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FEDERAL RESERVE BANK

OF NEW YORK4

r Circular No. 8 6 9 1 1L November 27, 1979 J

REGULATION 0

Amendments Implementing the Reporting Requirements of the Financial Institutions

Regulatory and Interest Rate Control Act of 1978

To A l l M embe r Ban k s , and O th e r s Concer n ed ,

i n t he Second Feder a l R ese r v e D i s t r i c t :

The Board of Governors of the Federal Reserve System has amended, effective December 31,

1979, its Regulation O, “ Loans to Executive Officers, Directors, and Principal Shareholders of

Member Banks,” in order to implement the reporting requirements of Titles V II I and IX of the

Financial Institutions Regulatory and Interest Rate Control Act of 1978 (F IR A ). The following

statement was issued by the Board of Governors in this regard:

The Board’s revised Regulation, which is effective December 31, applies to both State chartered memberbanks and national banks. The Office of the Comptroller of the Currency concurred in the amendments to Regu-lation O announced today. The revisions of the Regulation were adopted by the Board after consideration ofcomment received following publication of proposed amendments in March.

Title VIII of FIRA prohibits banks that maintain correspondent account relationships with other banks fromextending credit on preferential terms to one another’s executive officers, directors and principal shareholders, orfrom establishing a correspondent relationship where one of the banks involved has outstanding preferential creditsto an executive officer, director or principal shareholder of the other bank.

As one basis for enforcing its requirements, Title VIII of FIRA establishes reporting requirements applyingto executive officers and principal shareholders of insured banks, and a related report by the bank.

Title IX requires public disclosure, in annual reports by insured banks, of principal shareholders and execu-tive officers who are in debt to the bank or its correspondent banks, and the aggregate amount of such indebtednessduring the year.

To implement Title VIII, the revised Regulation requires:

1. That each executive officer and principal shareholder of an insured bank should report annually, to thebank’s board of directors, their own indebtedness, and that of their “related interests” to each of the insuredbank’s correspondent banks, the amount of debt outstanding 10 days before the report is filed, the range of in-terest rates on such loans and other terms and conditions of the loans. A related interest is a company controlledby, and political or campaign committees controlled by or benefiting, bank officials and shareholders. For the pur-poses of reporting requirements, Regulation O, as amended, defines a correspondent bank as a bank that main-tains an account at an insured bank that exceeds an average daily balance of $100,000, or half of one percent ofthe insured bank’s total deposits.

2. That each insured bank forward an annual publicly available report to the appropriate banking agencylisting the name of each executive officer or principal shareholder who files a report of indebtedness with thebank’s board of directors, and the aggregate amount of indebtedness of these persons and their related intereststo the insured bank’s correspondent banks.

To implement Title IX, the revised Regulation requires:

That each insured bank file with its appropriate regulator an annual report, available to the public uponrequest, listing the names of the bank’s principal shareholders as of December 31, a list of executive officers andprincipal shareholders of the bank who were indebted, or whose related interests were indebted to the bankduring the year, and the aggregate amount of such debt to the bank.

The first such annual report will cover the period from July 1, 1979 to December 31, 1979.

( o v e r )

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Executive officers and principal shareholders filing reports of indebtedness under Title VIII will file beforeJanuary 31, 1980, and the insured banks will file reports with their appropriate regulators, based on thesereports, by March 31.

Enclosed— for member banks in this District— is a copy of the complete text of the amended

regulation, together with the text of the notice submitted to the Federal Register announcing the

changes. These materials will be published in the Federal Register; copies will also be furnished

upon request directed to the Circulars Division of this Bank.

The revised regulation is in the process of being printed in pamphlet form by the Board of

Governors and will be sent to you as soon as it is available. Any questions regarding the regulation

should be directed to our Consumer Affairs and Bank Regulations Department (Tel. No. 212-791-

5914).

T h o m a s M. T i m l e n ,

First Vice President.

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BOARD OF GOVERNORS

of the

FEDERAL RESERVE SYSTEM

LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND

PRINCIPAL SHAREHOLDERS OF MEMBER BANKS

REGULATION O

( 1 2 C F R 2 1 5 )

(in process of being printed; revised

regulation effective December 31, 1979)

Any inquiry relating to this regulation should be addressed to the FederalReserve Bank of the Federal Reserve district in which the inquiry arises.

