FEDERAL RESERVE BOARD REGULATIONS Flashcards
FRB REGULATION B - EQUAL CREDIT OPPORTUNITY ACT
Equal Credit Opportunity Act requires all applicants to get equal consideration and are treated fairly and consistently. What items can a lender not discriminate based on? (9) (MR RACE NRS)
- Race
- Color
- National Origin
- Religion
- Sex
- Marital Status
- Age
- Receives public assistance
- Exercised rights under the consumer credit protection laws.
- Requires consumer loan documentation be kept for 26 months
FRB REGULATION D - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
How are the reserve requirement ratios calculated?
• Required reserves are computed by applying the reserve requirement ratios to net transaction accounts, non-personal time deposits, and Eurocurrency liabilities of the institution during the computation period.
FRB REGULATION D - RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
What are the reserve requirement ratios?
- $0 to reserve requirement exemption amount (Up to $10.7 million) = 0 % of amount
- Over reserve requirement exemption amount ($10.7 million to 58.8 million) = 3 % of amount.
- Over low reserve tranche (Greater than $58.8 million) = $1,443,000 plus 10% amount over $58.8 million
- Non-personal time deposits = 0 %
- Eurocurrency liabilities = 0 %
FRB REGULATION F - LIMITS ON INTERBANK LIABILITIES
What does Regulation F require? (CADII)
- Develop written policy
- Annual review and approval of policy by Board
- Internal limits when there is significant risk
- Interday and Intraday credit exposure is limited to 25% of capital unless at least adequately capitalized. (Commonly controlled - 25% correspondents are excluded from this requirement)
- Correspondents capital position is monitored quarterly
FRB REGULATION F - LIMITS ON INTERBANK LIABILITIES
What is the time frame for reducing a bank’s exposure to 25% after determining they are no longer adequately capitalized?
120 days
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What Part in the FDIC Rules and Regulations is further implemented by Regulation O?
Part 337.3 – Limits on extensions of credit to Executive Officers, Directors, and principal shareholders of insured nonmember banks.
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What is an Affiliate?
Any company of which a member bank is a subsidiary or any other subsidiary of that company
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
Can a bank be an affiliate?
- No. According to Regulation O Part 215.2, the definition of affiliate does not include a financial institution
- Similar to FDI Act - 23B - Banks are NOT affiliates.
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
An extension of credit is making or renewal of any loan, a granting of a line of credit, or an extending of credit in any manner whatsoever, including _______? (GAS ROO U)
- Repurchase Agreements
- Overdrafts
- SBLC (Standby letter of credit);
- Guarantee
- Additional Existing Indebtedness
- Unearned Salary Advance for a period in excess of 30 days
- Other Similar Extensions resulting in a person becoming obligated to the bank.
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What does an extension of credit not include? (RAID AEI)
- Receipt by a bank of a check deposited in or delivered to the bank unless it results in the carrying of a cash item for or the granting of an overdraft;
- Indebtedness of $15,000 or less by reason of a general arrangement by which a bank acquires credit accounts; or makes payments on behalf of credit card, check credit plan, or any open-ended credit plan, unless:
- Advance against accrued salary or other accrued compensation, or for the payment of authorized travel or other expenses incurred or to be incurred on behalf of the bank;
- Discount of promissory notes, bills of exchange, conditional sales contracts, or similar paper, without recourse;
- Acquisition of a note, draft, bill of exchange, or other indebtedness through a merger by a bank that acquires assets and assumes liabilities of another bank, or through foreclosure, provided the debt is not held for more than three years from the date of the acquisition;
- Endorsement or guarantee for the protection of a bank of loan or asset previously acquired by the bank in good faith;
- Indebtedness of $5,000 or less arising by reason of an interest-bearing overdraft credit plan as specified in § 215.4.
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
Unless excluded annually by a Board Resolution, who are assumed to be executive officers? (STEP CC)
- Secretary
- Treasurer
- Every Vice President
- President
- Cashier
- Chairman of the Board
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
Who are insiders? (DEPA)
- Directors
- Executive Officers
- Principal Shareholders
- Any related interests of the above
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
Who is a related interest is?
