12 U.S.C. § 375b — Extensions of credit to executive officers, directors, and principal shareholders of member banks

(1) A member bank generally cannot extend credit to any of its own executive officers, directors, or principal shareholders, or to a "related interest" of one of those people, except to the extent paragraphs (2) through (6) allow it. (2) When a bank does extend credit to an insider or a related interest, the deal must look like an ordinary deal. The interest rate and collateral must match what the bank offers comparable, non-insider borrowers at the time. The loan can't carry more than the normal risk of repayment or other unusual downsides. And the bank must use underwriting standards just as strict as it uses for everyone else. There's one carve-out: this rule doesn't block a benefit or compensation program that's open to employees generally and doesn't favor any officer, director, or shareholder over other employees. (3) If a new extension of credit, added to everything else the bank has already lent that insider and their related interests, would go over an amount the insider's federal banking regulator sets by rule, the bank can make the loan only if a majority of its full board approves it in advance, and the insider involved does not take part — directly or indirectly — in discussing or voting on it. (4) A bank can lend to any single executive officer, director, or principal shareholder — combined with everything already outstanding to that person and their related interests — only up to the same limit section 84 sets for loans to one borrower. For this purpose, a state member bank follows section 84 exactly as if it were a national bank. (5) There's also a limit on lending to insiders as a group. All the credit a bank has outstanding to its executive officers, directors, principal shareholders, and their related interests, combined, cannot exceed the bank's unimpaired capital plus unimpaired surplus. The Federal Reserve Board can set an even stricter cap by regulation. For small banks — under $100 million in deposits — the Board can grant exceptions if doing so helps keep credit available in small communities or helps the bank attract directors, but even then the combined total can never exceed twice the bank's unimpaired capital and surplus. (6) A bank cannot pay out more than an executive officer or director actually has on deposit — no overdrafts, in other words — except in two situations: a written, preauthorized, interest-bearing credit line that spells out how it will be repaid, or a written, preauthorized transfer from another account the same officer or director holds at that bank. (7) No executive officer, director, or principal shareholder may knowingly accept — or let a related interest knowingly accept — any extension of credit from a member bank that this section doesn't authorize. (8) Anyone who is an executive officer, director, or principal shareholder of a company that owns the member bank, or of another subsidiary of that company, counts as an executive officer, director, or principal shareholder of the bank itself for purposes of this section. The Board can make exceptions for officers or directors of a subsidiary of the bank's parent company, if they don't have authority over and don't actually take part in the parent's major policy decisions, and if that subsidiary's assets are no more than 10 percent of the whole company's consolidated assets (and the company isn't controlled by yet another company). (9) This section uses several specific terms. A "company" is broadly any corporation, partnership, trust, association, joint venture, syndicate, sole proprietorship, unincorporated group, or other business entity — except an insured depository institution, or a corporation the United States or a state mostly owns. A person "controls" a company or bank if, alone or together with others, they own or can vote 25 percent or more of any class of its voting stock, control the election of a majority of its directors, or otherwise have the power to control its management or policy. An "executive officer" is anyone who takes part, or has the authority to take part (other than simply as a director), in major policy decisions of the company or bank. An "extension of credit" happens when a bank makes or renews a loan, grants a credit line, or enters any similar deal that obligates the person to pay the bank money — and it also includes credit risk the bank takes on through a derivative, repo, reverse repo, or securities lending or borrowing deal with that person; the Board can exempt transactions it decides pose only minimal risk. "Member bank" here includes any of the bank's subsidiaries. A "principal shareholder" is someone who, alone or with others, owns, controls, or can vote more than 10 percent of any class of a bank's or company's voting stock — but this doesn't include a company that the bank is itself a subsidiary of. A person's "related interest" is any company that person controls, and any political or campaign committee that person controls or that spends money or provides services benefiting that person. "Subsidiary" has the same meaning it has in section 1841. (10) The Federal Reserve's Board of Governors can write whatever regulations, including definitions, it thinks are needed to carry out this section and stop people from evading it.