(a) General rule. A national bank and its insiders shall comply with the provisions contained in 12 CFR part 215.
(b) Enforcement. The Comptroller of the Currency administers and enforces insider lending standards and reporting requirements as they apply to national banks and their insiders. Sec. Appendix A to Part 31--Interpretations: Deposits Between Affiliated
Banks
a. General rule. A deposit made by a bank in an affiliated bank is treated as a loan or extension of credit to the affiliate bank under 12 U.S.C. 371c, as this statute is implemented by the Federal Reserve Board's Regulation W, 12 CFR part 223. Thus, unless an exemption from Regulation W is available, these deposits must be secured in accordance with 12 CFR 223.14. However, a national bank may not pledge assets to secure private deposits unless otherwise permitted by law (see, e.g., 12 U.S.C. 90 (permitting collateralization of deposits of public funds); 12 U.S.C. 92a (trust funds); and 25 U.S.C. 156 and 162a (Native American funds)). Thus, unless one of the exceptions to 12 CFR part 223 noted in paragraph b. of this interpretation applies, unless another exception applies that enables a bank to meet the collateral requirements of Sec. 223.14, or unless a party other than the bank in which the deposit is made can legally offer and does post the required collateral, a national bank may not:
1. Make a deposit in an affiliated national bank;
2. Make a deposit in an affiliated State-chartered bank unless the affiliated State-chartered bank can legally offer collateral for the deposit in conformance with applicable State law and 12 CFR 223.14; or
3. Receive deposits from an affiliated bank.
b. Exceptions. The restrictions of 12 CFR part 223 (other than 12 CFR 223.13, which requires affiliate transactions to be consistent with safe and sound banking practices) do not apply to deposits:
1. Made in an affiliated depository institution or affiliated foreign bank provided that the deposit represents an ongoing, working balance maintained in the ordinary course of correspondent business. See 12 CFR 223.42(a); or
2. Made in an affiliated, insured depository institution that meets the requirements of the ``sister bank'' exemption under 12 CFR 223.41(a) or (b). [73 FR 22251, Apr. 24, 2008] Sec. Appendix B to Part 31--Comparison of Selected Provisions of Part 31
and Part 32 (as of October 1, 1996)
Note: Even though part 31 now simply requires that national banks comply with the insider lending provisions contained in Regulation O (Reg. O) (12 CFR part 215), the chart in this appendix refers to part 31 because Reg. O is a Federal Reserve Board regulation and part 31 is the means by which several provisions of Reg. O are made applicable to national banks and their insiders.
Definition of ``Loan or Extension of Credit''
Renewals..................... In most cases, the two definitions of
``loan or extension of credit'' will be
applied in the same manner. A difference
exists, however, in the treatment of
renewals. Under part 31, a renewal of a
loan to an ``insider'' (which, unless
noted otherwise, includes a bank's
executive officers, directors, principal
shareholders, and ``related interests''
of such persons) is considered to be an
extension of credit. Under part 32,
renewals generally are not considered to
be an extension of credit if the bank
exercises reasonable efforts, consistent
with safe and sound banking practices,
to bring the loan into conformance with
the lending limit. Renewals would be
considered an extension of credit under
part 32, however, if new funds are
advanced to the borrower, a new borrower
replaces the original borrower, or the
OCC determines that the renewal was
undertaken to evade the lending limits.Commitments to extend A binding commitment to make a loan is
credit... treated as an extension of credit under
part 31. Under part 32, a commitment to
make a loan will not be treated as an
extension of credit if the amount of the
commitment exceeds the lending limit.
Rather, the commitment will be deemed a
``nonqualifying commitment'' under part
32 and advances may be made thereunder
only if the advance, together with all
other outstanding loans to the borrower,
will not exceed the bank's lending
limit.Overdrafts................... An advance by means of an overdraft
(except for an intraday overdraft)
generally is considered to be an
extension of credit under both Parts 31
and 32. However, indebtedness in amounts
up to $5,000 is excluded from the
definition of ``extension of credit''
under part 31 if the indebtedness arises
pursuant to a written, preauthorized,
interest-bearing plan or written,
preauthorized transfer of funds from
another account. Under part 31, if an
overdraft is not made pursuant to this
type of plan or transfer, a bank is
prohibited from paying an overdraft of
an insider (which, in this case,
includes only an executive officer or
director of the insider's bank) unless
the overdraft is inadvertent, in amounts
not exceeding $1,000, outstanding for
not more than 5 business days, and
subject to the bank's standard overdraft
fee. Part 32 does not contain these
exceptions for overdrafts, and simply
treats overdrafts (except for intraday
overdrafts) as extensions of credit
subject to lending limits.Guarantees................... Generally speaking, guarantees are
included in the part 31 definition of
``extension of credit'' but are not
included in the definition of
``extension of credit'' in part 32
unless other criteria are satisfied.
Part 31 applies to any transaction as a
result of which an insider becomes
obligated to pay money to a bank,
whether the obligation arises (i)
directly or indirectly, (ii) because of
an endorsement on an obligation or
otherwise, or (iii) by any means
whatsoever. Accordingly, a loan
guaranteed by an insider will be deemed
to have been made to that insider. In
contrast, part 32 does not consider a
loan on which someone signs as guarantor
as having been made to the guarantor
unless that person is deemed to be a
borrower under the ``direct benefit'' or
``common enterprise'' tests (see
discussion of these tests in the
discussion of the ``General Rule'' under
``Combination/Attribution Rules,''
below).
