The Dodd-Frank Act contains over 2,000 pages of law. One page buried deep within the massive law has made two changes that impact Regulation O, the regulation that limits lending to insiders. The laws upon which Regulation O is based have been changed; the regulation itself has not been changed yet.
The first change expands the definition of “extension of credit,” to include extending credit to a person and having credit exposure to the person arising from a derivative transaction (as defined in section 5200(b) of the Revised Statutes of the United States (12 U.S.C. 84(b))), repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction between the member bank and the person.
This change was effective on July 21, 2012
The second change prohibits an insured depository institution from purchasing an asset from, or selling an asset to, an executive officer, director, or principal shareholder of the insured depository institution, or any related interest of such person, unless:
(A) the transaction is on market terms; and
(B) if the transaction represents more than 10 percent of the capital stock and surplus of the insured depository institution, the transaction has been approved in advance by a majority of the members of the board of directors of the insured depository institution who do not have an interest in the transaction.
This change was effective on July 21, 2011
We are not aware of any cases where examiners have enforced either of the provisions. A poll of a few examiners confirmed that the agencies have not yet instructed examiners to begin enforcement
You should update policies and procedures regarding insider lending, train appropriate personnel on the changes and revise audit procedures.
