(a) Terms and
creditworthiness.
(1) In general. No member bank may
extend credit to any insider of the bank or insider of its affiliates unless
the extension of credit—
(i) is made on substantially the same
terms (including interest rates and collateral) as, and following
credit-underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions by the bank with
other persons that are not covered by this part and who are not employed
by the bank, and
(ii) does not
involve more than the normal risk of repayment or present other unfavorable
features.
3-971.1
(2) Exception. Nothing in this paragraph (a) or paragraph (e)(2)(ii) shall prohibit
any extension of credit made pursuant to a benefit or compensation
program—
(i) that
is widely available to employees of the member bank and, in the case
of extensions of credit to an insider of its affiliates, is widely
available to employees of the affiliates at which that person is an
insider; and
(ii) that does not
give preference to any insider of the member bank over other employees
of the member bank and, in the case of extensions of credit to an
insider of its affiliates, does not give preference to any insider
of its affiliates over other employees of the affiliates at which
that person is an insider.
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(b) Prior approval.
(1) No member bank may extend credit (which
term includes granting a line of credit) to any insider of the bank
or insider of its affiliates in an amount that, when aggregated with
the amount of all other extensions of credit to that person and to
all related interests of that person, exceeds the higher of $25,000
or 5 percent of the member bank’s unimpaired capital and unimpaired
surplus, unless—
(i) the extension of credit has been approved in advance by a majority
of the entire board of directors of that bank, and
(ii) the interested party has abstained
from participating directly or indirectly in the voting.
(2) In no event may a member bank extend
credit to any insider of the bank or insider of its affiliates in
an amount that, when aggregated with all other extensions of credit
to that person, and all related interests of that person, exceeds
$500,000, except by complying with the requirements of this paragraph
(b).
(3) Approval by the board of
directors under paragraphs (b)(1) and (b)(2) of this section is not
required for an extension of credit that is made pursuant to a line
of credit that was approved under paragraph (b)(1) of this section
within 14 months of the date of the extension of credit. The extension
of credit must also be in compliance with the requirements of section
215.4(a) of this part.
(4) Participation
in the discussion, or any attempt to influence the voting, by the
board of directors regarding an extension of credit constitutes indirect
participation in the voting by the board of directors on an extension
of credit.
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(c) Individual lending
limit. No member bank may extend credit to any insider of the
bank or insider of its affiliates in an amount that, when aggregated
with the amount of all other extensions of credit by the member bank
to that person and to all related interests of that person, exceeds
the lending limit of the member bank specified in section 215.2(i)
of this part. This prohibition does not apply to an extension of credit
by a member bank to a company of which the member bank is a subsidiary
or to any other subsidiary of that company.
3-973.1
(d) Aggregate lending limit.
(1) General limit. A member bank may not extend credit to any insider of the bank or
insider of its affiliates unless the extension of credit is in an
amount that, when aggregated with the amount of all outstanding extensions
of credit by that bank to all such insiders, does not exceed the bank’s
unimpaired capital and unimpaired surplus (as defined in section 215.2(i)
of this part).
(2) Member banks with deposits of less than $100,000,000.
(i) A member bank
with deposits of less than $100,000,000 may by resolution of its board
of directors increase the general limit specified in paragraph (d)(1)
of this section to a level not to exceed two times the bank’s unimpaired
capital and unimpaired surplus, if—
(A) the board of directors determines that
such higher limit is consistent with prudent, safe, and sound banking
practices in light of the bank’s experience in lending to its insiders
and is necessary to attract or retain directors or to prevent restricting
the availability of credit in small communities;
(B) the resolution sets forth the facts and
reasoning on which the board of directors bases the finding, including
the amount of the bank’s lending to its insiders as a percentage of
the bank’s unimpaired capital and unimpaired surplus as of the date
of the resolution;
(C) the bank meets
or exceeds, on a fully phased-in basis, all applicable capital requirements
established by the appropriate federal banking agency; and
(D) the bank received a satisfactory composite
rating in its most recent report of examination.
(ii) If a member bank has adopted
a resolution authorizing a higher limit pursuant to paragraph (d)(2)(i)
of this section and subsequently fails to meet the requirements of
paragraphs (d)(2)(i)(C) or (d)(2)(i)(D) of this section, the member
bank shall not extend any additional credit (including a renewal of
any existing extension of credit) to any insider of the bank or its
affiliates unless such extension or renewal is consistent with the
general limit in paragraph (d)(1) of this section.
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(3) Exceptions.
(i) The general
limit specified in paragraph (d)(1) of this section does not apply
to the following:
(A)
extensions of credit secured by a perfected security interest in bonds,
notes, certificates of indebtedness, or Treasury bills of the United
States or in other such obligations fully guaranteed as to principal
and interest by the United States;
(B) extensions of credit to or secured by unconditional takeout commitments
or guarantees of any department, agency, bureau, board, commission
or establishment of the United States or any corporation wholly owned
directly or indirectly by the United States;
(C) extensions of credit secured by a perfected
security interest in a segregated deposit account in the lending bank;
or
(D) extensions of credit arising
from the discount of negotiable or nonnegotiable installment consumer
paper that is acquired from an insider and carries a full or partial
recourse endorsement or guarantee by the insider, provided that—
(1) the financial condition of each maker of such consumer
paper is reasonably documented in the bank’s files or known to its
officers;
(2) an officer of
the bank designated for that purpose by the board of directors of
the bank certifies in writing that the bank is relying primarily upon
the responsibility of each maker for payment of the obligation and
not upon any endorsement or guarantee by the insider; and
(3) the maker of the instrument is
not an insider.
(ii) The exceptions in paragraphs (d)(3)(i)(A)
through (d)(3)(i)(C) of this section apply only to the amount of such
extensions of credit that are secured in the manner described herein.
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(e) Overdrafts.
(1) No member bank may pay
an overdraft of an executive officer or director of the bank or executive
officer or director of its affiliates
3 on an account at the bank, unless the
payment of funds is made in accordance
with—(i) a written, preauthorized, interest bearing extension
of credit plan that specifies a method of repayment or
(ii) a written, preauthorized transfer
of funds from another account of the account holder at the bank.
(2) The prohibition in
paragraph (e)(1) of this section does not apply to payment of inadvertent
overdrafts on an account in an aggregate amount of $1,000 or less,
provided—
(i) the
account is not overdrawn for more than five business days, and
(ii) the member bank charges the
executive officer or director the same fee charged any other customer
of the bank in similar circumstances.
