Compliance Guide to Small Entities
Regulation O: Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks
12 CFR 215
Regulation O governs any extension of credit by a member bank to an executive officer, director, or principal shareholder of that bank, of a bank holding company of which the member bank is a subsidiary, and of any other subsidiary of that bank holding company. The regulation also applies to any extension of credit by a member bank to a company controlled by a bank official and to a political or campaign committee that benefits or is controlled by an executive of the financial institution.
An executive officer of a member bank who becomes indebted to any other member bank must, under certain circumstances, report that indebtedness to the board of directors of the bank of which he or she is an officer. In addition, each executive officer and principal shareholder of an insured bank must report annually, to the bank's board of directors, the maximum amount of his or her own outstanding indebtedness (and that of "related interests") to each of the insured bank's correspondent banks during the preceding calendar year and as of the date ten business days before the report is filed. The range of interest rates on such loans, as well as other terms and conditions of the loans, must also be reported.
Each member bank is required to include with its quarterly report of condition a report of all extensions of credit made by the bank to its executive officers since the date of the previous report of condition. Further, upon receipt of a request from a member of the public, a member bank must disclose the names of its executive officers and principal shareholders who, along with their related interests, received extensions of credit, either from the member bank or from all correspondent banks of the member bank, that in the aggregate equaled or exceeded 5 percent of the member bank's capital and unimpaired surplus or $500,000, whichever is less.
A general description of the regulation, by section, follows.
Subpart A: Loans by Member Banks to Their Executive Officers, Directors, and Principal ShareholdersSection 215.1 Authority, purpose, and scope
Describes generally the restrictions imposed by the regulation on credit extended by a member bank to its executive officers, directors, and principal shareholders and their related interests. Also describes reporting requirements relating to credit extended by a correspondent bank to a member bank's executive officers and principal shareholders and their related interests.
Section 215.2 Definitions
Defines key terms used in subpart A of the regulation.
Section 215.3 Extension of credit
Defines "extension of credit" and notes that the term encompasses making and renewing a loan, granting a line of credit, and extending credit in any manner.
Section 215.4 General prohibitions
Specifies that a member bank may not extend credit to a bank "insider" or to any of its affiliates unless the extension is made on the same terms as other loans and in accordance with underwriting procedures used for other loans, does not involve more than the normal risk of repayment, and does not present other unfavorable terms.
Specifies that if the aggregate loan amount to an insider of the bank or the bank's affiliate exceeds the higher of $25,000 or 5 percent of the member bank's unimpaired capital and surplus, the loan must be preapproved by the bank's board of directors.
Sets limits on extensions of credit to an individual insider and the insider's related interests and to all insiders and their related interests in the aggregate.
Section 215.5 Additional restrictions on loans to executive officers of member banks
Sets a limit on loans to an executive officer of a member bank, unless the loan is for a stipulated purpose or is secured in a stipulated manner. Such loans, in the aggregate, must not exceed 2.5 percent of the bank's unimpaired capital and unimpaired surplus or $25,000, whichever is larger; in no event may the total exceed $100,000. Such extensions of credit must be promptly reported to the member bank's board of directors.
Section 215.6 Prohibition on knowingly receiving unauthorized extension of credit
States that executive offices, directors, and principal shareholders of a member bank or any of its affiliates must not knowingly receive or knowingly permit a related interest to receive from a member bank, directly or indirectly, any extension of credit not authorized.
Section 215.7 Extensions of credit outstanding on March 10, 1979
Sets forth transition provisions for loans outstanding at the time that the enabling legislation for Regulation O was adopted in 1979.
Section 215.8 Records of member banks
Sets forth recordkeeping requirements for insiders of member banks and insiders of member banks' affiliates as well as more limited requirements for noncommercial lenders.
Section 215.9 Reports by executive officers
Establishes the type of information that must be included in a written report to the board of directors of the officers' bank.
Section 215.10 Reports on credit to executive officers
States that each member bank must include with each report of condition a report of all extensions of credit by the bank to its executive officers since the date of the bank's previous report of condition.
Section 215.11 Disclosure of credit from member banks to executive officers and principal shareholders
Requires a member bank, upon written request from a member of the public, to make available the names of each of its executive officers and each of its principal shareholders to whom, or to whose related interests, the bank had at the end of the preceding quarter an outstanding extension of credit that exceeded the limits set forth in the regulation.
Section 215.12 Reporting requirement for credit secured by certain bank stock
Requires an executive officer or director of a member bank, if the bank's shares are not publicly traded, to report annually to the board of directors of the bank the outstanding amount of any credit that has been extended to the executive officer or director and was secured by shares of the member bank.
Section 215.13 Civil penalties
States that civil penalties will be imposed on any member bank, or any of its officers, directors, employees, or agents, that violates the provisions of the regulation.
Subpart B: Reports on Indebtedness of Executive Officers and Principal Shareholders to Correspondent BanksSection 215.20 Authority, purpose, and scope
Summarizes the lending practices prohibited by the enabling legislation. In general, the law prohibits
- Preferential lending by a bank to executive officers, directors, and principal shareholders of another bank when there is a correspondent account relationship between the banks, and
- The opening of a correspondent 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.
Defines key terms used in subpart B of the regulation.
Section 215.22 Reports by executive officers and principal shareholders
Stipulates that executive officers and principal shareholders who have an outstanding extension of credit from a correspondent bank of the member bank must file a written report with the board of directors of the member bank annually.
Section 215.23 Disclosure of credit from correspondent banks to executive officers and principal shareholders
Requires a member bank, upon written request from a member of the public, to make available the names of each of its executive officers and principal shareholders with outstanding credit.