I believe I know the answer but I'm posting this 'hypothetical' scenario and would like to see what others think. Board of Director "John Doe" has a number of CDs with a bank. All told, his investments at this institution total about $800,000. As his CDs mature, he approaches management and asks for and is given rates well above the bank's advertised rates - usually 3 to 4 percentage points over the going rates. Customer "Annie Smith" has one investment with this institution in the amount of $ 100,000. She asks for a better rate as well and is given a rate of not quite 1/2 percent above the bank's advertised rate. Both investments for the two different customers are for the same term and have the same interest payment method.

So tell me... is this or is this not a violation of Reg O?

I don't believe it is a violation of Reg O, as that deals primarily with extensions of credit; interest on a CD is not an extension of credit.

I'm just trying to think if there are any other applicable regulations, but I can't recall any.

We sometimes do give certain customers a bit of an uptick depending on the amount and their relationship with us, but I don't think I've ever seen one (especially to a director) that out of variance from 'published' rates.

Yes, I agree that Reg O does primarily deal with extensions of credit to directors but somewhere in my 30 years of banking I'm thinking that it applies to deposit rates as well. Who knows... maybe 30 years has been too much for my little brain to take... thanks for your answer!

Where I've primarily seen it referenced is in a Bank's Code of Ethics. It usually has some language about preferential treatment. I guess the real question is, if "Annie Smith" also had $800,000 instead of $100,000, what would the bank have done for her?

Reg O does not regulate deposits.

From the FDIC's Pocket Guide for Directors:

Avoid Preferential Transactions

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Avoid all preferential transactions involving insiders or their related interests. Financial transactions with insiders must be beyond reproach. They must be in full compliance with laws and regulations concerning such transactions, and be judged according to the same objective criteria used in transactions with ordinary customers. The basis for such decisions must be fully documented. Directors and officers who permit preferential treatment of insiders breach their responsibilities, can expose themselves to serious civil and criminal liability, and may expose their institution to a greater than ordinary risk of loss.

This is also addressed for national banks where directors should not receive more favorable deposit rates but I can't find the cite. Maybe someone else can help with that.

The prohibition is for Fed member banks - 12 USC 376