§ 375b. — Extensions of credit to executive officers, directors, and principal shareholders of member banks.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC375b]
TITLE 12--BANKS AND BANKING
CHAPTER 3--FEDERAL RESERVE SYSTEM
SUBCHAPTER X--POWERS AND DUTIES OF MEMBER BANKS
Sec. 375b. Extensions of credit to executive officers,
directors, and principal shareholders of member banks
(1) In general
No member bank may extend credit to any of its executive officers,
directors, or principal shareholders, or to any related interest of such
a person, except to the extent permitted under paragraphs (2), (3), (4),
(5), and (6).
(2) Preferential terms prohibited
(A) In general
A member bank may extend credit to its executive officers,
directors, or principal shareholders, or to any related interest of
such a person, only if the extension of credit--
(i) is made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions by the bank with persons who are not
executive officers, directors, principal shareholders, or
employees of the bank;
(ii) does not involve more than the normal risk of repayment
or present other unfavorable features; and
(iii) the bank follows credit underwriting procedures that
are not less stringent than those applicable to comparable
transactions by the bank with persons who are not executive
officers, directors, principal shareholders, or employees of the
bank.
(B) Exception
Nothing in this paragraph 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
(ii) that does not give preference to any officer, director,
or principal shareholder of the member bank, or to any related
interest of such person, over other employees of the member
bank.
(3) Prior approval required
A member bank may extend credit to a person described in paragraph
(1) in an amount that, when aggregated with the amount of all other
outstanding extensions of credit by that bank to each such person and
that person's related interests, would exceed an amount prescribed by
regulation of the appropriate Federal banking agency (as defined in
section 1813 of this title) only if--
(A) the extension of credit has been approved in advance by a
majority vote of that bank's entire board of directors; and
(B) the interested party has abstained from participating,
directly or indirectly, in the deliberations or voting on the
extension of credit.
(4) Aggregate limit on extensions of credit to any executive officer,
director, or principal shareholder
A member bank may extend credit to any executive officer, director,
or principal shareholder, or to any related interest of such a person,
only if the extension of credit is in an amount that, when aggregated
with the amount of all outstanding extensions of credit by that bank to
that person and that person's related interests, would not exceed the
limits on loans to a single borrower established by section 84 of this
title. For purposes of this paragraph, section 84 of this title shall be
deemed to apply to a State member bank as if the State member bank were
a national banking association.
(5) Aggregate limit on extensions of credit to all executive officers,
directors, and principal shareholders
(A) In general
A member bank may extend credit to any executive officer,
director, or principal shareholder, or to any related interest of
such a person, if the extension of credit is in an amount that, when
aggregated with the amount of all outstanding extensions of credit
by that bank to its executive officers, directors, principal
shareholders, and those persons' related interests would not exceed
the bank's unimpaired capital and unimpaired surplus.
(B) More stringent limit authorized
The Board may, by regulation, prescribe a limit that is more
stringent than that contained in subparagraph (A).
(C) Board may make exceptions for certain banks
The Board may, by regulation, make exceptions to subparagraph
(A) for member banks with less than $100,000,000 in deposits if the
Board determines that the exceptions are important to avoid
constricting the availability of credit in small communities or to
attract directors to such banks. In no case may the aggregate amount
of all outstanding extensions of credit to a bank's executive
officers, directors, principal shareholders, and those persons'
related interests be more than 2 times the bank's unimpaired capital
and unimpaired surplus.
(6) Overdrafts by executive officers and directors prohibited
(A) In general
If any executive officer or director has an account at the
member bank, the bank may not pay on behalf of that person an amount
exceeding the funds on deposit in the account.
(B) Exceptions
Subparagraph (A) does not prohibit a member bank from paying
funds in accordance with--
(i) a written preauthorized, interest-bearing extension of
credit specifying a method of repayment; or
(ii) a written preauthorized transfer of funds from another
account of the executive officer or director at that bank.
(7) Prohibition on knowingly receiving unauthorized extension of credit
No executive officer, director, or principal shareholder shall
knowingly receive (or knowingly permit any of that person's related
interests to receive) from a member bank, directly or indirectly, any
extension of credit not authorized under this section.
(8) Executive officer, director, or principal shareholder of certain
affiliates treated as executive officer, director, or principal
shareholder of member bank
(A) In general
For purposes of this section, any executive officer, director,
or principal shareholder (as the case may be) of any company of
which the member bank is a subsidiary, or of any other subsidiary of
that company, shall be deemed to be an executive officer, director,
or principal shareholder (as the case may be) of the member bank.
(B) Exception
The Board may, by regulation, make exceptions to subparagraph
(A) for any executive officer or director of a subsidiary of a
company that controls the member bank if--
(i) the executive officer or director does not have
authority to participate, and does not participate, in major
policymaking functions of the member bank; and
(ii) the assets of such subsidiary do not exceed 10 percent
of the consolidated assets of a company that controls the member
bank and such subsidiary (and is not controlled by any other
company).
