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4000 - Advisory Opinions

Loan to Corporation Controlled by Executive Officer But Not Guaranteed by Him or Her is Not Subject to FDICIA Limits on Loans to Executive Officers


December 21, 1992

Pamela E.F. LeCren, Counsel

The following is in response to your request that I confirm the substance of a telephone conversation that I had with *** of your office regarding Regulation O.

The facts as set forth in your letter are as follows. An executive officer of your client bank has requested that the bank extend credit to a corporation controlled by the executive officer. The loan to the corporation would be secured by a pledge of all of the assets of the corporation and would be additionally secured by the executive officer's pledge of certain assets owned by the executive officer and his spouse. The executive officer would neither guarantee the loan made to the corporation nor would he otherwise be or become liable for the repayment of the loan except to the extent that the bank could foreclose on the pledged personal assets if collection proceedings become necessary.

In my opinion the loan in question is not subject to the "new" limits on loans to executive officers to which state nonmember banks were made subject last year with the enactment of FDICIA. Those limits only apply when an extension of credit is made to an executive officer or a partnership which is majority owned by an executive officer. As the loan in question is being made to a corporation, and the executive officer has not guaranteed the loan, the additional limits do not apply. We agree with your contention that the loan in question is not considered made to the executive officer as a result of the pledge of the officer's personal assets. You should of course note, however, that the extension of credit is subject to the remaining provisions of Regulation O as the corporation would be considered a related interest of a bank insider.

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