Regulation O – Lending to Insiders

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Regulation O – Lending to Insiders has been submitted to ABA Professional Certifications for CE credit review and is pending approval. Once we receive notification of the credit approval, we will notify attendees.

WHAT?

Congress enacted the Financial Institutions Regulatory and Interest Control Act in 1978. The insider lending provisions of the law were implemented as Regulation O. Historical data show that insider abuse is at the heart of many bank failures. Examiners take very seriously their mission to prevent insider abuse. They frequently cite violations of Regulation O during examinations, and often take enforcement action. Enforcement actions may take the form of civil monetary penalties, a written agreement, or a Cease and Desist Action.

Typical violations include illegal overdrafts to insiders or extensions of credit that exceed one of several lending limit provisions contained in the regulation. These violations generally result from a lack of adequate procedures. Simple steps to monitor overdrafts and total extensions of credit to insiders are usually sufficient to prevent such violations. This program provides suggestions for procedures.

In other cases, violations result from a lack of understanding of the fine details of Regulation O. The concepts are fairly straight forward but contain enough details to cause confusion. Most banks can easily identify their directors and executive officers, but confusion occurs when trying to determine the status of the directors and executive officers of affiliated institutions. Each of the three lending limits is fairly simple but determining how the three limits interact with one another can cause confusion. This program provides detailed coverage of these, and other, basic requirements of Regulation O.

Civil monetary penalties can be assessed against the institution or against individuals. On August 17, 2022 the Federal Reserve Board announced it had fined Eagle Bank of Bethesda, Maryland, $9,524,000, for violations of Regulation O. In addition, the Board announced that it has permanently barred Ronald D. Paul, former CEO and Chairman of the bank, from employment in the banking industry and assessed a $90,000 fine against him for his central role in the bank’s violations of law and unsafe and unsound practices.

On March 31, 2021, the Board of Governors of the Federal Reserve Board published ten Frequently Asked Questions (FAQs) about Regulation O. The FAQs include legal interpretations that have been formulated over time in response to specific requests. The FAQs include significant existing interpretations of the regulation, including those found in Board orders, letters to specific requestors, and other sources, as well as those not previously available in written form.

WHY?

This program provides the information needed by the lending, compliance and audit staff to assure ongoing compliance with the regulation. Participants receive a detailed manual that serves as a handbook long after the program is completed.

PROGRAM CONTENT

Regulation O places strict requirements on loans made to “insiders.” This two-hour program explains:

• Who is considered an insider;
• What transactions are considered “extensions of credit;”
• The prohibition against preferential treatment;
• The requirements for prior approval;
• The lending limits for each insider, all insiders as a group, and special limits for executive officers;
• The restrictions on overdrafts;
• How Regulation O rules impact existing extensions of credit to newly elected/appointed insiders;
• Details of the Eagle Bank case; and
• The recently published FAQs.

WHO?

The program is designed for loan officers, compliance officers, loan support staff and auditors.