The American Bankers Association and ABA Securities Association support a Federal Reserve and FDIC proposal to update the regulation governing extensions of credit to bank “insiders,” but they believe changes are needed before the agencies finalize the rule, the associations said in a letter to the agencies.
Regulation O governs loans by covered banks to their insiders and affiliates of insiders. The regulation hasn’t been updated in 50 years. Earlier this year, the Fed and FDIC each proposed to amend the regulation to update outdated dollar-based limits on certain types of lending to bank insiders and index them going forward.
The associations said while they support the proposal, they believe the proposed increase of the “other purpose” loan exception threshold from $100,000 to $400,000 remains insufficient. “Given the significant appreciation in housing values and the corresponding increase in borrowing needs, the proposed threshold may unnecessarily restrict the practical availability of extensions of credit to executive officers, most notably closed-end home equity loans and home equity lines of credit (HELOCs) in the second lien position,” they said.
The associations also said the Fed proposal’s treatment of qualified funds complexes is problematic, as it excludes complexes affiliated with a bank holding company, a savings and loan holding company or an insured depository institution. “We believe this disparate treatment is completely unwarranted because the proposal would provide relief only from Regulation O,” they said. “It would not exempt regulated companies affiliated fund complexes from the broader legal and regulatory framework applicable to banking organizations and their affiliates.”
