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Executive Officers & Extensions of Credit

Question: 
I have two questions in regards to Reg O Insider Loans. Are executive officers required to report extensions of credit from Credit Unions to their member bank? Second, are extensions of credit for mortgage loans and loans to finance education subject to the condition in writing that the extension of credit may become payable at any time the executive officer is indebted to all other banks greater than the member banks aggregated lending limit?
Answer: 

Answer by John Burnett:As to your first question, the answer is no. Even before the recent overhaul to Reg O that eliminated the reporting requirement for loans from banks, loans from credit unions didn't have to be reported (based on a definitional splitting of hairs, I'm sure). That can be found in an obscure Federal Reserve Board ruling from way back in 1954, found at Locator No. 3-1052 in the Federal Reserve Regulatory Service. It states, "In view of the above, the Board has concluded that indebtedness of an executive officer of a member bank to a credit union organized under the Federal Credit Union Act of June 26, 1934, need not be reported to the board of directors of the member bank." But the simple fact is that the old requirement to report loans no longer exists.

As to your second question, all extensions of credit to a bank's executive officers must be subject to a demand provision that can be exercised if the executive officer's aggregate debt to other banks exceeds the amount that the bank could itself legally lend the executive officer itself under Reg O, section 215.5(c). As Jim's response notes, that presents a problem, and banks will need other methods to learn about their executive officers' indebtedness.

Answer: 

Answer by Jim Bedsole:Of course, without the reporting requirement which no longer exists, it begs the question, "How will the EO's board know whether the EO is indebted to other banks in an amount that exceeds what the bank could lend the EO in order to be able to exercise the call provision?"

First published on BankersOnline.com 6/11/07

First published on 06/11/2007

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