We are in the middle of an exam and the examiner-in-charge has criticized a loan to an insider. The loan is secured by holding company stock. He claims that general guidelines state that this is an "undesirable loan" and a violation of 215.4(a). I have read the citation but am not making the connection with the conclusion reached. Can anybody shed some light?

I guess he is trying to make a case that it fits this prohibition:

(ii) Does not involve more than the normal risk of repayment or present other unfavorable features.

I haven't worked with OTS rules in a while. Is there some OTS rule that would prevent you from taking holding company stock? Other than that, I don't see why this presents more than normal risk of repayment or other unfavorable features. I assume you take holding company stock from others? (I will say that I have worked at banks where this would have been an undesirable loan under that bank's own policy, but it was not illegal.)

Is your HC stock publicly traded? If not, how do you establish the value of the stock? How do you liquidate the stock if there is no ready market for it?
Do you make loans to non-insiders secured by HC stock? If not, you have trouble establishing "market terms" for this type transaction.
As a policy we do not make such loans, even though our HC stock is publicly traded.