Rules of Regulation O

Banker Resource
October 30, 2012 — 4,444 views  
Become a Bronze Member for monthly eNewsletter, articles, and white papers.

Understanding the Rules of Regulation O

General Purpose

Regulation O is the extension of credit to high ranking officials of the member bank such as director, executive officer, or principal shareholder of that financial institution. It can also be the bank holding company where the member bank is a secondary branch. This particular regulation is also extended to political or campaign committee which is controlled by an executive officer of the bank.

Reporting Rules for an Executive Officer

Regulation O mandates that an executive officer of a member bank reports any type of indebtedness to the board of directors when the money is loaned or borrowed from the bank where he or she serves as an officer. Other financial matters that need to be reported to the board of directors include the maximum amount of the executive’s outstanding debt plus the related interests applied on the said loan. Specific details concerning the terms and conditions of the loan are also mandatory items for reporting.

Reporting Rules for a Member Bank

All credit extensions furnished to an executive officer or personal shareholder must be included with the member bank’s quarterly report including the loan condition. The report includes all of the information pertaining to the borrower such as his or her identity and the credit extensions the officer received from the member bank including all related interests. This is done to maintain the financial integrity of the member bank and all the credit image of its executive officials and shareholders. In addition, when the loan amount goes over 5 percent of the member bank’s capital and surplus or $500,000, depending on which amount is less substantial, it must be disclose to the public on the financial institution’s quarterly report.

Subpart A: Loans by Member Banks to Their Executive Officers, Directors, and Principal Shareholders

• Section 215.1 Authority, purpose, and scope
• Section 215.2 Definitions
• Section 215.3 Extension of credit
• Section 215.4 General prohibitions
• Section 215.5 Additional restrictions on loans to executive officers of member banks
• Section 215.6 Prohibition on knowingly receiving unauthorized extension of credit
• Section 215.7 Extensions of credit outstanding on March 10, 1979
• Section 215.8 Records of member banks
• Section 215.9 Reports by executive officers
• Section 215.10 Reports on credit to executive officers
• Section 215.11 Disclosure of credit from member banks to executive officers and principal shareholders
• Section 215.12 Reporting requirement for credit secured by certain bank stock
• Section 215.13 Civil penalties

Subpart B: Reports on Indebtedness of Executive Officers and Principal Shareholders to Correspondent Banks

• Section 215.20 Authority, purpose, and scope
• Section 215.21 Definitions
• Section 215.22 Reports by executive officers and principal shareholders
• Section 215.23 Disclosure of credit from correspondent banks to executive officers and principal shareholders


Banker Resource