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

Page 151 TITLE 12—BANKS AND BANKING § 375a ship, association, business trust, or individual in making loans on the security of stocks, bonds, and other investment securities to brokers or dealers in stocks, bonds, and other investment securities. Every violation of this provision by any member bank shall be punishable by a fine of not more than $100 per day during the con- tinuance of such violation; and such fine may be collected, by suit or otherwise, by the Federal reserve bank of the district in which such mem- ber bank is located. (Dec. 23, 1913, ch. 6, § 19(d), formerly § 19 (par. 7), as added June 16, 1933, ch. 89, § 11(a), 48 Stat. 181; renumbered § 19(d), Pub. L. 89–597, § 2(b), Sept. 21, 1966, 80 Stat. 824.) Editorial Notes CODIFICATION Section is comprised of subsec. (d), formerly seventh par., of section 19 of act Dec. 23, 1913, as redesignated by Pub. L. 89–597. § 375. [Reserved] (Dec. 23, 1913, ch. 6, § 22(d), as added Sept. 26, 1918, ch. 177, § 5, 40 Stat. 971; amended Aug. 23, 1935, ch. 614, title II, § 203(a), 49 Stat. 704; Pub. L. 111–203, title VI, § 615(b), July 21, 2010, 124 Stat. 1615.) Editorial Notes AMENDMENTS 2010—Pub. L. 111–203 substituted ‘‘[Reserved]’’ for text, which related to purchases from directors and sales to directors. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–203, title VI, § 615(c), July 21, 2010, 124 Stat. 1615, provided that: ‘‘The amendments made by this section [amending this section and section 1828 of this title] shall take effect on the transfer date.’’ [For definition of ‘‘transfer date’’ as used in section 615(c) of Pub. L. 111–203, set out above, see section 5301 of this title.] § 375a. Loans to executive officers of banks (1) General prohibition; authorization for exten- sion 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 execu- tive officer of any member bank may become in- debted to that member bank except by means of an extension of credit which the bank is author- ized to make under this section. Any extension of credit under this section shall be promptly re- ported 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 cur- rent 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 re- spectively 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 exec- utive 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 out- standing. (3) Educational loans A member bank may make extensions of cred- it 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 cred- it 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 para- graph (4), a member bank may not extend credit to a partnership in which one or more of its ex- ecutive officers are partners having either indi- vidually 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 indebt- edness to the bank for the purpose of protecting the bank against loss or giving financial assist- ance to it. (7) Continuation of violation Each day that any extension of credit in viola- tion 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 regula- tions, including definitions of terms, as it deems necessary to effectuate the purposes and to pre- vent evasions of this section. (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; Page 152 TITLE 12—BANKS AND BANKING § 375b 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.) Editorial Notes CODIFICATION Proviso which permitted renewal or extension of loans made to executive officers prior to June 16, 1933, for periods expiring not more than five years from June 16, 1939, was omitted as obsolete. AMENDMENTS 2006—Pars. (6) to (10). Pub. L. 109–351 redesignated pars. (7), (8), and (10) as (6), (7), and (8), respectively, and struck out former pars. (6) and (9) which related to report of date and amount of credit extensions, secu- rity, and uses of proceeds upon excessive extension of credit and report of loan activity since previous report of condition, respectively. 1994—Par. (2). Pub. L. 103–325 in introductory provi- sions substituted ‘‘A member’’ for ‘‘With the specific prior approval of its board of directors, a member’’. 1982—Par. (2). Pub. L. 97–320, § 421(a), struck out ‘‘not exceeding $60,000’’ after ‘‘may make a loan’’. Par. (3). Pub. L. 97–320, § 421(a), struck out ‘‘, not ex- ceeding the aggregate amount of $20,000 outstanding at any one time,’’ after ‘‘officer of the bank’’. Par. (4). Pub. L. 97–320, § 421(b), substituted ‘‘in an amount prescribed in a regulation of the member bank’s appropriate Federal banking agency’’ for ‘‘not exceeding the aggregate amount of $10,000 outstanding at any one time’’. 1978—Par. (2). Pub. L. 95–630 substituted ‘‘$60,000’’ for ‘‘$30,000’’. Par. (3). Pub. L. 95–630 substituted ‘‘$20,000’’ for ‘‘$10,000’’. Par. (4). Pub. L. 95–630 substituted ‘‘$10,000’’ for ‘‘$5,000’’. 