We have an excutive officer of the bank that will be granting collateral on a loan for someone else. Since he will not benefit from this loan would it need to be reported to the Board for Reg O purposes?

He is indirectly guaranteeing the loan through the pledge of collateral, so yes.

I asked the FDIC the following question in Oct. 2004:
Scenario #2: Director/Executive Officer pledges personal Certificate of Deposit to the loan of an unrelated party. The Director/Executive Officer does not sign the loan as a guarantor or endorser, but only signed to pledge the CD.

Does the pledging of a CD which is owned by the Director/Executive Officer constitute an “indirect obligation” to the Director/Executive Officer that would make the loan request subject to Reg. O?

Answer:No, pledging the CD in and of itself alone, does not constitute an indirect obligation. Instead, the issue would be whether the director either signed on the note as co-maker, endorser, or guarantor of the note. Then the indirect obligation issues comes into play.

I'm sure that some (Randy included) would not agree. However this loan has been on our books and subject to review since it was made in 2004 without ever being questioned.

I have seen this situation treated differently.

If you have plenty of room (limited Reg O lending) you can afford to take a chance. Some banks push the limits on insider lending and cannot afford to be wrong. There is no room for a mistake.

Well there is this opinion:

3--1081.2

"EXTENSION OF CREDIT"--Loan to Children Guaranteed by Officer

Loans to the children of an executive officer of a bank, in an amount greater than the lending limitations of Regulation O, that are guaranteed by that executive officer are extensions of credit to the executive officer in violation of Regulation O. This conclusion would not be altered if the executive officer were to place securities with a value greater than the amount of the loans into a trust to be used to secure the loans and if those securities were to revert to the executive officer on repayment of loans and the executive officer were to retain voting control and beneficial ownership of the shares. The pledged securities remain under the control of the executive officer, and the trust agreement constitutes a guaranty of the loan by the executive officer and is therefore still an extension of credit under section 215.3(a)(8) of Regulation O. STAFF OP. of March 9, 1981.

Authority: 12 CFR 215.3(a)(8) and 215.5.