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#2259866 - 09/17/21 06:29 PM REG O New Loan with Board Member
Lizz Offline
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Dunkirk NY
We have a Board member that will be included as one of three signers for a commercial mortgage in the amount of $85,000 to a church in which she is a member and is also the trustee of the church. Does this need to be approved by the Board of Directors as a Reg O loan where the board member in question would need to abstain from voting?

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#2259867 - 09/17/21 06:33 PM Re: REG O New Loan with Board Member Lizz
Skittles Offline
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TN
Is she obligated personally on the loan?
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#2259868 - 09/17/21 06:35 PM Re: REG O New Loan with Board Member Lizz
Lizz Offline
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Dunkirk NY
She is a signer on loan - as well as a Trustee of the church.

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#2259870 - 09/17/21 06:43 PM Re: REG O New Loan with Board Member Lizz
RVFlyboy Offline
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Hard to answer without seeing the church's by-laws. Is the position of "trustee" one that would be deemed to be an executive officer or director of the church? Does the role of "trustee" have the power to exercise a controlling influence over the management and policies of the church? If either of those is yes, then the church would be considered a "related interest" of the board member and would be subject to Reg O. Do you do an annual survey of your directors, executive officers, and principal shareholders to have them identify their "related interests"? If not, you should. This puts the burden on the insiders to identify their related interests (although you may have to coach them on the definition of "control" and on the fact that "related interests" does not mean your relatives).

Even if the loan is determined to be subject to Reg O, whether the loan requires prior board approval depends on your unimpaired capital and unimpaired surplus. Your CFO should be able to provide you with that number. Reg O only requires prior board approval on a loan to a related interest of a director if the aggregate amount of loans outstanding to that director and their related interests exceeds the higher of $25,000 or 5% of your unimpaired capital and unimpaired surplus. If that percentage of capital and surplus is higher than $500,000, then $500,000 becomes the cap for aggregate loans where prior board approval would be required. See 215.4(b).
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#2259871 - 09/17/21 06:46 PM Re: REG O New Loan with Board Member Lizz
rlcarey Online
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rlcarey
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Well, if she is signing the loan as an individual, then this is definitely a Reg O loan and she cannot have any part in the approval process of the loan. Even if she is only signing as a trustee of the church, as a trustee, she would have controlling influence over the entity and thus it would be considered a related interest - which gets you to the same place.
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#2259872 - 09/17/21 06:47 PM Re: REG O New Loan with Board Member Lizz
Lizz Offline
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Dunkirk NY
Thank you!

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#2259873 - 09/17/21 06:56 PM Re: REG O New Loan with Board Member Skittles
RVFlyboy Offline
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Originally Posted by Skittles
Is she obligated personally on the loan?
I don't understand the relevance of this question. Regardless of whether she is personally obligated, if the church is a "related interest" of hers, the loan will be subject to Reg O.
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#2259874 - 09/17/21 06:58 PM Re: REG O New Loan with Board Member rlcarey
RVFlyboy Offline
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Originally Posted by rlcarey
Well, if she is signing the loan as an individual, then this is definitely a Reg O loan and she cannot have any part in the approval process of the loan. Even if she is only signing as a trustee of the church, as a trustee, she would have controlling influence over the entity and thus it would be considered a related interest - which gets you to the same place.
You're making an assumption that the position of trustee is one that gives a controlling influence. You're probably right, but I'd want to review the church by-laws to be sure.
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#2259875 - 09/17/21 06:59 PM Re: REG O New Loan with Board Member Lizz
Skittles Offline
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TN
Jim - I apologize but my Reg O knowledge is very rusty and didn't realize that being a trustee makes it a related interest.
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#2259877 - 09/17/21 07:26 PM Re: REG O New Loan with Board Member Lizz
rlcarey Online
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Galveston, TX
Jim, - when it comes to Regulation O, even if I thought the bylaws said no - if she has the power to sign the loan docs, I would error on the side of caution regardless - just to avoid any arguments.
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#2259977 - 09/21/21 12:01 PM Re: REG O New Loan with Board Member Skittles
RVFlyboy Offline
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Originally Posted by Skittles
Jim - I apologize but my Reg O knowledge is very rusty and didn't realize that being a trustee makes it a related interest.
I'm not saying it does. I'm saying it's possible, maybe even probable, that it does, but it would take a review of the church by-laws to be sure. As Randy says, chances are if she can sign on behalf of the church it is likely she has a controlling influence and therefore the church is a related interest.
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#2260242 - 09/24/21 08:15 PM Re: REG O New Loan with Board Member Lizz
Andy_Z Offline
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I hated Reg O because you had to be right, on these decisions. There was no "error on the side of caution" because if an examiner, attorney or other knowledgeable person came in later and said, "oh, that was absolutely unnecessary..." then management gets mad and your credibility drops.

Getting a firm understanding is necessary and if the church docs are needed, I'd want them.

When you mention church loans, our failure rate with these was extremely low. But I remember reviewing financials and they had "The Lord Will Provide" printed on them. Well, I wanted assurance that the parishioners were going to be kicking in first.
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#2268125 - 03/23/22 05:12 PM Re: REG O New Loan with Board Member Lizz
Nicoler3 Offline
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Can I add post to reopen this thread please since I don't really know where to add this...
When reviewing our annual Reg O survey, I noticed one newly appointed board member disclosed that she has a political account that remains open at another bank. She was previously a senator but no longer holds the position, since 2019. She mentioned that it is still open but not active, as she no longer serves in that role and that a professional accounting firm manages the account, Do you see any issues with keeping this account open or should we encourage that she close the account. The bank has never endorsed or contributed to her campaign in any way however, Don't know if its an issue or just needs to be disclosed. Thanks for the input!!

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#2268132 - 03/23/22 05:52 PM Re: REG O New Loan with Board Member Lizz
rlcarey Online
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rlcarey
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Galveston, TX
What does a deposit account have to do with Regulation O? And why are you doing an annual survey? IS that a State law requirement?
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#2268142 - 03/24/22 05:12 AM Re: REG O New Loan with Board Member rlcarey
edAudit Offline
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Originally Posted by rlcarey
What does a deposit account have to do with Regulation O? And why are you doing an annual survey? IS that a State law requirement?

agreed but would like to add:

"she has a political account that remains open at another bank"

Even if it was a lending account it is at another bank. A lending account at another bank would not be a regulation O issue for ypur bank.
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#2268256 - 03/28/22 12:54 PM Re: REG O New Loan with Board Member rlcarey
RVFlyboy Offline
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Originally Posted by rlcarey
What does a deposit account have to do with Regulation O? And why are you doing an annual survey? IS that a State law requirement?
If you don't do an annual survey, how do you identify the "related interests" your directors, executive officers, and principal shareholders may have?
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#2268264 - 03/28/22 01:44 PM Re: REG O New Loan with Board Member Lizz
rlcarey Online
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rlcarey
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Galveston, TX
Well, a survey to ask them about any new or changed related interests is one thing, but I would think that you proceeds would require immediate notification by an insider of such occurrence. I guess I was more curious about some sort of survey being conducted to identify accounts at other banks.
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