Answer:
Reg O at section 215.5(d)(4) requires that any extension of credit to an executive officer must be "...made subject to the condition in writing that the extension of credit will, at the option of the member bank, become due and payable at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (c) of this section." The term "extension of credit" is defined at 215.3 and generally includes lines of credit. One exception to this is an overdraft protection line of credit of $5,000 or less which is exempted at 215.3(b)(6). Now, this requirement is different than a traditional demand feature in that you are only required to make the loan demandable in the event that the officer becomes indebted at other financial institutions in an amount greater than Reg O would allow your bank to loan to that executive. Even if the officer becomes indebted in such amounts, your bank is not obligated to demand the loan or line at that time - they simply have to have the ability to do that if they choose.
First published on BankersOnline.com 9/13/10
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