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4000 - Advisory Opinions

Interest Rates for Bank Insider Loans


April 15, 1980

Pamela E. F. LeCren, Attorney

The following is in response to your request for written confirmation of the substance of our telephone conversation on April 1, 1980. According to that conversation, *** is carrying certain loans extended to bank "insiders" that were made at an interest rate available to bank employees but not generally available to persons not associated with the bank. Those loans if made after March 10, 1979 are in violation of section 215.4(a) of Federal Reserve Board Regulation O (12 C.F.R. Part 215) which prohibits loans to "insiders" unless those loans are made on substantially the same terms as those available for comparable transactions with persons not employed by the bank.

*** is prepared to call and renegotiate those loans so that they will conform to the requirements of Regulation O. This generally means removing the loans from the employee plan. The interest rate to be used can be the rate generally in effect at the time the loans were originally extended and need not be the rate prevailing at the time the loans are rewritten.

Should you have any further questions regarding this matter or Regulation O in general, please call me.

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