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#1071979 - 10/28/08 04:31 PM Loans to Executive Officer at another Bank
Tesla Online
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I am not sure where to start looking for a restriction (if one exists) under Illinois law for a bank giving a loan to an executive officer or a bank where the first bank sells several loans to the bank where the executive officer is employed. This is not a correspondent bank - so it is not Regulation O.

I am trying to see if IL restricts this practice. Any suggestions on where to look? I am looking at State Statutes, but maybe the Admin Code? Help!
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#1075103 - 11/03/08 03:47 AM Re: Loans to Executive Officer at another Bank Tesla
rlcarey Online
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or a bank where the first bank sells several loans to the bank where the executive officer is employed.

I'm not sure why you think this is not Regulation O unless these are time or charge card accounts under $15,000? (12 CFR 215.3(b)(5))
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#1075107 - 11/03/08 05:25 AM Re: Loans to Executive Officer at another Bank rlcarey
Kathleen O. Blanchard Offline

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Is this the situation:

Bank A sells loans to Bank B
Exec Officer is employed at Bank B
Exec Officer borrows personally from Bank A, the bank that sold loans to Bank B where Exec Officer is employed.
Bank A and Bank B are not correspondents

I don't know about Illinois but have never seen such a legal restriction, but you should be at a minimum making sure the Exec Officer did not have any part in the loan purchase decision to avoid any perceived conflict of interest.

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#1075150 - 11/03/08 02:31 PM Re: Loans to Executive Officer at another Bank Kathleen O. Blanchard
rlcarey Online
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KB,

I was confused - I thought we were talking about a loan to the executive officer being sold.

I see the picture now.
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#1075163 - 11/03/08 02:52 PM Re: Loans to Executive Officer at another Bank Kathleen O. Blanchard
Tesla Online
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Thanks for clarifying the situation, Kaybee.

The Eo at the purchasing bank absolutely had a role in the decision of purchasing our loan and I do believe it is a conflict of interest. The loan (I am guessing here) was a probably an accommdodation loan for the EO to stay under the Reg O limits at his bank). It is relatively small (under $20,000).

The loan is now booked, closed and the deal done, should I just make the Board aware this may be perceived by an examiner as a conflict of interest?
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#1075705 - 11/03/08 11:17 PM Re: Loans to Executive Officer at another Bank Tesla
rlcarey Online
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OK - I am still confused.

EO at Bank A gets a loan with Bank B.

Bank A buys the loan from Bank B???

Are you Bank A or Bank B?
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#1075732 - 11/04/08 12:35 AM Re: Loans to Executive Officer at another Bank rlcarey
Kathleen O. Blanchard Offline

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I am confused again as well. I sketched it out the first time to try to understand, but this now sounds different. Back to staring at the screen for a while.
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#1075734 - 11/04/08 12:40 AM Re: Loans to Executive Officer at another Bank Kathleen O. Blanchard
Kathleen O. Blanchard Offline

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Is this it?

Bank A sells loans to Bank B - Your bank is Bank A.
Exec Officer is employed at Bank B and he approved purchase of loans from your bank
Exec Officer borrows personally from Bank A, your bank, to avoid having a Reg O loan at his bank, Bank B
Bank A and Bank B are not correspondents

This has the appearance of your bank (Bank A) approving a loan to EO from Bank B because he approved the purchase of some loans from your bank. Not a good thing. Definitely "looks" like a conflict of interest because it might not be arms length. Hopefully there were no rate concessions, fee waivers, etc.

I always need to draw a picture!
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
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#1077735 - 11/06/08 04:09 PM Re: Loans to Executive Officer at another Bank Kathleen O. Blanchard
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Sorry I didn't check back. Kaybee you have it correct.

Like I said it is booked now and a done deal. What is my next step - just report it to the board as a potential problem?
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#1077746 - 11/06/08 04:21 PM Re: Loans to Executive Officer at another Bank Tesla
rlcarey Online
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If the loan was made under terms and conditions that were at arms-length - I do not believe that there are any potential problems. To be a problem, it would have to involve concessions made to the borrower that may have enticed him to approve the loan purchases.
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#1077794 - 11/06/08 04:52 PM Re: Loans to Executive Officer at another Bank rlcarey
Tesla Online
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Ok - thanks!
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