Exclusions to Definition
Funds advanced for taxes, Both rules exclude funds advanced for
etc., necessary to preserve items such as taxes, insurance, or other
collateral or that are expenses related to existing
incidental to indebtedness. indebtedness. However, part 32 includes
these advances for the purpose of
determining whether subsequent loans
meet the lending limit, whereas part 31
excludes these advances for all
purposes. Part 31 contains no such
requirement.Loan participations.......... Both rules exclude loan participations if
the participation is without recourse.
However, part 32 elaborates on this
exclusion by requiring that the
participation result in a pro rata
sharing of credit risk proportionate to
the respective interests of the
originating and participating lenders.
Part 32 also requires the originating
bank, if funding the entire loan, to
receive funding from the participants
before the close of the next business
day. Otherwise, the portion funded will
be treated as a loan by the originating
bank to the underlying borrower, and may
be treated as a ``nonconforming'' loan
rather than a violation if (i) the
originating bank had an agreement with
the participating bank that reduced the
loan to an amount within the originating
bank's lending limit, (ii) the
participating bank reconfirmed its
participation and the originating bank
had no knowledge of information that
would permit the participating bank to
withhold its participation, and (iii)
the participation was to be funded by
close of business of the originating
bank's next business day.Acquisition of debt through Under part 31, a note or other evidence
merger or foreclosure. of indebtedness acquired through a
merger is excluded from the definition
of ``extension of credit.'' Under part
32, the indebtedness is deemed to be a
loan or extension of credit. However, if
a loan that conformed with part 32 when
originally made exceeds the lending
limits following a merger after the loan
is aggregated with other extensions of
credit to the same borrower, the loan
will not be deemed to be a lending
limits violation. Rather, the loan will
be treated as ``nonconforming,'' and the
bank will have to exercise reasonable
efforts to bring the loan into
compliance unless to do so would be
inconsistent with safe and sound banking
practices.Credit card indebtedness..... An insider may incur up to $15,000 in
debt on a credit card or similar open-
end credit plan offered by the insider's
bank without the debt counting as an
extension of credit under part 31. The
terms of the credit card or other credit
plan must be no more favorable than
those offered by the bank to the general
public. Part 32 does not exclude credit
card debt from the lending limits.
Combination/ Attribution Rules
General rule................. Under part 31, a loan will be attributed
to an insider if the loan proceeds are
``transferred to,'' or used for the
``tangible economic benefit of,'' the
insider or if the loan is made to a
``related interest'' of the insider.
Under part 32, a loan will be attributed
to another person when either (i) the
proceeds of the loan are to be used for
the direct benefit of the other person
or (ii) a common enterprise exists
between the borrower and the other
person. The ``transfer'' test and
``tangible economic benefit'' test of
part 31 are substantially the same as
the ``direct benefit'' test of part 32.
Under each of these tests, a loan will
be attributed to another person where
the proceeds are transferred to the
other person, unless the proceeds are
used in a bona fide arm's length
transaction to acquire property, goods,
or services. However, the ``related
interest'' test of part 31 and the
``common enterprise'' test under part 32
will lead to different results in many
instances. Under part 31, a ``related
interest'' is a company or a political
or campaign committee that is
``controlled'' by an insider. Part 31
defines ``control'' as meaning,
generally speaking, that someone owns or
controls at least 25 percent of a class
of voting securities of a company,
controls the election of a majority of
the company's directors, or can
``exercise a controlling influence''
over the company. Part 32 uses the same
definition of ``control'' in the
``common enterprise'' test, but a mere
finding of ``control'' is not, by
itself, a sufficient basis to find that
a common enterprise exists. Part 32 will
attribute a loan under the ``common
enterprise'' test if the borrowers are
under common control (including where
one of the persons in question controls
the other) and there is ``substantial
financial interdependence'' between the
borrowers (i.e., where at least 50
percent of the gross receipts or
expenditures of one borrower comes from
transactions with the other). If there
is not both common control and
substantial financial interdependence,
the OCC will not attribute a loan under
the ``common enterprise'' test unless
(i) the expected source of repayment for
a loan is the same for each borrower and
neither borrower has another source of
income from which the loan may be
repaid, (ii) two people borrow to
acquire a business of which they will
own a majority of the voting securities,
or (iii) OCC determines that a common
enterprise exists based on facts and
circumstances of a particular
transaction.
Loans to corporate groups.... Both Parts 31 and 32 will consider a loan
that was made to a corporation to have
been made to a third person if the tests
identified in the previous discussion of
the ``General Rule'' are satisfied. If
these tests are not met, Parts 31 and 32
still may require attribution, but the
circumstances when this will occur and
the consequences of attribution under
these circumstances differ under the two
rules. Under part 31, a loan to a
corporation will be deemed to have been
made to an insider if the corporation is
a ``related interest'' of the insider
(i.e., the insider owns at least 25%
percent of a class of voting shares of
the company, controls the election of a
majority of the company's directors, or
has the power to exercise a controlling
influence over the company). Under part
32, a loan to an individual or company
will not be considered to have been made
to a corporate group until a ``person''
(which includes individuals and
companies) owns more than 50% of the
voting shares of a company. If a loan is
found to have been made to a related
interest of an insider under part 31,
the loan must comply with all of the
insider lending restrictions of part 31.
If a loan is found to have been made to
a corporate group under part 32, the
loan, when aggregated with all other
loans to that corporate group, generally
may not exceed 50% of the bank's capital
and surplus.
[61 FR 54536, Oct. 21, 1996, as amended at 73 FR 22251, Apr. 24, 2008]