Reg O: Insider Lending Flashcards
When is an advisory director not considered a director under Reg O? (3 things)
If s/he:
- Is not elected by the shareholders
- Is not authorized to vote in board meetings
- Provides only general policy advice to the board
What is a principal shareholder under Reg O?
An individual or company other than an insured or foreign bank that directly or indirectly owns, controls or has the power to vote more than 10% of any class of voting securities of a bank.
What are “related interests” under Reg O?
A company controlled by a person or a political or campaign committee controlled by a person or from which a person receives funds or benefits.
What is an “affiliate” under Reg O?
Any company of which the bank is a subsidiary or any other subsidiary of the same company of which the bank is a subsidiary.
When is a person considered to have “control” of a bank or company?
If the person owns, controls, or has the power to vote (directly or indirectly) 25% or more of any class of voting securities of the company.
OR
If the person owns, controls, or has the power to vote more than 10% of any class of voting securities of the company and no other person has a higher percentage of that class of voting securities.
OR
In any manner controls the election of a majority of the directors of the company or bank.
When is a director or executive officer considered to have “control” of a bank or a company?
If the person owns, controls, or has the power to vote 10% or more of any class of voting securities.
Which of the following is an extension of credit, for Reg O purposes?
a. Advances against accrued salary or other accrued compensation
b. Debts of $15,000 or less if represented by charge accounts, time accounts or credit cards
c. Debts of $5,000 or less arising under an interest-bearing overdraft protection plan
d. Acquire any note, draft, bill of exchange or other debt on which an insider may be liable as a maker, drawer, guarantor, endorser or surety.
d. Acquire any note, draft, bill of exchange or other debt on which an insider may be liable as a maker, drawer, guarantor, endorser or surety.
What is the tangible-economic-benefit rule under Reg O?
An extension of credit will be deemed to be made to an insider if the proceeds are transferred to an insider or used for the insider’s benefit.
This rule doesn’t apply if the credit is made on substantially the same terms & conditions as those made to a noninsider and if the proceeds are used in a bona fide transaction involving the acquisition of property, goods or services from the insider.
Banks may not lend to executive officers, directors, principal shareholders or any of their related interests unless the credit is what?
Unless the credit is made on substantially the same terms and following credit underwriting standards that are not less stringent than those on loans to person who are not insiders.
If the bank offers a benefit program widely available to its employees, can the bank lend to insiders on the same terms and conditions as it lends to its other employees, pursuant to the employee benefit program?
Yes.
Banks may not lend to any executive officer, director, principal shareholder or any of their related interests in amounts that exceed the higher of $_____ or _% of the bank’s capital and unimpaired surplus (up to a maximum $_____) in the aggregate unless what?
$25,000
5%
$500,000
Unless the credit is approved in advance by the BOD and the interested party has abstained from voting.
Does an insider need prior approval to draw against a line of credit if the LOC was approved within the preceding 14 months based on a then-current financial statement?
No
What is the bank’s legal lending limit under Reg O?
15% of unimpaired capital and surplus
What is the maximum aggregate amount of credit that a bank may extend to a single insider (including his or her related interests)?
It’s limited to the bank’s legal lending limit = 15% of unimpaired capital and surplus.
Ba bank’s limit may increase an additional 10% of capital and unimpaired surplus for loans that are fully secured by certain readily marketable collateral.
What is the aggregate lending limit?
The maximum amount of credit that a bank may extend to all of its insiders. It’s equal to 100% of its unimpaired capital and surplus.
Provided that it meets all of the requirements and has an annual resolution to do so, what is the aggregate lending limit for banks with assets of less than $100 million?
200% of unimpaired capital and surplus
No bank may pay an overdraft of an executive officer or director unless the payment is made:
a. Under a written preauthorized credit plan that specifies a method of repayment
b. As a part of the employee benefit plan
c. Pursuant to a written agreement to transfer funds from another account
d. A bank may never pay an insider’s overdraft.
A & C.
a. Under a written preauthorized credit plan that specifies a method of repayment
c. Pursuant to a written agreement to transfer funds from another account
Banks may pay inadvertent overdrafts of $____ or less (in the aggregate) if he account is not overdrawn for more than __ days and the executive officer or director is charged the same fee charged to other customers under the same circumstances.
$1000
5