Extension of Credit to Insiders

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Question:

Extension of credit made to insiders must be on substantially the same terms and conditions as comparable credit extensions to comparable borrowers. How would our federal regulator, FDIC, be able to determine this when performing an exam? We want to ensure that this is not being done or ever will be.

Answer:

The regulators will look at the terms and conditions of the loan granted to the insider and request that you pull similar non-insider loans, so that they can compare terms and conditions to ensure that there was no favorable treatment. A smart bank should already have these examples already lined up for review.

First published on BankersOnline.com 7/05/10