Circular

Insider Lending (Regulation O)

May 9, 1996
Circular No. 10849

- Proposed Easing of Certain Lending Restrictions
- Amended Definition of Capital and Surplus

To All Member Banks and Bank Holding Companies in the Second Federal Reserve District, and Others Concerned:

Proposal - Comments Due June 17

The following statement was issued by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has requested comment on proposed amendments to Regulation O, governing insider lending. The proposed amendments would implement authority granted the Board by the Riegle Community Development and Regulatory Improvement Act of 1994.

Comment is requested by June 17, 1996.

Under the proposed rule, the aggregate and individual lending limits, overdraft restriction, and prior approval requirements of Regulation O would not apply to extensions of credit by a bank to executive officers and directors of the bank's affiliates, provided that those executive officers and directors were not engaged in major policymaking functions of the lending bank. Of the restrictions in Regulation O, only the prohibition on preferential lending would apply to extensions of credit to such persons.

The text of the Board's proposal, as printed in the Federal Register of May 3. Comments thereon may be submitted by June 17, 1996, and may be sent to the Board, as specified in the notice, or, at this Bank, to John A. Greco, Examining Officer, Financial Examinations Function.

Definition of Capital and Surplus - Effective July 1

The following statement was also issued by the Board of Governors:

The Federal Reserve Board has announced a final rule to reduce the regulatory burden for member banks and other insured depository institutions monitoring lending to their affiliates.

The rule is effective July 1, 1996.

The final rule adopts a definition of capital stock and surplus for purposes of section 23A of the Federal Reserve Act that conforms to the definition of unimpaired capital and unimpaired surplus used by the Board in calculating the limits in Regulation O for insider lending and by the Office of the Comptroller of the Currency in calculating the limit on loans by a national bank to a single borrower.

For depository institutions and others who maintain sets of the Board's regulations, is a notice containing the amendment to Regulation O, effective July 1, 1996, as printed in the Federal Register of May 3. Additional copies may be obtained from the Circulars Division of this Bank. Questions on this matter may be directed to John A. Greco, Examining Officer, Financial Examination Function.

William J. McDonough
President