I sure hope there's someone out there working today that can give me some feedback. I need to know if I have an insider under the related interest requirements. I'm afraid that I don't have enough information to make the call. An LLC has applied for a loan, there are 6 individuals/entitites that own the LLC. The highest amount of ownership is 55% to an entity, 2nd highest is Bob Smith, who owns 20%. I don't know if Bob has controlling influence. Is Bob Smith considered an insider?

Is Bob Smith an executive officer, director or principal shareholder of your bank? If so, then Reg O 215.2(c) says:

"(c)(1) Control of a company or bank means that a person directly or indirectly, or acting through or in concert with one or more persons—
(i) owns, controls, or has the power to vote 25 percent or more of any class of voting securities of the company or bank;
(ii) controls in any manner the election of a majority of the directors of the company or bank; or
(iii) has the power to exercise a controlling influence over the management or policies of the company or bank.
(2) A person is presumed to have control, including the power to exercise a controlling influence over the management or policies, of a company or bank if —
(i) the person is—
(A) an executive officer or director of the company or bank and
(B) directly or indirectly owns, controls, or has the power to vote more than 10 percent of any class of voting securities of the company or bank; or
(ii)(A) the person directly or indirectly owns, controls, or has the power to vote more than 10 percent of any class of voting securities of the company or bank, and
(B) no other person owns, controls, or has the power to vote a greater percentage of that class of voting securities.
(3) An individual is not considered to have control, including the power to exercise a controlling influence over the management or policies, of a company or bank solely by virtue of the individual's position as an officer or director of the company or bank."

If Bob owns 20%, you could probably make the case that the LLC is his related interest, and therefore covered by Reg O.

According to Reg O, when a person directly or indirectly, or acting through or along with one of more persons, (1) owns, controls, or has the power to vote at least 25% of the voting securities, (2) controls in any manner the election of the directors, or (3) exercises influence over the management or policies of the company, he is considered to have a controlling interest. Control is presumed if the person is an executive officer or director of the company and controls 10% of the voting securities,, or the person controls 10% of the voting securities and no other person owns a greater percentage.
Because the person you mention does not own a greater percentage than someone else, you would need to look to the other definition of "control" to determine if the individual in question meets any of those criteria. If he does, then you have a related interest.
Leslie

Bob does not hold any of those positions with our bank and the LLC is not an affiliate. I don't know what title he holds within the LLC, if he owns 20% could he be considered an insider under 215.2(c)(1)(b) or (c) or does 215.2(c)(2)(b)(i) or (ii) "power to vote more than 10% of any class of the company's voting securities" apply. If to be conservative we say he is an insider, does the onus to report indebtedness to the bank fall on Bob?

If Bob does not hold such a position at the bank, why are you concerned with 12 CFR 215? That only applies to insiders of the bank.

That's my confusion, I'm learning reg. O for the first time. I'm not seeing the distinction between related interest and an insider. I think Bob qualifies as a related interst, or possibly his spouse?

215.1 authority/purpose/scope (b)...It also applies to any extension of credit by a member bank to: A company controlled by such a person; and a political or campaign committee that benefits or is controlled by such a person.

215.2(c)(1) an executive officer, director, or principal shareholder is deemed to control an entity if he or she directly or indirectly, or acting through or with one or more persons... (would this apply to Bob's spouse?)

Reg O only applies to insiders of the bank and related interests of those insiders of the bank. So question 1 - is XYZ, LLC an insider of the bank? Answer, no. Question 2 - is XYZ, LLC a related interest of an insider of the bank? Only if an insider of the bank owns or controls XYZ, LLC. So if Bob is not an insider of the bank, and I assume no one else in the LLC is either, then XYZ, LLC is not a related interest for purposes of Reg O. It is just an independent company that has approached your bank for a loan. Deal with them as you would any other commercial customer.

Perhaps understanding the purpose of Reg. O would be helpful. It is designed to prevent executive officers, directors, or controlling stockholders of a bank from using their relationship with the bank for self-dealing. It requires that any bank insider not obtain credit (from his bank) on terms that are more favorable than available to the general public. It places the same restrictions on any companies that the insider controls.

Executive officers of the bank are restricted much more severely in their obtaining of credit from their own banks. Not only must the terms be the same as available to the public, but they are more limited on the amount they can borrow from their own banks.

When you have some time, go to http://www.google.com and search for "Bert Lance." Some of the things that Mr. Lance is accused of having done resulted in the restrictions in Reg. O.