12 U.S.C. § 375a — Loans to executive officers of banks

submitted 113 years ago by ch. 6 to r/title-12-BANKS-AND-BANKING · 573 words · no verdicts yet

in plain englishAI-generated · not legal advice

Member banks generally cannot lend money to their own executive officers. Exceptions cover home mortgages, education loans, and other regulated credit, all on fair terms. Violations are fined daily, and the Federal Reserve can write further rules.

(1) Except as this section allows, a member bank cannot extend credit in any way to its own executive officers, and an executive officer cannot become indebted to that bank except through credit the bank is allowed to give under this section. Any credit given under this section must be reported to the bank's board of directors right away, and it can happen only if: the bank would have made the same loan to an outside borrower; the terms are no better than what it offers other borrowers; the officer has turned in a current, detailed financial statement; and the loan is set up to become due immediately if the officer owes other banks, in any one of the categories below, more than the bank itself could lend that officer in that same category. (2) A bank may give an executive officer a mortgage loan if it's secured by a first lien on a home the officer will live in, as long as the officer doesn't already have another outstanding loan of this kind from the bank. (3) A bank may lend an executive officer money to pay for their children's education. (4) A bank may extend other credit not covered above, up to an amount the officer's federal banking regulator sets by regulation. (5) Beyond what (4) allows, a bank cannot lend to a partnership where one or more of its executive officers together hold a majority stake. For the purposes of the (4) limit, the bank treats the whole loan as if it went to each officer-partner individually. (6) This section doesn't stop an executive officer from endorsing or guaranteeing, in good faith, a loan or asset the bank already owns, or from going into debt to protect the bank from a loss or to help it out financially. (7) Every day that a credit extension breaks this section counts as a separate ongoing violation for purposes of section 1818 (the law on enforcement actions). (8) The Federal Reserve's Board of Governors can write whatever rules and definitions it thinks are needed to carry out this section and stop people from getting around it.

the actual law source: uscode.house.gov ↗public domain

(1) General prohibition; authorization for extension of credit; conditions for credit

Except as authorized under this section, no member bank may extend credit in any manner to any of its own executive officers. No executive officer of any member bank may become indebted to that member bank except by means of an extension of credit which the bank is authorized to make under this section. Any extension of credit under this section shall be promptly reported to the board of directors of the bank, and may be made only if—

(A)

the bank would be authorized to make it to borrowers other than its officers;

(B)

it is on terms not more favorable than those afforded other borrowers;

(C)

the officer has submitted a detailed current financial statement; and

(D)

it is on condition that it shall become due and payable on demand of the bank at any time when the officer is indebted to any other bank or banks on account of extensions of credit of any one of the three categories respectively referred to in paragraphs (2), (3), and (4) in an aggregate amount greater than the amount of credit of the same category that could be extended to him by the bank of which he is an officer.

(2) Mortgage loans

A member bank may make a loan to any executive officer of the bank if, at the time the loan is made—

(A)

it is secured by a first lien on a dwelling which is expected, after the making of the loan, to be owned by the officer and used by him as his residence, and

(B)

no other loan by the bank to the officer under authority of this paragraph is outstanding.

(3) Educational loans

A member bank may make extensions of credit to any executive officer of the bank to finance the education of the children of the officer.

(4) General limitation on amount of credit

A member bank may make extensions of credit not otherwise specifically authorized under this section to any executive officer of the bank, in an amount prescribed in a regulation of the member bank’s appropriate Federal banking agency.

(5) Partnership loans

Except to the extent permitted under paragraph (4), a member bank may not extend credit to a partnership in which one or more of its executive officers are partners having either individually or together a majority interest. For the purposes of paragraph (4), the full amount of any credit so extended shall be considered to have been extended to each officer of the bank who is a member of the partnership.

(6) Endorsement or guarantee of loans or assets; protective indebtedness

This section does not prohibit any executive officer of a member bank from endorsing or guaranteeing for the protection of the bank any loan or other asset previously acquired by the bank in good faith or from incurring any indebtedness to the bank for the purpose of protecting the bank against loss or giving financial assistance to it.

(7) Continuation of violation

Each day that any extension of credit in violation of this section exists is a continuation of the violation for the purposes of section 1818 of this title.

(8) Rules and regulations; definitions

The Board of Governors of the Federal Reserve System may prescribe such rules and regulations, including definitions of terms, as it deems necessary to effectuate the purposes and to prevent evasions of this section.

Source credit: (Dec. 23, 1913, ch. 6, § 22(g), as added June 16, 1933, ch. 89, § 12, 48 Stat. 182; amended June 14, 1935, ch. 245, 49 Stat. 375; Aug. 23, 1935, ch. 614, title III, § 326(c), 49 Stat. 716; Apr. 25, 1938, ch. 173, 52 Stat. 223; June 20, 1939, ch. 214, § 1, 53 Stat. 842; Pub. L. 90–44, § 1, July 3, 1967, 81 Stat. 109; Pub. L. 95–630, title I, § 110, Nov. 10, 1978, 92 Stat. 3665; Pub. L. 97–320, title IV, § 421, Oct. 15, 1982, 96 Stat. 1522; Pub. L. 103–325, title III, § 334(a), Sept. 23, 1994, 108 Stat. 2233; Pub. L. 109–351, title VI, § 601(a), Oct. 13, 2006, 120 Stat. 1978.)

history & why it existsrecord from the source credit

1913Enacted · Act of Dec. 23, 1913, ch. 6 · 48 Stat. 182
1935Amended · Act of June 14, 1935, ch. 245 · 49 Stat. 375
1935Amended · Act of Aug. 23, 1935, ch. 614 · 49 Stat. 716
1938Amended · Act of Apr. 25, 1938, ch. 173 · 52 Stat. 223
1939Amended · Act of June 20, 1939, ch. 214 · 53 Stat. 842
1967Amended · Pub. L. 90-44 · 81 Stat. 109
1978Amended · Pub. L. 95-630 · 92 Stat. 3665
1982Amended · Pub. L. 97-320 · 96 Stat. 1522
1994Amended · Pub. L. 103-325 · 108 Stat. 2233
2006Amended · Pub. L. 109-351 · 120 Stat. 1978

A history note hasn’t been published yet. The record shows enactment by ch. 6 on 1913-12-23.

all 0 arguments · sorted by: best

no arguments yet — make the first case