[Enc. Cir. No. 8691]

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PART 215— LOANS TO EXECUTIVE OFFICERS, DIRECTORS, AND

PRINCIPAL SHAREHOLDERS OF MEMBER BANKS

Subpart A— Loans by Member Banks to Their

Executive Officers, Directors, and Principal Shareholders

Sec.215.1 Authority, purpose, and scope

215.2 Definitions

215.3 Extension of credit

215.4 General prohibitions

215.5 Additional restrictions on loans to executive

officers of member banks

215.6 Extensions of credit outstanding on March 10,

1979

215.7 Records of member banks

215.8 Reports by executive officers

215.9 Report on credit to executive officers

215.10 Annual report on aggregate credit to executive

officers and principal shareholders

215.11 Civil penalties

Subpart B— Reports on Indebtedness of Executive Officers and

Principal Shareholders to Correspondent Banks

Sec.

215.20 Authority, purpose, and scope

215'. 21 Definitions

215.22 Reports by executive officers and principal

shareholders

215.23 Report by member bank

Subpart A— Loans by Member Banks to their Executive Officers,

Directors, and Principal Shareholders

SECTION 215.1— Authority, purpose, and scope

(a) Authority. This Subpart is issued pursuant to sections

11(i), 22(g) and 22(h) of the Federal Reserve Act (12 U.S.C. §§ 248(i),

375a, 375b(7)) and 12 U.S.C. § 1817(k)(3).

(b) Purpose and scope. This Subpart governs any extension

of credit by a member bank, to an executive officer, director, or prin

cipal shareholder of (1) the member bank, (2) a bank holding company

of which the member bank is a subsidiary, and (3) any other subsidiary

of that bank holding company. It also applies to any extension of credit

by a member bank to (1) a company controlled by such a person and (2)

a political or campaign committee that benefits or is controlled by

such a person. This Subpart also implements the reporting requirements

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of 12 U.S.C. § 375a concerning extensions of credit by a member bank

to its executive officers and of 12 U.S.C. § 1817(k) concerning exten

sions of credit by a member bank to its executive officers and principal

shareholders.

For the purpose of this Subpart, the following definitions

apply unless otherwise specified:

SECTION 215.10— Annual report on aggregate credit to executive

officers and principal shareholders

(a) Definitions. For the purposes of this section, the

following definitions apply:

means the sum of the highest amount of credit outstanding during the

calendar year (or, as an alternative, the highest end of the month credit

of its executive officers,— ui) each of its principal shareholders,

and (iii) each of the related interests of these persons.

12 U.S.C. § 3101(7)) that, directly or indirectly, owns, controls, or

has power to vote more than 10 per cent of any class of voting securi

ties of the member bank. The term includes a person that controls a

principal shareholder (e.£., a person that controls a bank holding com

pany) . Shares of a bank (including a foreign bank), bank holding com

pany, or other company owned or controlled by a member of an individual's

immediate family are presumed to be owned or controlled by the indi

vidual for the purposes of determining principal shareholder status.

2/ For purposes of this section and Subpart B, executive officers

of a member bank do not include an executive officer of a bank holding

company of which the member bank is a subsidiary or of any other sub

sidiary of that bank holding company unless, of course, the executive

officer is also an executive officer rf the member bank.

8/ The term "stockholder of record" appearing in 12 U.S.C. §§ 1817(k)(l)

and 1972(2)(G) is synonymous with the term person.

SECTION 215.2— Definitions

* * *

SECTION 215.9— Report on credit.to executive officers

* * * * *

(1) "Aggregate amount of all extensions of credit"

outstanding during the c year) from the member bank to: (i) each

(2) "Principal shareholder of a member bank" means any

person— (other than an insured bank, or a foreign bank as defined in

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(3) "Rel ated i nt erest" means any company cont r olby a per son and any pol i t i cal or campai gn commi t t ee, the funds or ser -vi ces of whi ch wi l l benef i t a per son or t hat i s cont r ol l ed by a person.For the pur poses of thi s sect i on and Subpart B, a r el at ed i nt erest doesnot i ncl ude a bank or a f orei gn bank (as def i ned i n 12 U. S. C. § 3101( 7) ) .

