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Executive Officer-Modifying Loan Contracts

Question: 
In the first quarter 2018 I was added as an executive officer for our bank. I currently have a home loan, a HELOC and a vehicle installment loan with our bank which were all originated prior to my becoming an executive officer. The aggregate amount owed is under $100,000. The home loan and HELOC will balloon in the coming year. Am I correct that the Reg O demand clause is not required to be added to my loan documents until the loans are renewed, extended or modified or should my loan contracts have been modified when I became an executive officer?
Answer: 

by Jim Bedsole:

Reg O is not specific on this point. I wouldn't have any trouble defending a position of waiting until the loans are renewed, extended, or modified to include the demand clause. And frankly, the demand clause has become worthless anyway. The demand clause gives your bank the right to call the loan in the event you become indebted to other banks in an amount greater than you could borrower from your own bank. There used to be a related clause in Reg O that required you to promptly notify your board if you became so indebted to other banks. That clause was removed some years ago, so now your bank wouldn't have any means of learning whether you had become so indebted so they would have no trigger for calling your loan.

Answer: 

by Randy Carey:

Unless you touch the loan, any outstanding loans at the time of appointment are grandfathered:

"EXECUTIVE OFFICER"--Indebtedness at Appointment

The prohibitions of section 22(g) of the Federal Reserve Act refer to an executive officer of a member bank who is an executive officer thereof at the time he borrows from or otherwise becomes indebted to the bank. Accordingly, when a loan is made in good faith by a member bank to an individual who is not at the time of the making of the loan an executive officer thereof and the loan is not made in contemplation of his becoming an executive officer of the bank, there is nothing in the statute which would prohibit such person from subsequently becoming an executive officer of the bank, notwithstanding his outstanding indebtedness thereto. Digest of 1936 Fed. Res. Bull. 121; 3750.

First published on 12/09/2018

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