Regarding 215.4 (b) Prior Approval:
If an Insider and their related interests exceed 5% of unimpaired capital and surplus which is >$25000 (215.4 (b)(1)), is this a violation or only if 215.4 (b)(1)(i)and(ii) are not met?
215.4 (b)(2) gives a limit of $500,000 “except by complying with requirements of this paragraph (b).” – Does the $500,000 limit only apply if there was no board approval with interested party abstaining (215.4(b)(1)(i)and(ii)?
Is the 15% limit the only hard and fast limit (other than $100,000 for Officers)? My reading is that all other limits can be exceeded with Board approval.
I am new to Reg O and wanted to confirm how these limits work. Thanks!
The prior approval threshold uses a tiered approach. You calculated 5% of unimpaired capital and surplus. Then compare that number to $25,000. Whichever number is larger is the applicable threshold. For most banks the threshold is 5% of capital. However is 5% of unimpaired capital and surplus exceeds $500,000, then $500,000 is the threshold for prior approval.
Lending limits are a bit complicated as well. The individual lending limit is generally 15% of unimpaired capital and surplus, however there are numerous exceptions that allow higher amounts. There is also an aggregate limit for all insiders of 100% of unimpaired capital and surplus, but as you point out that limit can be increased if a list of conditions, including a board resolution, is in place..