Regulation O Compliance Audit —
Loans to Executive Officers, Directors, and Principal Shareholders

See Insider Lending/Regulation O Policy and Procedures.

See Record Retention Policy and Procedures, Regulation O.

The following should be reviewed for compliance with Regulation O (12 CFR 215):

• Records of insiders and their extensions of credit

• Samples of credit extended to insiders of the bank, including executive officer and director deposit account activity

• Board of directors’ minutes

• Calculation of individual lending and aggregate lending limits

• Records of insiders of affiliates and their extensions of credit

• Reports of condition

• Reports of credit to executive officers and directors secured by bank stock

• Copies of requests for information from the public and disposition of requests

In addition, actual procedures should be checked against the formal program and procedures to ensure compliance. Interviews should be conducted with the personnel responsible for complying with Regulation O to ensure adequate knowledge of responsibilities and appropriate conduct.

The following checklist should be modified to fit the specifics of your institution.

REGULATION O

Yes, No
N/A / Work Paper Reference / Comments
1. Does the bank refrain from extending credit to any insider of the bank or insider of its affiliates, unless the extension is made on substantially the same terms, and creditworthiness, as comparable transactions by the bank with other persons that are not insiders?
2. Does the bank ensure that it refrains from extending credit to any insider of the bank or insider of its affiliates in an amount that is in excess of individual insider lending limits as noted in 12 CFR 215.4(c)?
3. Do extensions of credit by the institution to insiders and insiders of affiliates receive the required prior approval of the board of directors, when necessary?
4. Does the bank refrain from extending credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the lending limit defined in the regulation at 12 CFR 215.4(d)?
5. If the institution has deposits of less than $100 million and uses the higher aggregate amount for all insiders, has it properly adopted the higher limit in the board minutes?
6. Does the bank refrain from paying an overdraft of an executive officer or director of the bank or executive officer or director of its affiliates on an account at the bank, unless:
• The payment of funds is made in accordance with:
— A written, preauthorized, interest-bearing extension of credit plan that specifies a method of repayment?
or
— A written, preauthorized transfer of funds from another account of the account holder at the bank?
or
• The inadvertent overdraft is in an aggregate amount of $1,000 or less, provided:
— The account is not overdrawn for more than five business days?
— The bank charges the executive officer or director the same fee charged any other customer of the bank in similar circumstances?
7. Does the bank refrain from extending credit to any of its executive officers, except in the following amounts:
• In any amount to finance the education of the executive officer’s children?
• In any amount to finance or refinance the purchase, construction, maintenance, or improvement of a residence of the executive officer, with certain conditions?
• In any amount, if the extension of credit is secured by certain "low-risk" collateral as specified by the regulation?
• For any other purpose not otherwise specified, if the aggregate amount of these extensions of credit does not exceed at any one time the higher of 2.5 percent of unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000?
8. Does the bank refrain from extending credit to a partnership in which one or more of the bank's executive officers are partners and hold a majority interest, in an aggregate amount that exceeds at any one time the higher of 2.5 percent of unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000?
9. Are extensions of credit by a bank to any of its executive officers:
• Promptly reported to the board of directors?
• Preceded by the submission of a detailed current financial statement of the executive officer?
• Extended on the same terms and conditions as other borrowers with similar characteristics?
• Made subject to the condition in writing that the extension of credit will, at the option of the bank, become due and payable at any time the officer is indebted to any other bank or banks in an aggregate amount greater than the amount allowed by that bank?
10. Does the bank’s recordkeeping method:
• Identify, through an annual survey, all insiders of the bank?
• Maintain records of all extensions of credit to insiders of the bank, including the amount and terms of each such extension of credit?
11. Does the bank maintain records of extensions of credit to insiders of the bank’s affiliates by:
• The survey method, in which the bank:
— Identifies through an annual survey each insider of the bank's affiliates?
— Maintains records of the amount and terms of each extension of credit to such insiders?
or
• The borrower inquiry method, in which the bank:
— Requires as part of each extension of credit that the borrower indicate whether the borrower is an insider of an affiliate of the bank?
— Maintains records that identify the amount and terms of each extension of credit by the bank to borrowers so identifying themselves?
or
• Any other method determined to be at least as effective as the identified methods?
12. Does the bank, upon receipt of a written request from the public, make available the names of each of its executive officers and each of its principal shareholders to whom, or to whose related interests, the bank had outstanding as of the end of the latest previous quarter of the year, an extension of credit that, when aggregated with all other outstanding extensions of credit at such time from the bank to such person and to all related interests of such person, equaled or exceeded the lesser of 5 percent of capital and unimpaired surplus or $500,000, unless the extension of credit was less than $25,000?
13. Does the bank maintain records of all requests for such information and the disposition of such requests for two years?
14. Does the bank ensure that executive officers and directors annually report to the bank’s board of directors the outstanding amount of any credit that was extended to the executive officer or director and that is secured by shares of the bank, if the bank’s stock is not publicly traded?
15. Does the bank refrain from lending credit in a preferential manner to executive officers, directors, and principal shareholders of another bank when there is a correspondent account relationship between the banks?
16. Does the bank refrain from opening a correspondent account relationship when there is a preferential extension of credit by one of the banks to an executive officer, director, or principal shareholder of the other bank?