(9) Definitions
For purposes of this section:
(A) Company
(i) In general
Except as provided in clause (ii), the term ``company''
means any corporation, partnership, business or other trust,
association, joint venture, pool syndicate, sole proprietorship,
unincorporated organization, or other business entity.
(ii) Exceptions
The term ``company'' does not include--
(I) an insured depository institution (as defined in
section 1813 of this title); or
(II) a corporation the majority of the shares of which
are owned by the United States or by any State.
(B) Control
A person controls a company or bank if that person, directly or
indirectly, or acting through or in concert with 1 or more persons--
(i) owns, controls, or has the power to vote 25 percent or
more of any class of the company's voting securities;
(ii) controls in any manner the election of a majority of
the company's directors; or
(iii) has the power to exercise a controlling influence over
the company's management or policies.
(C) Executive officer
A person is an ``executive officer'' of a company or bank if
that person participates or has authority to participate (other than
as a director) in major policymaking functions of the company or
bank.
(D) Extension of credit
(i) In general
A member bank extends credit by making or renewing any loan,
granting a line of credit, or entering into any similar
transaction as a result of which a person becomes obligated
(directly or indirectly, or by any means whatsoever) to pay
money or its equivalent to the bank.
(ii) Exceptions
The Board may, by regulation, make exceptions to clause (i)
for transactions that the Board determines pose minimal risk.
(E) Member bank
The term ``member bank'' includes any subsidiary of a member
bank.
(F) Principal shareholder
The term ``principal shareholder''--
(i) means any person that directly or indirectly, or acting
through or in concert with one or more persons, owns, controls,
or has the power to vote more than 10 percent of any class of
voting securities of a member bank or company; and
(ii) does not include a company of which a member bank is a
subsidiary.
(G) Related interest
A ``related interest'' of a person is--
(i) any company controlled by that person; and
(ii) any political or campaign committee that is controlled
by that person or the funds or services of which will benefit
that person.
(H) Subsidiary
The term ``subsidiary'' has the same meaning as in section 1841
of this title.
(10) Board's rulemaking authority
The Board of Governors of the Federal Reserve System may prescribe
such regulations, including definitions of terms, as it determines to be
necessary to effectuate the purposes and prevent evasions of this
section.
(Dec. 23, 1913, ch. 6, Sec. 22(h), as added Pub. L. 95-630, title I,
Sec. 104, Nov. 10, 1978, 92 Stat. 3644; amended Pub. L. 97-320, title
IV, Secs. 410(e), 422, Oct. 15, 1982, 96 Stat. 1520, 1522; Pub. L. 102-
242, title III, Sec. 306(a)-(h), Dec. 19, 1991, 105 Stat. 2355, 2357-
2359; Pub. L. 102-550, title IX, Sec. 955, title XVI, Sec. 1605(a)(10),
Oct. 28, 1992, 106 Stat. 3895, 4086; Pub. L. 103-325, title III,
Sec. 334(b), Sept. 23, 1994, 108 Stat. 2233; Pub. L. 104-208, div. A,
title II, Sec. 2211, Sept. 30, 1996, 110 Stat. 3009-410.)
Prior Provisions
A prior section 22(h) of act Dec. 23, 1913, ch. 6, as added June 19,
1934, ch. 653, Sec. 3, 48 Stat. 1107, was classified to section 596 of
this title, prior to repeal by act June 25, 1948, ch. 645, Sec. 21, 62
Stat. 862, eff. Sept. 1, 1948.
Amendments
1996--Par. (2)(A). Pub. L. 104-208, Sec. 2211(a)(1), (2), designated
existing provisions as subpar. (A), inserted heading, redesignated
former subpars. (A) to (C) as cls. (i) to (iii), respectively, and
adjusted margins.
Par. (2)(B). Pub. L. 104-208, Sec. 2211(a)(3), added subpar. (B).
Former subpar. (B) redesignated cl. (ii) of subpar. (A).
Par. (2)(C). Pub. L. 104-208, Sec. 2211(a)(1), redesignated subpar.
(C) as cl. (iii) of subpar. (A).
Par. (8)(B). Pub. L. 104-208, Sec. 2211(b), amended heading and text
of subpar. (B) generally. Prior to amendment, text read as follows:
``The Board may, by regulation, make exceptions to subparagraph (A),
except as that subparagraph makes applicable paragraph (2), for an
executive officer or director of a subsidiary of a company that controls
the member bank, if that executive officer or director does not have
authority to participate, and does not participate, in major
policymaking functions of the member bank.''
1994--Par. (8). Pub. L. 103-325 designated existing provisions as
subpar. (A), inserted heading, and added subpar. (B).
1992--Par. (6)(B)(i). Pub. L. 102-550, Sec. 1605(a)(10), substituted
``or'' for ``and'' at end.
Par. (9)(D). Pub. L. 102-550, Sec. 955(a), designated existing
provisions as cl. (i), inserted heading, and added cl. (ii).
