Would Reg O apply to a loan made to an executive officer's church, in which the officer is the chairman of the church's Board of Elders and Deacons?

I would not think so becsuse there is not ownership interest and control would be questionable because of the way churches are usually governed. Typically church policies are controlled by a vote of the congregation or the minister. You may want to check on how church policies are set at that particular church.

No.Reg O only applies when the loan is to the insider him/herself or to a related interest which is defined as a company controlled by a person or a political campaign committee controlled by or benefiting a person who is an insider. A person is generally deemed to be in control if he or she owns 25% of the controlled entity or owns 10% and is an executive officer or director of the controlled entity. Assuming that the insider does not have an ownership interest in the church then there is no related interest. We have insiders who are on the boards of hospitals, etc. and our loans to those entities are not considered insider transactions.

Opinions are my own and not necessarily those of my employer.

Reg O might apply here. While there is no stock ownership in the church, the bank's executive officer may, nonetheless, have a controlling influence over church matters. In some churches, the Chairman of the Board of Elders is also a member of a higher church council that actually governs the church. In that event, that executive may have significant influence over church matters, including committing the church to financing.

Even if Reg O doesn't technically apply here, I think it would be prudent for the exec officer to follow the abstention provision of 12 CFR 215.4(b)(ii), if he/she is a member of the bank's board of directors, as I think there could an appearance of a conflict here. AR.

AR is defintely correct. In addition to the definition of control Sue mentioned in her post, Reg O also includes the following definition of control:

The person "has the power to exercise a controlling influence over the management or policies of the company or bank. (215.2(c)(1)(ii))."

If the bank officer/hospital chairman can exercise control over the policies of the hospital, Reg O will apply even if there is no ownership interest. This control may be exercised either alone, or in conjunction with others.

I also agree with AR's recommendation to treaqt the loan as if Reg O applies, even if the degree of control does not rise to the regulatory definition. Most banks have conflict of interest policies that preclude placing the personal interest of an employee or director above the interests of the bank when those interests intersect. By treating the loan as if it is covered under Reg O, you are protecting the executive officer by avoiding the appearance of a conflict of interest.

Many bank officers serve on Boards of Directors or officiate in some capacity with various groups, and not entirely for philanthropic purposes, but as PR and Busines Development opportunities. I doubt that applies to the church, but if the officer has mearly brought into the bank a good piece of business, presents it to the loan committee who have full disclosure of the officers involvement, the officer is not part on the credit decision, the church did not receive any preference in the approval or rates and terms and everything is documented to these facts, then I don't believe its a Reg O violation.

My belief is that a violation based purely on a "power to exercise a controlling influence" alone is to literal of an interpretation of the reg. If that standard was applied without including all other facts then we have a hugh Reg O problem in this country.

I agree that the interpretation is extremely literal. I can not recall an instance where the "power to exercise a controlling influence has been used to cite a Reg O violation (not that is hasn't happened). But you can bet your last dollar that if the bank has problems and the loan goes sour, that an examiner will be itching to cite the loan as a violation.

Remember that insider abuse is a factor in something like 75% of bank failures. Given that, I think it's in the best interest of the bank and the officer to err on the side of caution.