s t h e amount d is b u r s e d o r th e maximum amount w hich th e bank i s o b l i g a t e d t o d i s b u r s e . I f t h e t r a n s a c t i o n i n v o l v e s payment b y t h e bank o f i n t e r e s t on t im e d e p o s i t s o f $100,000 or m o re , then t h e "amount" r e f e r r e d t o in t h e t e x t i s t h e p r i n c i p a l amount o f th e t im e d e p o s i t . - 8 - (2 ) When an i n s i d e r t r a n s a c t i o n i s p a r t o f a s e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s i n v o l v i n q th e same i n s i d e r , a p p r o v a l o f each s e p a r a t e t r a n s a c t i o n i s n o t r e q u i r e d so lo n g as t h e b a n k 's board o f d i r e c t o r s o r board o f t r u s t e e s has r e v ie w e d and approved t h e e n t i r e s e r i e s o f r e l a t e d t r a n s a c t i o n s and t h e term s and c o n d i t i o n s under which such t r a n s a c t i o n s may t a k e p l a c e . Any s e r i e s o f r e l a t e d b u s in e s s t r a n s a c t i o n s s h a l l be r e v ie w e d and ap p roved a t l e a s t a n n u a llv . I 0 1, (3 ) The m in u tes o f th e m e e tin g a t which a p p r o v a l i s g i v e n s h a l l ( i ) i n d i c a t e t h e n a t u r e o f th e t r a n s a c t i o n and t h e p a r t i e s t h e r e t o , ( i i ) e x p r e s s l y i n d i c a t e t h a t th e board r e c o g n iz e d the t r a n s a c t i o n t o be an i n s i d e r t r a n s a c t i o n , t h a t r e v i e w was u n d e rta k e n , and t h a t t h e t r a n s a c t i o n was approved or d i s a p p r o v e d , and ( i i i ) s t a t e t h e names o f ea ch d i r e c t o r o r t r u s t e e who v o t e d t o a p p r o v e o r d i s a p p ro v e th e t r a n s a c t i o n o r a b s t a in e d from v o t i n g . In th e c a s e o f n e g a t i v e v o t e s , a b r i e f s t a t e m e n t o f ea ch d i s s e n t i n g d i r e c t o r ' s o r t r u s t e e ' s r e a s o n f o r v o t i n g t o d i s a p p r o v e th e p roposed i n s i d e r t r a n s a c t i o n s h a l l be in c lu d e d in t h e m in u tes i f i t s i n c l u s i o n i s r e q u e s t e d by t h e d i s s e n t i n g d i r e c t o r o r t r u s t e e . In th o s e c a s e s in w hich a p p r o v a l i s g i v e n f o l l o w i n g consummation o f t h e t r a n s a c t i o n , the m in u tes s h a l l a l s o i n c lu d e a s t a te m e n t o f th e r e a s o n s why th e board found p r i o r r e v i e w and a p p r o v a l t o be c l e a r l y i m p r a c t i c a l . (d ) A g g re g a tio n o f In s id e ^ T ran s a c tio n s . For o u r p o s e s o f s u b s e c t i o n ( c ) o f t h i s s e c t i o n , any l o a n o r ” e x t e n s i o n o f c r e d i t i n v o l v i n g an i n s i d e r s h a l l be a g g r e g a t e d w it h t h e o u t s t a n d in g b a la n c e s o f a l l o t h e r l o a n s o r e x t e n s i o n s o f c r e d i t i n v o l v i n g t h a t in s id e r. A lo a n o r e x t e n s i o n o f c r e d i t i n v o l v e s a s p e c i f i c i n s i d e r when t h e l o a n o r e x t e n s i o n o f c r e d i t i s made t o t h a t i n s i d e r , to a p e r s o n r e l a t e d t o t h a t i n s i d e r , o r t o any o t h e r p e rs o n where th e lo a n o r e x t e n s i o n o f c r e d i t r e s u l t s in econ om ic b e n e f i t t