Reg O Tangible Economic Benefit Rule

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Question:

A director of a bank has a related interest. An employee of the related interest guarantees a loan for an entity that will provide services for the related interest. In addition, the related interest deducts the loan payments from the service providers check and sends it to the bank. The loan would not have been made without the guarantee of the related interest's employee. Would this loan be attributable to the Director through the Tangible Economic Benefit Rule of Reg O.

Answer:

These relationships are so intricately interwoven that I would hesitate to not treat it as Reg O. It raises questions of the relationship of the related interest employee (role with related interest?) and why they are so closely related to the service provider to provide a personal guaranty. Could the employee be acting as a straw party to try to shield this loan from Reg O? Does the director control that employee and therefore really have control over this service provider relationship?

That, along with the related interest netting loan payments from service provider payments and sending directly to the bank, all raise questions of control aside from tangible economic benefit.

These entities seem to be very closely related - a very detailed analysis of all relationships would be needed, in my opinion, and the entire relationship would still be continually closely scrutinized.

I would categorize the loan as an insider transaction rather than try to exclude it over and over.

First published on BankersOnline.com 5/20/13