Are there any experts or anyone willing to give their opinions on clarification of the combination rules for directors/executive officers under LLL restrictions. I read about the direct benefit test and common enterprise test, but then there is the section on loans to a corporate group, which to me sounds like if they meet the direct benefit or common enterprise test, then they will probably meet the corporate group test in which only 50% lending limit is available. For instance, if a director has 3 companies that he solely or let's say with his wife own, then loans to him and his companies combined could only be at the 50% mark, right???? I haven't heard much about this 50% category, but seems like this would be more of the norm.
The other problem I also run into is determining if the director's companies should be aggregated with his personal loans for LLL purposes. Anybody got any suggestions?

LLL is what, what, what?

I have always taken the more conservative approach. I would aggregate everything together. But in all fairness, I have seen different examinors approach different ways. Some aggregate everything, others rely more on the benefit test and common enterprise method. I would always ask a review examinor at our local FDIC office, and note it in the file.

Thanks 2nd Anon.....Andy are you confused at my post?

Second ANON - do you also aggregate $ for limited partnerships to directors? I just read under section32.5 (e) Special rules for loans to partnerships - that partnership loans are deemed to be loans or extensions of credit to each member of the partnership unless they are limited partners in a limited partnership.

LLL is not a common abbreviation for Legal Lending Limit in my background. I had to read it in context in another post to know what your abbreviation meant. I'd bet I was not the only one confused either.

As to aggregation, we rarely, if ever, had limited liability on debts and that made it easy, aggregate all the debt to each. It isn't necessarily fair, but Reg. O is meant to hold insiders to a higher standard, to avoid even the appearance of impropriety and to protect the bank form losses due to poor insider lending practices.

Can you really separate director/executive officer and related interest loans based on the direct benefit test or common enterprise test, or is this test just for those who are no directory/executive officers? I'm not so sure now after reading Reg O. Its very vague, but does say that you must aggregate an insider and his/her related interest to determine the individual extensions. But, it goes on to say that the lending limit is an amount equal to the limit on loans to a single borrower.....in which the code defines borrower to include those that meet the direct benefit and common enterprise test.

LLL = Legal Lending Limit!!!!!

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I read about the direct benefit test and common enterprise test, but then there is the section on loans to a corporate group, which to me sounds like if they meet the direct benefit or common enterprise test, then they will probably meet the corporate group test in which only 50% lending limit is available. For instance, if a director has 3 companies that he solely or let's say with his wife own, then loans to him and his companies combined could only be at the 50% mark, right????

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Where are you getting this from? I am unaware of anything like this in Reg O?

Section 215.4(c) of Reg O, states "No member bank may extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit by the member bank to that person and to all related interests of that person, exceds the lending limit of the member bank specified in section 215.2(i) of this part."

Section 215(i) state, "The lending limit for a member bank is an amount equal to the limit on loans to a SINGLE BORROWER established by section 5200 of the Revised Stateus, 12 USC 84."

If you look at 12 CFR 32.2 dealing with lending limits, it defines a borrower to be, "a person who is named as a borrower or debtor in a loan or extension of credit, or any other person, including a drawer, endorser, or guarantor, who is deemed to be a borrower under the "direct benefit" or the "common enterprise" tests set forth in Section 32.5.

Second Anon here - Again, I have always taken the more conserative route. So I would assign the whole debt to the director. Is if fair? No, but why push it. I have seen banks take the loan and divide it out to each partner according to his/her interest. But those same banks made the director sign a personal guarantee for the whole debt as part of the loan. The examiner didn't push it, but if it was me I would have. It's little technical details like that that can get you into a LLL violation quickly.

Andy is right - a higher standard.

I was talking about the reference to the 50% lending limits

OK - got it.

Don't confuse the lending limits under 32.5 and the lending limits referred to in 215(i). It refers you to 5200 of the Revised Statutes, 12 USC 84, which are not the same thing. I think that is why I was confused. There are no 50% rules under Reg O. If the loan is to an entity and the entity meets the definition of a related interest - it's all in. The calcuations for the individual and aggregate lending limits under Reg O may result in a whole different calculation then for the bank's legal lending lending limits under either the OCC or any State requirements (if you are a State chartered bank).