1967—Par. (1). Pub. L. 90–44 rewrote in first sentence of provisions designated as par. (1) the prohibition of former first sentence against any executive officer bor- rowing or otherwise becoming indebted to a member bank of which he is an officer and against any member bank making any loan or extending credit in any other manner to any of its own executive officers, authorized member banks to extend credit to such executive offi- cers and to report such extensions to the board of direc- tors, and provided in subpars. (A) to (D) conditions for such extension of credit. Pars. (2), (3). Pub. L. 90–44 inserted provisions, des- ignated as pars. (2) and (3), for mortgage loans and edu- cational loans, respectively. Par. (4). Pub. L. 90–44 incorporated proviso of first sentence in provisions designated as par. (4), increased amount of available credit from $2,500 to $5,000, and struck out requirement of prior approval of credit by majority of entire board of directors. Par. (5). Pub. L. 90–44 substituted provisions, des- ignated as par. (5), for extension of credit to partner- ships for former provisions of third sentence that ‘‘Bor- rowing by, or loaning to, a partnership in which one or more executive officers of a member bank are partners having either individually or together a majority inter- est in said partnership, shall be considered within the prohibition of this section’’. Par. (6). Pub. L. 90–44 incorporated reporting require- ment of second sentence in provisions designated as par. (6) but limited it to extensions of credit from other banks to the executive officers as exceeded amounts available to such officers from their member banks under pars. (2) to (4) of this section. Par. (7). Pub. L. 90–44 designated provisions of fourth sentence as par. (7). Par. (8). Pub. L. 90–44 designated proviso of sixth sen- tence as par. (8) and identified the violation as one for purposes of section 1818 of this title. Par. (9). Pub. L. 90–44 added requirement, designated as par. (9), that member banks report all loans made under authority of this section since previous report of condition. Par. (10). Pub. L. 90–44 designated provisions of fifth sentence as par. (10) and substituted general authoriza- tion for definition of terms for former specific author- ization for definition of ‘‘executive officer’’ and for de- termination what shall be deemed to be a borrowing, indebtedness, loan, or extension of credit. Pub. L. 90–44 struck out former sixth sentence, less proviso, which provided for removal from office in man- ner prescribed in former section 77 of this title of any executive officer of member bank accepting a loan or extension of credit in violation of this section. 1939—Act June 20, 1939, substituted ‘‘June 16, 1939,’’ for ‘‘from such date’’, in first sentence. 1938—Par. (1). Act Apr. 25, 1938, substituted ‘‘six’’ for ‘‘five’’ in first sentence. 1935—Act Aug. 23, 1935, added last two provisos. Act June 14, 1935, struck out a proviso and inserted in lieu thereof first proviso. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1978 AMENDMENT Amendment effective upon expiration of 120 days after Nov. 10, 1978, see sec. 2101 of Pub. L. 95–630 set out as an Effective Date note under section 375b of this title. § 375b. Extensions of credit to executive officers, directors, and principal shareholders of member banks (1) In general No member bank may extend credit to any of its executive officers, directors, or principal shareholders, or to any related interest of such a person, except to the extent permitted under paragraphs (2), (3), (4), (5), and (6). (2) Preferential terms prohibited (A) In general A member bank may extend credit to its ex- ecutive officers, directors, or principal share- holders, or to any related interest of such a person, only if the extension of credit— (i) is made on substantially the same terms, including interest rates and collat- eral, as those prevailing at the time for com- parable transactions by the bank with per- sons who are not executive officers, direc- tors, principal shareholders, or employees of the bank; (ii) does not involve more than the normal risk of repayment or present other unfavor- able features; and (iii) the bank follows credit underwriting procedures that are not less stringent than those applicable to comparable transactions by the bank with persons who are not execu- tive officers, directors, principal share- holders, or employees of the bank. (B) Exception Nothing in this paragraph shall prohibit any extension of credit made pursuant to a benefit or compensation program— (i) that is widely available to employees of the member bank; and (ii) that does not give preference to any of- ficer, director, or principal shareholder of the member bank, or to any related interest of such person, over other employees of the member bank.