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Financial Institution Letters


Section 337.3 of FDIC's Rules and Regulations

337.3 Limits on extensions of credit to executive officers, Directors, and principal shareholders of insured nonmember banks.

(a) With the exception of 12 CFR 215.5(b), 215.5(c)(3), 215.5(c)4, and 215.11, insured nonmember banks are subject to the restrictions contained in subpart A of Federal Reserve Board Regulation O (12 CFR Part 215, subpart A) to the same extent and to the same manner as though they were member banks.

(b) For the purposes of compliance with 215.4(b) of Federal Reserve Board Regulation O, no insured nonmember bank may extend credit or grant a line of credit to any of its executive officers, Directors, or principal shareholders or to any related interest of any such person in an amount that, when aggregated with the amount of all other extensions of credit and lines of credit by the bank to that person and to all related interests of that person, exceeds the greater of $25,000 or five percent of the bank's capital and unimpaired surplus,{3} or $500,000 unless (1) the extension of credit or line of credit has been approved in advance by a majority of the entire board of Directors of that bank and (2) the interested party has abstained from participating directly or indirectly in the voting.

(c)

    (1) No insured nonmember bank may extend credit in an aggregate amount greater than the amount permitted in paragraph (c)(2) of this section to a partnership in which one or more of the bank's executive officers are partners and, either individually or together, hold a majority interest. For the purposes of paragraph (c)(2) of this section, the total amount of credit extended by an insured nonmember bank to such partnership is considered to be extended to each executive officer of the insured nonmember bank who is a member of the partnership.

    (2) An insured nonmember bank is authorized to extend credit to any executive officer of the bank for any other purpose not specified in 215.5(c)(1) and (2) of Federal Reserve Board Regulation O (12 CFR 215.5(c)(1) and (2)) if the aggregate amount of such other extensions of credit does not exceed at any one time the higher of 2.5 percent of the bank's capital and unimpaired surplus or $25,000 but in no event more than $100,000, provided, however, that no such extension of credit shall be subject to this limit if the extension of credit is secured by:

      (i) 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;

      (ii) 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; or

      (iii) A perfected security interest in a segregated deposit account in the lending bank.

    (3) Any extension of credit that was outstanding on May 28, 1992 and that would if made on or after that date violate paragraph (c)(1) or paragraph (c)(2) of this 337.3 shall be reduced in amount by May 28, 1993 so that the extension of credit is in compliance with the lending limit set forth in paragraphs (c)(1) and (c)(2) of this section. Any renewal or extension of such an extension of credit on or after May 28, 1992 shall be made only on terms that will bring the extension of credit into compliance with the lending limit of paragraphs (c)(1) and (c)(2) of this section by May 28, 1993, however, any extension of credit made before May 28, 1992 that bears a specific maturity date of May 28, 1993 or {{12-30-94 p.2638.01}} later shall be repaid in accordance with its repayment schedule in existence on or before May 28, 1992.

    (4) If an insured nonmember bank is unable to bring all extensions of credit outstanding as of May 28, 1992 into compliance as required by paragraph (c)(3) of this 337.3, the bank may at the discretion of the appropriate FDIC regional Director (Division of Supervision) obtain, for good cause shown, not more than two additional one-year periods to come into compliance.

    (5) For the purposes of paragraph (c) of this section, the definitions of the terms used in Federal Reserve Board Regulation O shall apply including the exclusion of executive officers of a bank's parent bank holding company and executive officers of any other subsidiary of that bank holding company from the definition of executive officer for the purposes of complying with the loan restrictions contained in section 22(g) of the Federal Reserve Act. For the purposes of complying with 215.5(d) of Federal Reserve Board Regulation O, the reference to "the amount specified for a category of credit in paragraph (c) of this section" shall be understood to refer to the amount specified in paragraph (c)(2) of this 337.3.

(Approved by the Office of Management and Budget under control number 3064--0108)

{3 For the purposes of 337.3, an insured nonmember bank's capital and unimpaired surplus shall have the same meaning as found in 215.2(f) of Federal Reserve Board Regulation O (12 CFR 215.2(f)).}

[Codified to 12 C.F.R. 337.3]

[Section 337.3 added at 47 Fed. Reg. 47003, October 22, 1982; amended at 48 Fed. Reg. 42970, September 21, 1983; 57 Fed. Reg. 7649, March 4, 1992, effective May 18, 1992; 57 Fed. Reg. 17850, April 28, 1992, effective May 28, 1992; 57 Fed. Reg. 28457, June 25, 1992, effective May 18, 1992; 59 Fed. Reg. 66668, December 28, 1994]

Last Updated 07/16/1999 communications@fdic.gov