Insider Lending (Regulation O)
November 14, 1996
Circular No. 10891

Final Rule on Loans Under Employee Benefit Plans
Revised Proposal Easing Certain Lending Restrictions
(Comments Due December 9)

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

The following is from the text of a statement issued by the Board of Governors of the Federal Reserve System:

The Federal Reserve Board has announced a final rule and requested comment on a proposed rule concerning lending by member banks to their insiders under Regulation O.

The final rule is effective immediately.

Comments on the proposed rule are requested by December 9, 1996.

The final rule allows insiders of a bank and of the bank's affiliates to obtain loans under a company-wide employee benefit plan. This amendment conforms the regulation to the Economic Growth and Regulatory Paperwork Reduction Act of 1996. The final rule also simplifies the procedures for a bank board of directors to exclude executive officers and directors of affiliates from policymaking functions of the bank, and thereby from the restrictions of Regulation O.

The proposed rule would exclude executive officers and directors of an affiliate from all restrictions of Regulation O, provided that the executive officers or directors were not engaged in policymaking functions of the bank and the affiliate did not account for more than 10 percent of the consolidated assets of the bank's holding company. This proposal supersedes a similar proposal included in a proposed rule published by the Board on May 3, 1996. The new proposal is consistent with changes to the exemptive authority of the Board made by the Economic Growth and Regulatory Paperwork Reduction Act of 1996.

The Board's notice regarding the new proposal, as published in the Federal Register of November 8 is available. Comments thereon should be submitted by December 9, 1996, and may be sent to the Board, as specified in the notice, or, at this Bank, to Albert J. Rubbo or Albert Toss, assistant Vice Presidents, Financial Examinations Function.

For those who maintain sets of the Board's regulations, the text of the amendment to Regulation O regarding loans under company-wide employee benefit plans, also as published in the November 8 Federal Register. The amendment became effective November 4, 1996.

Questions on this matter may be directed to Mr. Rubbo (Tel. No. 212-720-5240) or Mr. Toss (Tel. No. 212-720-5895).