Home » Topics » Loans to Insiders/Regulation O » Existing Debt to New Executive Officer
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July 1, 2021 at 9:07 pm EDT #34244KRTParticipant
If the bank hires an individual to become an executive officer who had pre-existing business loans with the bank of well over the $100,000 limit, do those loans made preceding the hire date become a violation of the lending limit and therefore must be refinanced to another institution?July 6, 2021 at 7:08 pm EDT #34274Brent VKeymaster
From the Federal Reserve FAQs
Q2: When do the requirements of Regulation O apply to extensions of credit to a person that becomes an insider after the member bank made the extension of credit (transition loans)?
A2: Transition loans need not conform to the requirements of Regulation O until such extensions of credit are renewed, revised, or extended, at which time the extensions of credit would be treated as a new extension of credit and therefore subject to all of the requirements of Regulation O. However, transition loans must be counted toward the individual and aggregate lending limits of Regulation O as soon as the borrower becomes an insider.
This same treatment would apply to extensions of credit to a director or principal shareholder that later becomes an executive officer. Such extensions of credit need not conform to the provisions of Regulation O that apply only to executive officers until such extensions of credit are renewed, revised, or extended. However, the amount of any such extensions of credit count toward the quantitative limits for loans to executive officers in section 215.5 of Regulation O as soon as the director or principal shareholder becomes an executive officer.
Many lines of credit by a member bank to an insider must be approved by the bank’s board of directors every 14 months. Each such approval constitutes a new extension of credit. Accordingly, transition loans that are lines of credit generally must conform to the requirements of Regulation O within 14 months of the borrower becoming an insider.
Notwithstanding the general principles noted above, the treatment described here does not apply to extensions of credit made by a member bank in contemplation of the borrower becoming an insider or executive officer. Under such circumstances, the extension of credit should comply with all requirements of Regulation O at the time it is made.February 20, 2023 at 8:51 am EST #242598sahasakhar934Participant
Jorge Masvidal, the professional mixed martial artist, received a PPP (Paycheck Protection Program) loan in 2020. The loan was meant to help businesses affected by the COVID-19 pandemic, and Masvidal’s company, Masvidal LLC, was among the many that applied for and received the funds https://businesslogr.com/bmo-harris-bank-express-loan-pay/ The exact amount of the loan was not disclosed, but it was reported that it helped Masvidal keep his employees on payroll during the difficult economic times caused by the pandemic.
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