(b) Cont ent s of Repor t . On or before March 31 of each year ,each member bank shal l f i l e wi t h the appropr i ate Feder al Reserve Banki n the case of State member banks, or t he Comptr ol l er of the Curr encyi n the case of nat i onal banks or banks l ocat ed i n the Di st r i ct of Col um-bi a, a r epor t t hat shal l i ncl ude the f ol l owi ng i nf or mat i on wi t h respectto the precedi ng cal endar year :

(1) a l i st by name of each per son who was a pr i nci palsharehol der of the member bank on December 31;

(2) a l i st by name of each execut i ve of f i cer orpr i nci pal sharehol der of t he member bank dur i ng the year to whom, orto whose r el ated i nt erest s, the member bank had out st andi ng an ext en-si on of credi t dur i ng the year ; and

(3) t he aggregat e amount of al l ext ensi ons of cr edi tf r om t he member bank to i t s execut i ve of f i cer s and pr i nci pal shar ehol der sand thei r r el at ed i nt erest s.

(c) Avai l abi l i t y of Repor t . The Board or the Compt rol l er ,as the case may be, and the member bank shal l make a copy of t he reportr equi r ed by t hi s sect i on avai l abl e to the publ i c upon request .

SECTI ON 215. 11—Ci vi l penal t i es

As speci f i ed i n sect i on 29 of the Federal Reser ve Act(12 U. S. C. 504) , any member bank, or any of f i cer , di r ect or, empl oyee,agent , or ot her per son par t i ci pat i ng i n the conduct of the af f ai r s ofthe bank, t hat vi ol ates any pr ovi si on of t hi s Subpar t (other t han sec-t i on 215. 10) i s subj ect to a ci vi l penal t y of not more t han $1, 000 perday for each day dur i ng whi ch the vi ol at i on cont i nues.

Subpart B— Report s on I ndebt edness of Execut i ve Of f i cersand Pr i nci pal Sharehol ders to Corr espondent Banks

SECTI ON 215. 20— Aut hori t y, purpose, and scope

(a) Aut hor i t y. Thi s Subpar t i s i ssued pur suant to sect i onl l ( i ) of the Federal Reserve Act (12 U. S. C. § 248 (i ) ) and 12 U. S. C.§§ 1817(k) (3) and 1972 (2) (F) ( vi ) .

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(b) Purpose and scope. Thi s Subpart i mpl ement s the r eport i ngr equi r ement s of Ti t l e VI I I of t he Fi nanci al I nst i t ut i ons Regul at or yand I nt erest Rate Cont r ol Act of 1978 ( "FI RA") (P. L. 95- 630) , 12 U. S. C.§ 1972( 2) (G). Ti t l e VI I I pr ohi bi t s (1) pr ef er ent i al l endi ng by a bank

to execut i ve of f i cer s, di r ectors, and pr i nci pal shar ehol der s of anot herbank when there i s a cor respondent account r el at i onshi p bet ween thebanks, and (2) the openi ng of a cor r espondent account r el at i onshi p bet ween banks when there i s a pr eferent i al ext ensi on of cr edi t by oneof the banks t o an execut i ve of f i cer , di rector, or pr i nci pal shar ehol derof the other bank.

SECTI ON 215. 21— Def i ni t i ons

For the pur poses of thi s Subpar t , t he f ol l owi ng def i ni t i onsappl y unl ess ot herwi se speci f i ed:

(a) "Bank" has the meani ng gi ven i n 12 U. S. C. § 1841( c) ,and i ncl udes a branch or agency of a f orei gn bank, or a commerci al l endi ng company cont r ol l ed by a f orei gn bank or by a company t hat cont r ol sa f orei gn bank, where t he branch or agency i s mai ntai ned i n a St ateof the Uni t ed St at es or i n the Di st r i ct of Col umbi a or the commer ci all endi ng company i s or gani zed under St ate l aw.

|b) "Company, " "cont rol of a company or bank, " "execut i veof f i cer , "— "ext ensi on of credi t , " "i mmedi at e f ami l y, " and "person"have the meani ngs pr ovi ded i n Subpart A.

(c) "Correspondent account " i s an account that i s mai ntai nedby a bank wi t h another bank f or the deposi t or pl acement of f unds.A cor r espondent account does not i ncl ude:

(1) t i me deposi t s at pr evai l i ng market rat es, and

(2) an account mai ntai ned i n the ordi nary cour se ofbusi ness sol el y for the purpose of ef f ect i ng federal f unds t r ansact i onsat prevai l i ng market r at es or maki ng Eurodol l ar pl acement s at prevai l i ngmarket rates.

