Directors As Guarantors

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Question:

We have a loan request from a company contemplating that one of our outside directors would guarantee the loan. What would be the treatment of the loan under Federal Reserve Regulation O?

Answer:

Section 215.3 (a) (4) of the Federal Reserve Regulation O defines as a covered "extension of credit" any acquisition of any note upon which an insider may be liable as a guarantor, and, thus, it would appear that the making of such a loan would be subject to the non-preferential, prior approval, and lending limit requirements of the regulation.

First published on BankersOnline.com 1/15/01