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#123645 - 10/20/03 03:32 PM Sarbanes Oxley - Audit Charter
I Wear Many Hats Offline
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I Wear Many Hats
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the beautiful state of ME
I am revising our audit charter. One of the stipulations under sar/ox is that all audit committee members must be independent in that they do not receive any compensation from the bank other than usual director fees. I recall reading somewhere that the lending relationship between a bank and its directors was going to be carved out as an exception to this requirement due to Reg. O. Any thoughts/information?
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#123646 - 10/20/03 07:30 PM Re: Sarbanes Oxley - Audit Charter
Retired DQ Offline
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I haven't heard anything on this. Examiners are on the way in the next couple of weeks, I'll ask them.
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#123647 - 10/20/03 09:28 PM Re: Sarbanes Oxley - Audit Charter
Kathleen O. Blanchard Offline

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Yes, a carve out was made for Banks due to Reg O already being in existence. It was felt there was no need to duplicate a restriction. Refer to Section 402 of Sarbanes. It contains the following exception, which refers to Reg O (12 USC 375 (b):

‘‘(3) RULE OF CONSTRUCTION FOR CERTAIN LOANS.—Paragraph
(1) does not apply to any loan made or maintained
by an insured depository institution (as defined in section 3
of the Federal Deposit Insurance Act (12 U.S.C. 1813)), if
the loan is subject to the insider lending restrictions of section
22(h) of the Federal Reserve Act (12 U.S.C. 375b).’’.
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#123648 - 10/21/03 02:00 AM Re: Sarbanes Oxley - Audit Charter
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I don't think there was any carve out for deposit, lending or provision of services to the bank by its outside directors. My recollection is that SOX questions the independence of someone who has a "signficant relationship with the bank" but then leaves that term undefined. We have not had to pursue this question any further since we are privately held, but as an example of "significant", the FDIC asks in its PERL for all depositors owning at least 5% of total depositors and names this list as "significant depositors". So that is how we define significant now.
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#123649 - 10/21/03 02:04 AM Re: Sarbanes Oxley - Audit Charter
Pale Rider Offline
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Kaybee-

I think the carve out you refer to was so that banks did not have to comply with the outright prohibition against making loans to its directors. And that was because we already have adequate regulations governing this area (Reg O). But I don't think this refers to the definition of an independent director serving on the Audit Committee. Please let me know if you disagree since I have told our outside directors they all qualify for the Audit Committee even though they are bank customers.
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Societies that do not find work in and of itself "pleasing to God and requisite to Man," tend to be highly corrupt.


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#123650 - 10/21/03 04:44 AM Re: Sarbanes Oxley - Audit Charter
Kathleen O. Blanchard Offline

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I was only responding to this sentence which referenced the carve out for a lending relationship (and wasn't thinking about an independence relationship for an outside director).

" I recall reading somewhere that the lending relationship between a bank and its directors was going to be carved out as an exception to this requirement due to Reg. O."

A lending relationship does not preclude them from Audit Committee. Some other business dealings with the bank, such as renting a building to the bank, would preclude them.

And they are not prohibited from borrowing from the bank under the Sarbanes lending prohibition because of the bank carve out due to the pre-existence of Reg O.

Hope I cleared that up! Sorry for any confusion! Sarbanes is confusing enough on its own.

_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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