o t h a t in s id e r o r a person r e l a t e d to th a t i n s i d e r . e) R e c o r d s and I n f o r m a t i o n P e r t a i n i n g to In s id e r T ra n s a c tio n s (1 ) Each bank s h a l l m a in t a in a r e c o r d o f , and in f o r m a t i o n p e r t a i n i n g t o , i n s i d e r t r a n s a c t i o n s r e q u i r i n g r e v i e w and a p p r o v a l under th is s e c tio n . To f a c i l i t a t e exam iner r e v i e w , such r e c o r d s and in fo r m a t i o n s h a l l ( i ) b e r e a d i l y a c c e s s i b l e t o e x a m in e rs , ( i i ) be k e p t in a manner and form t h a t w i l l e n a b le e x a m in ers t o r e a d i l y i d e n t i f y a l l i n s i d e r t r a n s a c t i o n s w hich r e q u i r e r e v i e w and a p p r o v a l under t h i s s e c t i o n , and ( i i i ) be c r o s s - r e f e r e n c e d t o th e m in u tes o f t h e board o f d i r e c t o r s ' o r b o a rd o f t r u s t e e s ' m e e tin g a t which t h e i n s i d e r t r a n s a c t i o n was a p p r o v e d . Each f i l e c o n t a i n i n g documents o r o t h e r i n f o r m a t i o n r e l a t i n g t o an i n s i d e r t r a n s a c t i o n s h a l l be c l e a r l y and c o n s p i c u o u s ly marked as such. (2 ) The r e c o r d s and in f o r m a t i o n r e l a t i n g t o i n s i d e r t r a n s a c t i o n s s h a l l d e s c r i b e f u l l y and a c c u r a t e l y a l l i n s i d e r t r a n s a c t i o n s r e q u i r i n g r e v i e w and a p p r o v a l under t h i s s e c t i o n , and s h a l l in c lu d e a l l documents and o t h e r m a t e r i a l r e l i e d upon by t h e board in a p p r o v in g each such t r a n s a c t i o n , i n c l u d i n g th e name o f th e i n s i d e r , t h e i n s i d e r ' s p o s i t i o n o r r e l a t i o n s h i p t h a t ca u s e s him t o be c o n s i d e r e d an i n s i d e r , t h e d a t e on which t h e t r a n s a c t i o n was -9 a p p ro v e d by t h e b o a r d , t h e t y p e o f i n s i d e r t r a n s a c t i o n , and th e r e i e v a n t term s o f t h e t r a n s a c t i o n . The f i l e r e l a t i n g t o each such t r a n s a c t i o n s n a i l i n c l u d e s u f f i c i e n t i n f o r m a t i o n and d o c u m e n ta tio n t o e n a b le th e board t o make an in fo r m e d d e c i s i o n as t o a p p r o v a l o r d i s a p p r o v a l , i n c l u d i n g such i n f o r m a t i o n and d o c u m e n ta tio n as tn e bank would r e q u i r e o f a n o n i n s i d e r in a co m p a ra b le t r a n s a c t i o n . (f ) D is c lo s u r e o f Proposed In s id e r T r a n s a c t io n s . Any i n s i d e r h a v in g kn ow led ge o f an i n s i d e r t r a n s a c t i o n o r a p ro p o s e d in s id e r tr a n s a c tio n in v o lv in g th a t in s id e r or a person r e la t e d to t h a t i n s i d e r s h a l l g i v e t i m e l y n o t i c e o f such t r a n s a c t i o n t o th e b a n k 's bo a rd o f d i r e c t o r s o r b o a rd o f t r u s t e e s . (g ) C o r r e s p o n d e n t A c c o u n t s . 