Reg O: Action on O

The Federal Reserve Board has published a proposal to change the restrictions on insider lending. The proposal would implement changes to the insider rules made by the Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRI). The changes deal with the exceptions to restrictions on lending to insiders.

The current regulation exempts executive officers of the bank's affiliates from insider lending restrictions, including preferential lending, unless the executive officer was involved in policymaking functions in the bank. In effect, the regulation creates a presumption that the affiliate's executive officers are distant from the bank and not involved in the bank's policymaking unless the facts show otherwise.

The RCDRI allows the Board to exempt executive officers and directors of affiliates from insider lending restrictions if they are not involved in major policymaking functions at the bank. However, the act excludes preferential lending from the exemptions. The Board's proposal tracks the provisions of the act. The result would be to extend the exemptions to directors of affiliates, but to withdraw the exemption for preferential lending to executive officers of affiliates.

As additional burden relief, the Board proposes to reduce the requirement for board resolutions excluding affiliate's executive officers from policy making functions of the lending bank. The proposal would require only a resolution of the bank but not of the affiliate.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 9, 6/96