Par. (9)(F). Pub. L. 102-550, Sec. 955(b), designated portion of
existing provisions as cl. (i), realigned margin, substituted ``; and''
for period at end, and added cl. (ii).
1991--Pub. L. 102-242, Sec. 306(a), amended section generally,
substituting provisions relating to extensions of credit to executive
officers, directors, and principal shareholders of member banks for
provisions relating to prohibitions respecting loans and extensions of
credit to executive officers and directors of banks, political or
campaign committees, etc.
Par. (1). Pub. L. 102-242, Sec. 306(d)(2), inserted ``(5),'' after
``(4),''.
Par. (2)(C). Pub. L. 102-242, Sec. 306(b), added subpar. (C).
Par. (4). Pub. L. 102-242, Sec. 306(c), inserted ``, director,''
after ``executive officer'' in heading and text.
Par. (5). Pub. L. 102-242, Sec. 306(d)(1), added par. (5).
Par. (7). Pub. L. 102-242, Sec. 306(e), added par. (7).
Par. (8). Pub. L. 102-242, Sec. 306(f), struck out ``bank holding''
before ``company of which the member''.
Par. (9)(E). Pub. L. 102-242, Sec. 306(g), added subpar. (E).
Par. (9)(F). Pub. L. 102-242, Sec. 306(h), struck out last sentence
of subpar. (F) which read as follows: ``For purposes of paragraph (4),
if a member bank has its main banking office in a city, town, or village
with a population of less than 30,000, the preceding sentence shall
apply with `18 percent' substituted for `10 percent'.''
1982--Par. (2). Pub. L. 97-320, Sec. 422, substituted ``an amount
prescribed in a regulation of the appropriate Federal banking agency''
for ``$25,000''.
Par. (6)(C) to (F). Pub. L. 97-320, Sec. 410(e), redesignated
subpars. (D) to (G) as (C) to (F), respectively. Former subpar. (C),
relating to definition of term ``extension of credit'', was struck out.
Effective Date of 1992 Amendment
Amendment by section 1605(a)(10) of Pub. L. 102-550 effective as if
included in the Federal Deposit Insurance Corporation Improvement Act of
1991, Pub. L. 102-242, as of Dec. 19, 1991, see section 1609 of Pub. L.
102-550, set out as a note under section 191 of this title.
Effective Date of 1991 Amendment
Section 306(l) of Pub. L. 102-242 provided that: ``The amendments
made by this section [amending this section and sections 1468, 1828, and
1972 of this title] shall become effective upon the earlier of--
``(1) the date on which final regulations under subsection
(m)(1) [set out below] become effective [May 18, 1992, see 57 F.R.
22417]; or
``(2) 150 days after the date of enactment of this Act [Dec. 19,
1991].''
Effective Date
Section 2101 of Pub. L. 95-630 provided that: ``Except as otherwise
provided herein, this Act [see Short Title of 1978 Amendment note set
out under section 226 of this title] shall take effect upon the
expiration of one hundred and twenty days after the date of its
enactment [Nov. 10, 1978].''
Regulations
Section 306(m) of Pub. L. 102-242 provided that:
``(1) In general.--The Board of Governors of the Federal Reserve
System shall, not later than 120 days after the date of enactment of
this Act [Dec. 19, 1991], promulgate final regulations to implement the
amendments made by this section [amending this section and sections
1468, 1828, and 1972 of this title], other than the amendments made by
subsections (i) and (k) [amending sections 1468 and 1828 of this title].
``(2) Limiting extensions of credit to executive officers.--The
Federal Deposit Insurance Corporation and Director of the Office of
Thrift Supervision shall each, not later than 120 days after the date of
enactment of this Act, promulgate final regulations prescribing the
maximum amount that a nonmember insured bank or insured savings
association (as the case may be) may lend under section 22(g)(4) of the
Federal Reserve Act [12 U.S.C. 375a(4)], as made applicable to those
institutions by subsections (k) and (i), respectively.''
Existing Transactions Not Affected by 1991 Amendments
Section 306(n) of Pub. L. 102-242 provided that: ``The amendments
made by this section [amending this section and sections 1468, 1828, and
1972 of this title] do not affect the validity of any extension of
credit or other transaction lawfully entered into on or before the
effective date of those amendments [see Effective Date of 1991 Amendment
note above].''
Reporting of Credit by Executive Officers and Directors
Section 306(o) of Pub. L. 102-242 provided that: ``An executive
officer or director of an insured depository institution, a bank holding
company, or a savings and loan holding company, the shares of which are
not publicly traded, shall report annually to the board of directors of
the institution or holding company the outstanding amount of any credit
that was extended to such executive officer or director and that is
secured by shares of the institution or holding company.''
Section Referred to in Other Sections
This section is referred to in sections 503, 504, 1468, 1828, 1831o,
1843, 1972 of this title; title 15 section 78m.