(d) "Cor respondent bank" means a bank t hat mai ntai ns oneor more cor r espondent account s f or a member bank dur i ng a cal endar year

that i n the aggregate exceed an average dai l y bal ance duri ng that yearof $100, 000 or 0. 5 per cent of such member bank' s t otal deposi t s (asrepor t ed i n i t s f i r st consol i dat ed repor t of condi t i on dur i ng t hatcal endar year) , whi chever amount i s smal l er.

(e) "Pr i nci pal sharehol der " and "rel at ed i nt erest " have themeani ngs provi ded i n sect i on 215. 10 of Subpar t A.

9/ See note 7 above.

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SECTI ON 215. 22—Report by execut i ve of f i cer s and pr i nci pal shar ehol der s

(a) Annual Repor t . I f dur i ng any cal endar year an execut i veof f i cer or pr i nci pal shar ehol der of a member bank or a r el at ed i nt erest

of such a person has out st andi ng an extensi on of credi t f r om a correspon̂dent bank of t he member bank, t he execut i ve of f i cer or pr i nci pal shar e-hol der shal l , on or bef ore J anuary 31 of the f ol l owi ng year , make awr i t t en repor t to the boar d of di r ector s of the member bank. —•

(b) Cont ent s of Repor t . The r epor t r equi red by thi s sect i onshal l i ncl ude t he f ol l owi ng i nf ormat i on:

(1) t he maxi mum amount of i ndebt edness of the exof f i cer or pr i nci pal shar ehol der and of each of t hat per son' s r el at edi nt erest s to each of t he member bank' s corr espondent banks dur i ng thecal endar year ;

(2) t he amount of i ndebt edness of the execut i ve or pr i nci pal sharehol der and of each of t hat per son' s r el at ed i nt erest sout st andi ng to each of the member bank' s corr espondent banks as of . tenbusi ness days bef ore the repor t r equi r ed by t hi s sect i on i s f i l ed; —and

(3) a descr i pt i on of the t erms and condi t i ons (

the range of i nt erest rates, the or i gi nal amount and date, mat ur i t ydate, payment terms, secur i t y, i f any, and any other unusual t erms orcondi t i ons) of each ext ensi on of credi t i ncl uded i n the i ndebt ednessr eport ed under par agr aph ( b) (1) of thi s sect i on.

(c) Def i ni t i ons. For the pur poses of t hi s secti on:

(1) " I ndebt edness" means an ext ensi on of credi t ,

does not i ncl ude:

(i ) commerci al paper, bonds, and debentures i ssued

i n the or di nar y cour se of busi ness; and

(i i ) consumer credi t (as def i ned i n 12 C. F. R.§ 226. 2(p) ) i n an aggregate amount of $5, 000 or l ess f r omeach of themember bank' s cor r espondent banks, provi ded the i ndebt edness i s i ncur redunder t erms t hat are not more f avorabl e than t hose of f ered to the gen-

eral publ i c.

10/ Per sons repor t i ng under thi s sect i on are not r equi red to i ncl udei nf ormat i on on extensi ons of credi t t hat are f ul l y descr i bed i n a r epor tby a per son t hey cont r ol or a per son that cont rol s them, provi ded theyi dent i f y thei r r el at i onshi ps wi t h such ot her person.11/ I f the amount of i ndebt edness out st andi ng to a corr espondent bankt en days bef ore the f i l i ng of the repor t i s not avai l abl e or cannotbe readi l y ascert ai ned, an est i mate of the amount of i ndebt edness maybe f i l ed wi t h the repor t , pr ovi ded that the repor t i s suppl ement ed wi t hi n

the next 30 days wi t h the act ual amount of i ndebtedness.

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(2) "Maxi mum amount of i ndebtedness" means, at theopt i on of t he r epor t i ng person, ei t her (i) t he hi ghest out st andi ngi ndebt edness dur i ng the cal endar year f or whi ch the r eport i s made,or (i i ) t he hi ghest end of the mont h i ndebt edness out st andi ng dur i ngthe cal endar year f or whi ch the report i s made.

