Reg O - Single Insider Aggregate Lending Limit

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Question:

I need you to settle a dispute regarding Reg O. When doing the annual review of Reg O, and totaling the dollar amount of extensions of credit to determine an executive officer's "single insider aggregate lending limit," do you use the original amount of the loans or do you use the balance owing on the loans? (Excluding lines of credit on which you do use the original amount.) This is in regards to the $100,000 restrictive lending limits for executive officers. I say we should use the original amount of the loans and the CCO says we should use the balance owing as of the date of the review. Could you please clarify this for me?

Answer:

As long as it is not a revolving line, the balance owed would determine the limit. In other words, your executive officer could take out a $100,000 loan and pay it down to $20,000. At that point, he would be eligible to borrow $80,000 without running afoul of Reg O.

However, having a total under $100,000 now does not mean a Reg O violation has not occurred. If the executive officer had a $100,000 loan that paid down to $50,000, took out another loan for $70,000 at that point, and as of the review date the balances on each of the loans is $35,000 and $60,000, you are currently not in violation of Reg O, but at the point where the $70,000 loan was made you were in violation of Reg O.

First published on BankersOnline.com 5/1/06