Alert May 06, 2008

OCC Issues Interpretive Letter Concerning Loans Made to Bank “Insiders”

The OCC issued interpretive letter #1096 (“Letter #1096”) in response to a letter by a national bank that had granted two home equity lines of credit with a combined total exceeding $100,000 to an individual, six months to one year prior to the individual becoming an executive officer of the bank.  Letter #1096 recites the long standing position of both the FRB and the OCC that the requirements of Regulation O (12 C.F.R. Part 215) apply at the time a loan or extension of credit is made.  Letter #1096 further provides that the loans or extensions made to an individual prior to the individual becoming an executive officer are “grandfathered” and do not constitute violations of Regulation O so long as the loan or extension of credit was not made in contemplation of the individual becoming an executive officer.  Letter #1096 concludes that, if such “grandfathered” loans exceed the amount permitted by Regulation O, such loans will be considered nonconforming rather than a violation of Regulation O; however, so long as such loans are nonconforming, no new loans may be made, and existing loans may not be renewed.