The Federal Reserve Board ("FRB") has adopted an interim rule to bring Regulation O—its regulation dealing with bank insider lending—into conformance with Section 601 of the Financial Services Regulatory Relief Act of 2006, which was enacted Oct. 13, 2006. Effective Dec. 11, 2006, the date of the interim rule’s publication in the Federal Register, Regulation O is amended to eliminate previously required bank call report information and reporting of certain loans to bank insiders, i.e., executive officers or principal shareholders. Comments on the interim rule may be filed with the FRB until Jan. 10, 2007.

The interim rule has three components:

  • It eliminates Section 215.9 of Regulation O, so an executive officer no longer needs to file a report with the board of directors whenever the executive officer obtains extensions of credit from another bank beyond those permitted to be made by the executive officer’s bank.
  • It eliminates Section 215.10 of Regulation O, so the bank no longer needs to continue to file a separate report with its quarterly Call Report listing extensions of credit it has made to executive officers since the prior Call Report.
  • It eliminates Subpart B to Regulation O, so the executive officer or principal shareholder of a bank no longer needs to make an annual report to the board of directors or to publicly disclose extensions of credit from a correspondent made to those individuals during the preceding year.

This action will apply to national banks, state member banks, federally insured state non-member banks and insured savings associations.

The FRB had supported the elimination of these reporting and disclosure requirements because it had found that they did not make a significant contribution to the effective monitoring of insider lending or to the prevention of insider abuse. The substantive restrictions in Regulation O on loans by depository institutions (including correspondent banks) to executive officers and principal shareholders remain in place. Insider lending is usually an area of interest to bank examiners as part of a routine bank exam or exam of the parent holding company.

This article is presented for informational purposes only and is not intended to constitute legal advice.