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Can we avoid Reg O by making a CD-Secured loan?

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To avoid Reg O conflicts, we are thinking of granting a loan to an executive officer that is secured by a CD at our bank. Does this type of collateral eliminate any Reg O concerns?

Somewhat. 215.5(c)(3) says that you may provide an extension of credit “in any amount” if it is perfected by certain types of collateral, including a segregated deposit account at your bank. However, other provisions of Reg O still apply, including the need to report the credit to the board of directors; grant the credit without any preferential treatment; underwrite the credit without any financial statement waivers and with the same approval considerations as everyone else; and with a demand clause for repayment.

Confused? Join my upcoming webinar “The Ins & Outs of Insider Lending and Reg O” on March 26, 2024 to learn more!

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The Ins & Outs of Insider Lending and Reg O webinar.

First published on 03/03/2024

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