A company that is controlled by that person or a political or campaign committee that is controlled by that person
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What three ways can a person have conclusive control?
- Controls 25% or more of any class of voting stock,
- Controls the election of a majority of directors, or
- Has power to exercise controlling influence over management or policies
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERSWhat is presumptive control? (Reg O 10%)
- Person who is an executive officer or director and directly or indirectly controls more than 10% of voting stock; OR
- Person directly or indirectly controls more than 10% of voting stock and no other person controls a greater percentage
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What does unimpaired capital and surplus mean?
Tier 1 and Tier 2 Capital and the portion of the ALLL not includable in Tier 2 Capital.
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS A principal shareholder, directly or indirectly owns, controls, or has the power to vote more than \_\_\_\_\_\_ % , of any class of voting stock securities of the company or bank; including shares of \_\_\_\_\_\_\_\_\_\_, and no other person owns, controls or has the power to vote a greater percentage of that class of voting securities has \_\_\_\_\_\_\_\_ .
- 10%
- Shares held by immediate family,
- Rebuttable presumption of control
- Note: Includes a person that controls a principal shareholder (e.g. a person that controls a BHC)
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What is immediate family?
- Spouse
- Minor children
- Adult children living at home
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What are the 4 General Restrictions of Regulation O (applicable to insiders of the bank and insiders of affiliates)?
- Terms and creditworthiness made on substantially the same terms as would prevail on comparable extensions to non-insiders
- Prior Board approval for loans exceeding the greater of $25M, or 5% (up to $500M) of unimpaired capital and surplus (UCAS)
- Individual lending limit to insiders, their related interests, and affiliates cannot exceed 15% of (UCAS)for loans not fully secured, and an additional 10% of (UCAS) for secured by marketable collateralAggregate Limit - Amount to all insiders (Not exceed 100% of capital and surplus)
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What are the exception to the 4 general restrictions of Regulation O?
• Banks with deposits of less than $100 million may by an annual resolution of its board increase the general limit to a level not to exceed 2 times capital and surplus, if: - Safe and sound banking practices
- BOD provides reasoning of resolution
- Bank exceeds capital requirements
- Bank received a satisfactory composite rating in most recent ROE
• Following extensions not included in aggregate limit if secured by following:
- US Government or Agency securities or otherwise guaranteed by the US Government
- Segregated deposit account in lending bank
- Negotiable or nonnegotiable installment consumer paper(acquired from an insider and carries a full or partial recourse endorsement by the insider)
(FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS)The regulation restrictions on overdrafts apply to whom?
No bank may pay an overdraft of an executive officer or director of the bank or the bank’s affiliates (Does not apply to principal shareholders or any related interests)
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What 4 conditions have to be met for overdrafts to be acceptable for purposes of Regulation O? (outside of a written, pre-authorized, interest bearing extension of credit plan or transfer agreement)
- Inadvertent
- Aggregate amount of $1M or less
- Not overdrawn for more than 5 business days and,
- Charged same fee as any other customer of the bank in similar circumstances.
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
When can a bank make a loan to Executive Officers?
Bank may extend credit to an executive officer in any amount for:
• Education of a child
• Residence - 1st Lien on residence of the executive officer (If refinancing, only the amount used to repay the original extension with closing costs is allowed)
• Wholly Secured - Secured by US obligations or segregated deposit accounts at the lending bank.
• Lending Restrictions - Up to 2.5% of capital and surplus with a minimum of $25M and a maximum of $100M (any purpose)
FRB REGULATION O - LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND PRINCIPAL SHAREHOLDERS
What are the additional restrictions for loans to executive officers?
- Promptly reported to the bank’s board• Subject to lending restrictions as detailed above
- Preceded by a detailed current financial statement, and
- Made subject to a demand clause that can be exercised any time the officer is indebted to any other bank or banks in an aggregate amount greater than the amount allowed for the lending bank. (2.5% of capital and surplus, minimum $25M and a max of $100M)Note: Per Part 337.3(c)(2), no bank may extend credit in an aggregate amount greater than $25M, or 2.5% of capital, but no greater than $100M to a partnership if one or more of the bank’s executive officers are partners and, either individually or together, hold a majority interest.
