If an insider has frequent overdrafts (10 to 20 or more per year)can they still be considered "inadvertent overdrafts" or are they violations of Reg O? The Kirchman Manual states that "examiners generally take the position that if an executive officer or director has more than three overdrafts in a 12-month period, although each was $1,000 or less, they have ceased to be inadvertent." Do most banks put a specific limit, such as 3 per year, on insider overdrafts and after that the overdrafts are no longer considered "inadvertent" no matter how small or the fact that the insider paid the fee in every case?

An observation - Kirchman's guidance is usually pretty conservative. If they say 3/year is a maximum, you can feel fairly confident that the examiners will consider it the same way. I'd say if you're at 3-6x that level, your exec. officer will have a hard time convincing the regulator of his definition of 'inadvertent'.

Counseling with this individual is called for. Do they qualify for an overdraft line?

I wouldn't set any number as being OK. You will wind up trying to explain all insider OD's regardless of frequency, if other members of the board or insiders are also poping up on the overdraft report.

Let the examiners determine whats acceptable. There should be an internal policy to report all insider OD's to the audit committee.

Send a memo to the President and CFO and advise that the audit committee needs to be notified.

If you are carrying the OD for any length of time it is also increasing your Reg O problem. If that person has loans to the banks max lending limit, its possible the OD has violated the banks lending limit. The President needs to know that.

I've encouraged all of the insiders to apply for overdraft protection on their accounts to try to keep this issue from coming up. Generally, the overdrafts are cleared within a day or two and they are always charged the NSF fee. However, I'm doing a Reg O audit report and feel like I should point out that after a certain point it is difficult to justify 10 to 20 overdrafts per year as "inadvertent". I'm not quite certain how to put this in the report without some guideline or number of overdrafts that is and isn't acceptable.

I agree with Don - don't cite a number. Let your report speak to the specific findings (x overdrafts in the last y months), the regulatory language from Reg. O, and a discussion of the risk to the bank if it continues. If management wants to argue about the definition of 'inadvertent', let them do so in their response to the review.

Thanks, I appreciate your advice on this.