Tagged: Regulation O
May 16, 2014 at 4:20 pm EDT #5855LindseyMember
We have a possible loan of 1 Million for a business( business A) and one of the members (Business B) is an affiliate of our EVP. The EVP owns 25 % of business B . We found the following in the Reg o regulation.
“(2) In no event may a member bank extend credit to any insider of the bank or
insider of its affiliates in an amount that, when aggregated with all other
extensions of credit to that person, and all related interests of that person,
exceeds $500,000, except by complying with the requirements of this paragraph(B)”
Our question is can we make the loan for 1 million dollars if the affiliate ( Business B) owns 20% of business A.The EVP would not be a guarantor on the loan but are we limited because he has a 25% ownership in business B, And if we are limited, is the limit of $500,000.00 the loan amount or to his portion of the percent of ownership which is $50,000.00. ( the loan amount is $1,000,000.00 Business B owns 20% of business A so that would be $200,000.00. EVP owns 25% of business B so that would be $50,00.00.)May 19, 2014 at 4:12 pm EDT #5882rcooperMember
The part of the regulation you quoted (215.4(b)) would apply to extensions of credit to an insider (and their related interests) of your bank or your affiliates and doesn’t specifically set a limit on the amount of credit you can extend (that is done in the next couple of paragraphs – 215.4(c) and 215.4(d) – but it does state that there are certain thresholds that would require prior approval.
You first need to closely review the definitions of “related interest” and “control” to determine if this loan is being made to a related interest of your EVP If it is then you should ensure that you comply with the prior approval requirements in 215.4(b) that you mentioned as well as the individual lending limit in 215.4(c) (the total amount you are allowed to lend to a single insider and his/her related interests) and your aggregate lending limit in 215.4(d) (the total amount your bank is allowed to lend to all insiders and related interests combined). And keep in mind that there are limits on extensions of credit made to executive officers. You can find that in 215.5.
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