(d) Ret ent i on of r eport s at member banks. The r eport sr equi r ed by thi s sect i on shal l be retai ned at the member bank f or aper i od of t hree years. The Reser ve Bank or t he Compt r ol l er, as thecase may be, may requi r e t hese report s to be retai ned by the bank f or

an addi t i onal per i od of t i me. The r epor t s f i l ed under t hi s sect i onare not r equi r ed by thi s r egul at i on to be made avai l abl e to t he publ i cand shal l not be f i l ed wi t h t he Reser ve Bank or t he Compt r ol l er unl essspeci f i cal l y requested.

(e) Member bank' s r esponsi bi l i t y. Each member bank shal ladvi se each of i t s execut i ve of f i cer s and each of i ts pr i nci pal shar e-hol der s (to t he extent known by the bank) of t he r eport s r equi r ed bythi s sect i on and make avai l abl e to each of t hese persons a l i st of thenames and addr esses of the member bank' s cor r espondent banks.

SECTI ON 215. 23— Repor t by member banks

(a) On or before Mar ch 31 of each year , each member bankshal l compi l e the r epor t s f i l ed under sect i on 215. 22 of t hi s Subpar t

and shal l f or ward the compi l at i on to the Compt r ol l er of t he Cur r encyi n the case of a nat i onal bank or a bank l ocat ed i n t he Di st r i ct of

Col umbi a, or t he appropr i ate Federal Reserve Bank i n t he case of a St atemember bank. Thi s compi l at i on shal l cont ai n onl y t he i nf ormat i on r e-qui r ed i n paragraph (b) of t hi s sect i on.

(b) Each member bank shal l i ncl ude i n the r eport r equi r edunder sect i on 215. 10 of Subpart A to be f i l ed by March 31 of each year ,t he f ol l owi ng i nf or mat i on:

(1) a l i st by name of each execut i ve of f i cer or pr ishar ehol der t hat f i l es a repor t wi t h the member bank' s boar d of di r ect or sunder sect i on 215. 22 of t hi s Subpar t ; and

10/ Per sons repor t i ng under t hi s sect i on are not r equi r ed to i ncl udei nf or mat i on on extensi ons of credi t t hat are f ul l y descr i bed i n a r epor t

by a per son they cont r ol or a person that cont r ol s them., provi ded theyi dent i f y t hei r r el at i onshi ps wi t h such ot her person.

1 1 / I f t he amount of i ndebt edness out st andi ng to a cor r espondent bankten days bef or e the f i l i ng of the r epor t i s not avai l abl e or cannotbe readi l y ascer t ai ned, an est i mate of the amount of i ndebt edness may

be f i l ed wi t h t he repor t , pr ovi ded t hat t he repor t i s suppl ement ed wi t hi nthe next 30 days wi t h the act ual amount of i ndebt edness.

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(2) the aggregate amount (or sum) of the maxi mumof i ndebt edness r eport ed to t he boar d of di r ectors of the member bankunder sect i on 215. 22( b) (1) by t he member bank' s execut i ve of f i cers andpr i nci pal shar ehol der s and t hei r r el at ed i nt erests.

By Or der of the Boar d of Governor s of the Feder al Reserve

Syst em, November 19, 1979.

Theodor e E. Al l i sonSecretary of the Board

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TI TLE 12— BANKS AND BANKI NG

CHAPTER I I — FEDERAL RESERVE SYSTEM

SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

[12 CFR Par t 215]

LOANS TO EXECUTI VE OFFI CERS, DI RECTORS, ANDPRI NCI PAL SHAREHOLDERS OF MEMBER BANKS

(Docket No. R- 0210)

AGENCI ES: Boar d of Governors of the Federal Reserve Syst em andCompt r ol l er of t he Cur rency.

ACTI ON: Fi nal Rul e.

SUMMARY: Thi s f i nal r egul at i on i s i ssued to i mpl ement the report i ngr equi r ement s of Ti t l es VI I I and I X of the Fi nanci al I nst i t ut i ons Regul atory and I nt er est Rate Cont r ol Act of 1978 ( "FI RA") (P. L. 95- 630) ,12 U. S. C. §§ 1817(k) (1) and 1972(2) (G) . Ti t l e VI I I r equi r es execut i veof f i cer s and pr i nci pal shar ehol der s of f eder al l y i nsur ed banks t o f i l ean annual r epor t wi t h the boar ds of di r ect ors of t hei r banks concerni ngthe of f i cers' or shar ehol der s' i ndebt edness t o corr espondent banks (_i . e. ,a bank that mai ntai ns a cor r espondent account f or the i nsured bank) .

