We have a director who has established two checking accounts at our bank where the ownership on 1st acct. is X & Y Irrevocable trust (dir. & spouse) with signers on account only their adult children. The 2nd account is X & Y family trust also an Irrevocable trust with signers only their adult children.

We have coded these as 'director' accounts for Reg.O purposes.. is this technically correct?

Signers? You mean trustees?

Reg. O does not govern deposit accounts. The only impact would be if the accounts went into the overdraft. Since these are trust accounts, the bank would be really remiss to pay a trust account into an overdraft.

yes, you are correct they are trustees and because both accounts are checking accounts the issue of overdraft is my concern.
Routinely, we would not permit an overdraft on trust accounts , however, nothing is concrete in our processes. I am still advocating these be coded as "director-related interest".. Is this being too conservative or exposing the bank to any undue harm

I have worked at banks that coded deposit accounts as Reg O for overdraft purposes as well as not offering preferential terms.

I don't believe the overdraft provisions of Reg O apply to the related interests of directors, so I wouldn't think you need to worry about these trust accounts.

Accept, if they are related interests and the bank chooses to allow them to go into the overdraft, the overdraft is an extension of credit. It would have to be aggregated with the director's other loans.