Lending Restrictions under 12 CFR 215, 12 CFR 337, 12 CFR 349 | Exam Question Answered

Lending Restrictions under 12 CFR 215, 12 CFR 337, 12 CFR 349

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Question

Lending restrictions under requirements 12 CFR 215; 12 CFR 337, 12 CFR 349 are all of the following EXCEPT:

Answers

A. Banks may not lend to executive officers, directors, principal shareholders, or any of their related interests unless the credit is made on substantially the same terms and following credit underwriting standards that are not less stringent than those on loans to persons who are not insiders; however, if the bank has a benefit program widely available to its employees, it may lend to insiders on the same terms and conditions as it lends to its other employees, pursuant to its employee benefit program

B. Banks may not lend to any executive officer, director, or principal shareholder, and to any of their related interests, amounts that exceed the higher of $25,000 or 5 percent of the bank's capital and unimpaired surplus (up to a maximum of $500,000) in the aggregate unless The credit is approved in advance by the board of directors The interested party has abstained from voting

C. Prior approval is not needed for each draw against a line of credit provided the line of credit was approved within the preceding 14 months, based on the then- current financial statement

D. None of these

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Explanations

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A. B. C. D.

Sure, I can explain the lending restrictions under requirements 12 CFR 215; 12 CFR 337, 12 CFR 349.

12 CFR 215, also known as Regulation O, establishes lending limits for executive officers, directors, and principal shareholders of banks. The purpose of this regulation is to prevent insiders from receiving preferential treatment in the form of excessive loans or favorable terms.

Under Regulation O, banks are generally prohibited from making loans to executive officers, directors, principal shareholders, or any of their related interests unless the credit is made on substantially the same terms and following credit underwriting standards that are not less stringent than those on loans to persons who are not insiders. However, if the bank has a benefit program widely available to its employees, it may lend to insiders on the same terms and conditions as it lends to its other employees, pursuant to its employee benefit program.

In addition to the above, Regulation O also sets limits on the amount of credit that can be extended to insiders. Banks may not lend to any executive officer, director, or principal shareholder, and to any of their related interests, amounts that exceed the higher of $25,000 or 5 percent of the bank's capital and unimpaired surplus (up to a maximum of $500,000) in the aggregate. However, if the credit is approved in advance by the board of directors and the interested party has abstained from voting, this lending limit can be exceeded.

Moving on to 12 CFR 337, also known as Regulation DD, this regulation governs the disclosure of deposit account information to consumers. It does not impose any lending restrictions, so answer choices A and B can be eliminated.

Lastly, 12 CFR 349, also known as Regulation LL, sets forth certain lending limits for savings and loan holding companies. It does not impose any lending restrictions on banks, so answer choice C can be eliminated.

Therefore, the correct answer is D. None of these.

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