Ti t l e I X r equi r es each f ederal l y i nsured bank to f i l e annual l y a publ i cl y avai l abl e repor t wi t h the appr opr i at e Feder al banki ng agency l i st

i ng the bank' s pr i nci pal shar ehol ders, al l of the bank' s of f i cer s orpr i nci pal shar ehol der s who are i ndebt ed, or whose rel at ed i nt er est sare i ndebt ed, to the bank or i t s corr espondent banks dur i ng the year ,and the aggregate amount of i ndebt edness of t hese per sons and thei rr el ated i nt erest s t o the bank and to the bank' s cor r espondent banks.

EFFECTI VE DATE: December 31, 1979.

FOR FURTHER I NFORMATI ON CONTACT: J ames V. Mat t i ngl y, J r . , Assi st antGeneral Counsel , ( 202/ 452- 3430) , Br onwen Mason, Seni or At t orney,( 202/ 452- 3564) , Board of Gover nor s of the Federal Reser ve System, Washi ngt on, D. C. 20551; Larr y Raz or Sharon Mi yasat o, At t orneys, ( 202/ 447-1880) , Of f i ce of the Compt r ol l er of t he Cur r ency, 490 L ’Enf ant Pl aza,

East , S. W. , Washi ngt on, D. C. 20219.

SUPPLEMENTARY I NFORMATI ON: On Mar ch 6, 1979, the Feder al banki ngagenci es publ i shed f or comment pr oposed r egul at i ons t o i mpl ement Ti t l esVI I I and I X of FI RA. The agenci es recei ved 106 l ett ers of comment .Upon review of the comments received and after a reevaluation of the regulations published for comment, the agencies have made certain changes

[Enc. Cir. No. 8691]

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i n t he proposed r egul at i ons. Those changes (as r ef l ect ed i n the f i nalr egul at i ons) , an expl anat i on of t he provi si ons of the f i nal r egul at i ons,and a di scussi on of the comment s recei ved are set f ort h bel ow.

A. REQUI REMENTS OF TI TLES VI I I AND I X

1. Prohi bi t ed t r ansact i ons. Ef f ect i ve March 10, 1979, Ti t l e VI I I of FI RA, whi ch amended sect i on 106 of the Bank Hol di ngCompany Act Amendments of 1970 (12 U. S. C. § 1972), prohi bi t s banks t hatmai nt ai n a corr espondent account r el at i onshi p wi t h each ot her f r om ext endi ng credi t to each ot her ' s execut i ve of f i cer s, di r ectors, or pr i n

ci pal shar ehol ders unl ess t he ext ensi on of cr edi t i s (1) made on subst ant i al l y the same terms as those pr evai l i ng at the t i me for comparabl et r ansact i ons wi t h other per sons and (2) does not i nvol ve more than thenor mal r i sk of r epayment or pr esent other unf avorabl e f eat ures. Ti t l eVI I I al so pr ohi bi t s the openi ng of a cor r espondent account r el at i onshi pbet ween banks wher e t here i s a pr ef er ent i al ext ensi on of credi t f r om

one of t he banks to an execut i ve of f i cer , di r ector , or pr i nci pal shar ehol der of the other bank.

A pr i nci pal sharehol der of a bank i s a per son t hat di r ect l yor i ndi r ect l y owns, cont rol s, or has the power to vot e more than 10per cent of any cl ass of vot i ng secur i t i es of the bank. Shares of abank or bank hol di ng company owned or cont r ol l ed by a member of an i ndi vi dual ' s i mmedi at e f ami l y are consi der ed to be cont r ol l ed by t he i ndi vi dual f or the pur poses of det er mi ni ng pr i nci pal shar ehol der stat us.

Ti t l e VI I I def i nes an execut i ve of f i cer as t he t erm i s def i ned i n sect i on 22(g) of t he Federal Reser ve Act. The Boar d has def i ned the t ermas used i n t hat st at ut e as a per son who par t i ci pates or has aut hori t yto par t i ci pat e ( other t han i n t he capaci t y of a di rector ) i n maj or

pol i cymaki ng f unct i ons of the bank. The agenci es have appl i ed t hi sdef i ni t i on, whi ch i s f ound i n sect i on , 215. 2(d) of Subpar t A of t he Boar d' sRegul at i on 0, to Ti t l es VI I I and I X. -

