Reg O

Question 1

The definition of Affiliate

Answer 1

(a) Affiliate means any company of which a member bank is a subsidiary or any other subsidiary of that company.

Question 2

The definition of Company

Answer 2

(b) Company means any corporation, partnership, trust (business or otherwise), association, joint venture, pool syndicate, sole proprietorship, 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 defined in

12 U.S.C. 1813); or

(2) A corporation the majority of the shares of which are owned by the United States or by any state.
Remember, banks are not considered companies for Reg O)

Question 3

Conclusive control of a company or bank

Answer 3

 Owns, controls or has power to vote 25% or more of any class of voting stock, or
 Controls in any manner election of majority of directors, or
 Has power to exercise controlling influence over management or policies

Question 4

Presumptive control of company or bank

Answer 4

 Is an executive officer or director and owns, controls, or has power to vote more than 10% of any class of voting stock, or
 Owns, controls or has power to vote more than 10% of any class of voting stock and no other person owns, controls, or has power to vote a greater percentage

Question 5

The definition of Director and Advisory Director

Answer 5

(d) Director of a company or bank–(1) means any director of the company or bank, whether or not receiving compensation. An advisory director is not considered a director if the advisory director:
(i) Is not elected by the shareholders of the company or bank;
(ii) Is not authorized to vote on matters before the board of directors; and
(iii) Provides solely general policy advice to the board of directors.
(2) Extensions of credit to a director of an affiliate of a bank are not subject to §§ 215.4, 215.6, and 215.8 if–
(i) The director of the affiliate is excluded, by resolution of the board of directors or by the bylaws of the bank, from participation in major policymaking functions of the bank, and the director does not actually participate in such functions;
(ii) The affiliate does not control the bank;
(iii) As determined annually, the assets of the affiliate do not constitute more than 10 percent of the consolidated assets of the company that–

(A) Controls the bank; and

(B) Is not controlled by any other company; and

(iv) The director of the affiliate is not otherwise subject to §§ 215.4, 215.6, and 215.8.
(3) For purposes of paragraph (d)(2)(i) of this section, a resolution of the board of directors or a corporate bylaw may–
(i) Include the director (by name or by title) in a list of persons excluded from participation in such functions; or
(ii) Not include the director in a list of persons authorized (by name or by title) to participcate in such functions

Question 6

The definition of Executive Officer

Answer 6

(e)(1) Executive officer of a company or bank means a person who participates or has authority to participate (other than in the capacity 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.

Question 7

The definition of Immediate family

Answer 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.

Question 8

The definition of Person

Answer 8

(l) Person means an individual or a company.

Question 9

The definition of Principal shareholder

Answer 9

(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 percent 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.

Question 10

The definition of Related Interest

Answer 10

(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.

Question 11

The definition of Subsidiary

Answer 11

(o) Subsidiary has the meaning given in 12 U.S.C. 1841(d), but does not include a subsidiary of a member bank. (d) “Subsidiary”, with respect to a specified bank holding company, means (1) any company 25 per centum or more of whose voting shares (excluding shares owned by the United States or by any company wholly owned by the United States) is directly or indirectly owned or controlled by such bank holding company, or is held by it with power to vote; (2) any company the election of a majority of whose directors is controlled in any manner by such bank holding company; or (3) any company with respect to the management or policies of which such bank holding company has the power, directly or indirectly, to exercise a controlling influence, as determined by the Board, after notice and opportunity for hearing.

Question 12

What is considered an extension of credit for Reg O?

Answer 12

o Overdrafts
o Standby Letters of Credit
o Advances against unearned salary or other unearned compensation for more than 30 days

Question 13

What is not considered an extension of credit for Reg O?

Answer 13

o Advances against accrued salary or compensation
o Credit card debt of $15M or less
o Overdraft debt of $5M or less if it arise by reason or a pre-written, pre-authorized, interest-bearing overdraft credit plan

Question 14

The Tangible Economic Benefit Rule

Answer 14

Extension of credit is considered made to an insider to the extent that proceeds are transferred to an insider or are used for the tangible economic benefit of the insider

Question 15

Unimpaired Capital and Unimpaired Surplus (UC&US)

Answer 15

Unimpaired Capital and Unimpaired Surplus (UC&US) = Tier 1 Capital + Tier 2 Capital plus the balance of the ALLL not included in Tier 2 Capital

Question 16

The individual lending limit for non-executive officers

Answer 16

The individual lending limit (for non-executive officers) is 15% of UC&US for loans not fully secured plus an additional 10% for loans fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations (so not real estate), at least equal to the amount of the loan

Question 17

The lending limit for executive officers of banks (not EOs of their affiliates)

Answer 17

• The lending limit for executive officers of banks (not EOs of their affiliates) is the higher of $25M or 2.5% of UC&US, but in no event more than $100M
o Limit does not apply to loans made to finance education of EOs children, to finance purchase/construction/maintenance/improvement of EO’s residence as long as loan is secured by 1st lien, or to loans secured by instruments U.S. or U.S. Agency/Board/Bureau/Department or credits secured by segregated deposit account held at lending bank

Question 18

All extensions of credit to EOs must be:

Answer 18

o Promptly reported to Board
o Meet the Terms & Creditworthiness requirements
o Preceded by submission of EO’s detailed current financial statements
o Made subject to a due on demand clause

Question 19

The aggregate lending limit to all insiders of a bank or its affiliates

Answer 19

• The aggregate lending limit to all insiders of a bank or its affiliates is 100% of UC&US
o Can be increased up to 200% of UC&US through Board resolution if bank has total deposits less than $100MM, subject to certain requirements
o Aggregate limit does not apply to credits to, secured by instruments of, or guaranteed by U.S. or U.S. Agency/Board/Bureau/Department, or credits secured by segregated deposit account held at lending bank

Question 20

Extensions of credit to insiders of bank or affiliates cannot be made unless the credit:

Answer 20

o Is made on substantially same terms as, and following credit underwriting procedures not less stringent than, those prevailing at time for comparable transactions with non-insiders, and
o Does not involve more than normal risk of repayment or present other unfavorable features

Question 21

What are the parameters on extensions of credit to an insider of a bank or its affiliates?

Answer 21

• Extensions of credit to an insider of bank or it affiliates which, when aggregated with all other extensions of credit to that insider and their related interests, exceed the higher of $25M or 5% of UC&US, or $500M, cannot be made unless they are pre-approved by as majority of the Board and the interested party has abstained from participating directly or indirectly in the voting
o Advances made under pre-approved lines of credit do not need prior approval, so long as they occur within 14 months of approval of the original line of credit

Question 22

Overdrafts cannot be paid to EOs or Directors of banks or their affiliates unless the payment is done in accordance with a written, pre-authorized:

Answer 22

o Interest-bearing extension of credit plan that specifies a method of repayment or
o Transfer of funds from another account

Question 23

Overdraft prohibition does not apply to overdrafts that are

Answer 23

o Inadvertent
o $1000 or less
o Not overdrawn for more than 5 business days
o EO or Director is charged same fee charged to non-insiders
• Remember, the overdraft provision applies only to Executive Officers and Directors of banks and their affiliates, not to their related interests or to principal shareholders