2/ ( 1 ) A b a n k 's bo a rd o f d i r e c t o r s o r board o f t r u s t e e s s h a l l p e r i o d i c a l l y r e v ie w ( a t l e a s t a n n u a lly ) a l l o f the bank' s c o r r e s p o n d e n t a c c o u n ts w it h o t h e r f i n a n c i a l i n s t i t u t i ons t o en su re t h a t such a c c o u n ts a r e f a i r t o and in t h e b e s t i n t e r e s t s o f th e bank. In making t n e r e v i e w , t h e b oa rd s h a l l c o n s i d e r a l l r e l e v a n t f a c t s and c i r c u m s t a n c e s , i n c l u d i n g t h e lo a n s and o th e r ex t e n s i o n s o f c r e d i t r e p o r t e d under p a ra g ra p h ( 2 ) o f t h i s su bsec t io n ( g ) . The b o a r d ' s m in u tes s h a l l r e c i t e t h e d e t a i l s and f i n d i n g s o f th e re v ie w . (2 ) Each i n s i d e r s h a l l r e p o r t in w r i t i n g t o th e b o a rd o f d i r e c t o r s o r bo a rd o f t r u s t e e s o f t h e Dank a l l lo a n s o r o t h e r e x t e n s i o n s o f c r e d i t t h a t a r e b o th ( A ) made b y ’ a f i n a n c i a l i n s t i t u t i o n w it h which t h e bank m a in t a in s a c o r r e s p o n d e n t a cco u n t and (B ) made f o r th e p u rp o se o f e n a b l i n g t h e i n s i d e r , th e i n s i d e r ' s s p o u s e , o r any r e l a t i v e o f t h e i n s i d e r who l i v e s in th e i n s i d e r ' s home t o p u r c h a s e , c a r r y , o r own a b e n e f i c i a l i n t e r e s t in s e c u r i t i e s is s u e d by t h e bank, i t s h o l d i n g company, o r any o t h e r in s u r e d bank o r h o l d i n g company o f an in s u r e d bank. 3/ The r e p o r t s h a l l be k e p t w i t h t h e r e c o r d s m a in t a in e d by th e bank w it h r e s p e c t t o i n s i d e r t r a n s a c t i o n s and s h a l l s t a t e t h e term s and c o n d i t i o n s o f each lo a n o r e x t e n s i o n o f c r e d i t , i n c l u d i n g t h e fo llo w in g in fo rm a tio n : 2/ C o m p lia n ce w it h t h e p r o v i s i o n s o f t h i s s u b s e c t i o n ( g ) , o r o f s e c t i o n 337.3 g e n e r a l l y , s h o u ld n o t be c o n s t r u e d t o a f f e c t in any manner t h e l i a b i l i t y o f any p e r s o n under 18 U .S .C . § 656 f o r w i l l f u l m i s a p p l i c a t i o n o f bank fu n d s . 3/ As used in t h i s s e n t e n c e , t h e term " i n s u r e d bank" i n c l u d e s any n a t i o n a l bank, S t a t e member bank, o r in s u r e d S t a t e nonmember bank. - (i) e x te n s io n o f c r e d i t ; (ii) in s id e r (iii) in v o l v e d ? and 10 - a b r i e f d e s c r i p t i o n o f t h e lo a n o r o t h e r th e p a r t i e s t h e r e t o o r a f f e c t e d the thereby? i d e n t i t y and r e l a t i o n t o t h e bank o f th (iv) th e p r i n c i p a l term s and c o n d i t i o n s o f t h e o r o t h e r e x t e n s i o n o f c r e d i t ( i n t h e c a s e o f a l o a n , t h e s e would in c lu d e th e p r i n c i p a l amount? term o r m a t u r it y ? i n t e r e s t r a t e ? d e s c r i p t i o n and v a l u a t i o n o f c o l l a t e r a l p le d g e d ? p u rp o s e o f lo a n ? repayment s c h e d u le ? and s o u r c e o f r e p a y m e n t ). (S e c . 2 [ 8 ] , Pub. L. 797, 64 S t a t . 879, as amended, Pub. L. 89-695, 80 S t a t . 1046 (12 Ü .S .C . 1818)? sec 2 [ 9 ] , Pub. L. 797, 64 S t a t . 831-82 ( 12 Ü .S .C . 1819) ) . By o r d e r o f t h e Board o f D i r e c t o r s d a t e d J X 9 1978. FEDERAL DEPOSIT INSURANCE CORPORATION A la n R. M i t r e r ~ E x e c u tiv e S e c r e ta r y (SEAL)
@FedFRASER