Whi l e the proposed regul ati ons i ncl uded a subsect i on that

restat ed the pr ohi bi t i ons of Ti t l e VI I I , thi s r estat ement el i ci t ed l i t t l e

comment and has been el i mi nat ed f r om the f i nal r egul at i on. The f i nalregul at i on, i ncl udi ng t he def i ni t i ons cont ai ned t herei n, r el at e to ther eport i ng r equi r ement s i mposed by Ti t l es VI I I and I X of FI RA on memberbanks and t hei r execut i ve of f i cer s and pr i nci pal sharehol der s. However ,the f i nal rul e cont ai ns a def i ni t i on of "cor r espondent account , " whi ch

1/ Unl i ke the def i ni t i on i n Subpar t A, an execut i ve of f i cer of a memberbank, f or the purposes of Ti t l es VI I I and I X and thi s Subpar t , doesnot i ncl ude an execut i ve of f i cer of a bank hol di ng company of whi chthe member bank i s a subsi di ary or of any other subsi di ary of that bankhol di ng company unl ess t hat person i s al so an execut i ve of f i cer of the

member bank. Si mi l ar l y, a di r ector of a member bank does not i ncl udea di r ect or of a bank hol di ng company of whi ch t he member bank i s a subsi di ary or of any other subsi di ary of t hat bank hol di ng company unl esst hat person i s al so a di r ect or of the member bank.

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the agenci es bel i eve shoul d be used by banks i n compl yi ng wi t h thepr ohi bi t i ons of Ti t l e VI I I . I n compl yi ng wi t h t hese pr ohi bi t i ons, banksshoul d al so use t he def i ni t i on of execut i ve of f i cer i n sect i on 215. 2(d)of the Boar d' s Regul at i on 0 and the def i ni t i on of cont r ol i n sect i on

215. 2(b) of Regul at i on 0.

2. Ti t l e VI I I Repor t s by Execut i ve Of f i cer s and Pr i nci palShar ehol der s. I n addi t i on to i ts pr ohi bi t i ons, Ti t l e VI I I cont ai nst wo r epor t i ng r equi rement s. The f i r st r epor t i s r equi r ed f r om execut i veof f i cer s and pr i nci pal "st ockhol der s of record" of f eder al l y i nsuredbanks. — Ti t l e VI I I does not r equi r e thi s repor t t o be made avai l abl eto t he publ i c. As di scussed i n the next sect i on, t he second reporti s requi r ed f r om the i nsured bank i t sel f and, under the statut e, mustbe made avai l abl e to the publ i c. The Ti t l e VTI I r epor t s are not re-qui r ed f rom, and do not cover i ndebt edness of , bank di r ectors unl essthe di r ect or i s al so a pr i nci pal st ockhol der or an execut i ve of f i cer .As di scussed bel ow, the agenci es have def i ned pr i nci pal "st ockhol der

of record" to mean a pr i nci pal sharehol der ( i _ . e . , a person that , di -r ect l y or i ndi rect l y, owns, cont r ol s, or has the power t o vot e mor et han 10 per cent of any cl ass of vot i ng secur i t i es of t he bank) .

Under Ti t l e VI I I , each execut i ve of f i cer or pr i nci pal shar ehol der

of an i nsur ed St at e bank i s r equi r ed to repor t to the boar d of di r ect or sof t hat bank annual l y the f ol l owi ng i t ems: —

a. the "maxi mum amount of i ndebt edness" of the

execut i ve of f i cer or pr i nci pal shar ehol derand of each of t hat per son' s r el at ed i nt er -

ests U. e. , cont r ol l ed compani es or pol i t i calor campai gn commi t t ees) to each bank thatmai nt ai ns a corr espondent account ( "cor r espon-dent bank") f or the r eport i ng person' s bank;

b. the amount of i ndebt edness out st andi ng asof a date 10 days before t he repor t i s f i l edof the execut i ve of f i cer or pr i nci pal shar e-hol der and of each of t hat per son' s r el atedi nt erest s t o each cor r espondent bank; and

