I have been having some disagreements with the Reg. O Officer regarding the demand clause in loans to Executives. I am interpreting Reg. O to say that a demand clause needs to be included in all Executive loans. Reg. O Officer is saying that it only needs to be included if the debt is a certain amount.

What do others do? I am thinking I have an issue, but I want to be sure first. If I can't get a good answer, I guess I will contact the OCC.

215.5(d) says:
"d) Any extension of credit by a member bank to any of its executive officers shall be:
(1) Promptly reported to the member bank's board of directors;
(2) In compliance with the requirements of Sec. 215.4(a) of this part;
(3) Preceded by the submission of a detailed current financial statement of the executive officer; and
(4) Made subject to the condition in writing that the extension of credit will, at the option of the member bank, become due and payable at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (c) of this section. "

Your Reg O officer is confusing when the clause might be used ("at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (c) of this section") with the requirement that the condition must be in "any" such loan.

I agree with Ted. The only time I saw gray here was if it was a loan which was not otherwise Reg. O limited, their residence or education of children, no. 4 in the list Ted cited.

Ok- now I have spoken with the Reg. O Officer and he would like me to answer this question- "I believe the definition of "Extension of Credit" is very important here. It seems that loans to Executive Officers that were originated prior to their appointment as an Exec are exempt from the demand clause (grand fathered?). Also, IML's (instant money lines/ OD) < $15M are not considered extensions of credit. If true, the only risk pertains to extensions of credit after May 2002. Their loan documentation would need to include language that gives the bank a demand feature."

My question is are the loans to execs grandfathered PRIOR to their appointment? Any insight will help a ton! I feel like I am beating a dead horse, the report has already been issued.

Even if you did add the demand clause at the time the officer became an executive, would it be enforceable? Wouldn't the bank have to give consideration? (Is a promotion consideration??? )

Quote:

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Also, IML's (instant money lines/ OD) < $15M are not considered extensions of credit.

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I believe you meant <$5 not <$15 as this product would seem to fall under 215.3(b)(6) not 215.3(b)(5).

I do not believe that a demand clause has to be signed for grandfathered loans, but I can't locate a regulatory reference.

You are correct, it should have been 5,000.