One of our bank Director's is an equal partner in an LLC. This company has received a LOC that is secured by real estate and the personal guarantees of the six partners (including our Director). My question is, when I am figuring his aggregate loans, do I include the whole amount of the LOC or can I use 1/6th of the amount as his portion?

If the entity is considered a related interest, you would use the entire loan amount.

In order to be a related interest, the director must "control" the LLC. See the definition of control in section 215.2 to determine whether or not the director has control over the LLC.

Paul,

I think that regardless of the control issue, since they personnally guarantee the loan, it would be covered.

Maybe the director signed a limited guaranty(?)

Randy, I would agree, based on my past experiences with the regulators on the guaranty issue. I missed that in my reading of the question.

I have never understood this argument, though. If the funds go to another entity, and simply guarantee payment, where is the direct tangible economic benefit? Does the mere fact that I have an ownership interest in the other entity mean I have received a tangible benefit?

And what if I execute a guaranty for a loan to my adult child, who does not live in my house any longer? Or what if I guaranty a loan for an employee?

There you go Paul, trying to equate logic with regulations again.

You guys are a hoot!! This is my first ever Reg O audit and I am getting educated quickly via BOL! Thanks so much for your help. As a new compliance/audit person I have to retrain myself to not think quite so "logically".

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I have never understood this argument, though. If the funds go to another entity, and simply guarantee payment, where is the direct tangible economic benefit? Does the mere fact that I have an ownership interest in the other entity mean I have received a tangible benefit?

And what if I execute a guaranty for a loan to my adult child, who does not live in my house any longer? Or what if I guaranty a loan for an employee?

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I don't think that the application of Reg O to guarantees has to do with the tangible economic benefit rule. It comes from the definition of "extension of credit" in Reg O where it includes:

"Any other similar transaction as a result of which a person becomes obligated to pay money (or its equivalent) to a bank, whether the obligation arises directly or indirectly , or because of an endorsement on an obligation or otherwise, or by any means whatsoever."

A guarantee by an insider is an indirect obligation to pay money on the part of the insider.

I realize that, Ted, but it also says:

An extension of credit is considered made to an insider to the extent that the proceeds are transferred to the insider or are used for the tangible economic benefit of the insider.


If the insider does not receive the proceeds, and the proceeds are not used for the insider's tangible economic benefit, the extension should not be covered under the regulation.

Of course, the regulators don't interpret it that way. Imagine that.

Paul,

I really think the passage that you are citing is to pick up loans in addition to the loans on which the insider may be directly or indirectly liable. For example, insider's son comes in and borrows money to buy a boat. Boat gets titled in insider's name and happens to be housed at insider's get away cabin.

I agree with Randy. There is Reg O coverage if either it is an indirect extension or if there is tangible economic benefit.

I agree that interpretation is probably correct. However, the regulation doesn't read that way.

Here I go, expecting the regulations to say what they mean or be logical, again. After 17 years, you think I would learn.