2 / Whi l e the pr ohi bi t i ons of Ti t l e VI I I appl y to al l banks, ther epor t i ng requi r ement s of Ti t l e VI I I are l i mi t ed to f eder al l y i nsured

banks. As used i n Ti t l es VI I I and I X, i nsur ed bank means a nat i onalbank, a State member bank, and a f ederal l y i nsured nonmember State bank.3/ Under Ti t l e VI I I , t he execut i ve of f i cer or pr i nci pal shar ehol dermust f i l e a report i f the person i s i ndebt ed dur i ng the year to a cor -r espondent bank. I f the of f i cer or sharehol der i s not i ndebt ed to acorr espondent bank, the of f i cer or shar ehol der i s not r equi r ed to f i l ea repor t . However , where the of f i cer or sharehol der i s not i ndebt edto a corr espondent bank but a r el at ed i nt erest ( s) ( cont rol l ed companyor pol i t i cal or campai gn commi t t ee) of the of f i cer or shar ehol der i sso i ndebt ed, the r egul at i on r equi res t he of f i cer or shar ehol der to fi l ea r epor t concer ni ng the i ndebt edness of the per son' s r el at ed i nt erest ( s) .

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c. t he t erms and condi t i ons ( i ncl udi ng the rangeof i nt erest r ates) f or each extensi on ofcredi t i ncl uded i n the f i gure r epor t ed. asthe ’’maxi mum amount of i ndebt edness. "—

I n answer to numerous comment s r ef l ect i ng concern over per sonalpr i vacy, the agenci es wi sh to stress t hat the bank i s not r equi r ed by Ti t l e VI I I or I X or by t hese regul at i ons to make t hese report s avai l abl eto the publ i c. The r epor t s submi t t ed by execut i ve of f i cer s and pr i n-ci pal shar ehol der s t o the boar d of di r ectors of the i nsured bank mustbe mai nt ai ned at the bank for t hree year s and shoul d not be f orwardedto t he appropr i ate Federal banki ng agency unl ess t he agency so request s.

The appropri at e agency may r equi r e the r eport s to be r etai ned by thebank for an addi t i onal peri od of t i me. The repor t s are, of course,subj ect to i nspect i on by exami ners of the appr opr i ate Federal banki ngagency.

3. Ti t l e VI I I Repor t By I nsured Banks. Ti t l e VI I I r equi r eseach i nsured bank to compi l e the report s submi t t ed to i t by i ts execu-t i ve of f i cer s and pr i nci pal shar ehol der s and to f ur ni sh such compi l at i onannual l y to the appr opr i at e banki ng agency. The r egul at i on speci f i est hat thi s compi l at i on r equi r ement shal l be sat i sf i ed t hrough the sub-mi ssi on of t he i nf or mat i on i n the publ i c r epor t r equi red to be f i l edby i nsured banks under Ti t l e VI I I .

Title VIII requires each insured bank to file with the appropriate

banking agency an annual report listing:

1. t he name of each execut i ve of f i cer or pr i nci pal shar e-hol der who f i l es a report of i ndebt edness wi t h the bank’s

board of di r ect or s; and

2. t he "aggregate amount of al l ext ensi ons of cr edi t " madeto t hese persons and t hei r r el at ed i nt erest s by each

cor r espondent bank of the i nsured bank.

The agencies have defined "aggregate amount of all extensions of credit" as a single figure that represents the sum of the "maximum amounts of

indebtedness" reported to the insured bank’s board of directors by the bank's executive officers and principal shareholders. This report will be made a part of the report filed by the insured bank under Title IX.

The Title IX report must be made available to the public by the appro

priate Federal banking agency and by the bank itself.

4/ The regul at i on does not r equi re a report on the t erms and condi t i onsof i ndebt edness out st andi ng 10 days before the report i s f i l ed.

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4. Ti t l e I X Repor t By I nsur ed Banks. Ti t l e I X r equi r eseach i nsured bank to f i l e wi t h the appr opr i ate Federal banki ng agencyan annual r epor t l i st i ng:

1. t he name of each of i ts pr i nci pal shar ehol ders as ofDecember 31 of the r eport i ng year;

2. t he name of each execut i ve of f i cer or pr i nci palsharehol der dur i ng the year who was i ndebt ed, or whoser el ated i nt er est was i ndebted, t o the bank dur i ng they e a r a n d

3. the "aggr egate amount of al l ext ensi ons of cr edi t " bythe i nsured bank duri ng the year to t hese per sons andthei r r el at ed i nt erests.

As di scussed i n sect i on B5 bel ow, the agenci es have def i ned "t he aggr egateamount of al l ext ensi ons of credi t " as t he sum of the hi ghest amountof cr edi t extended by the member bank duri ng t he year to each of i t sexecut i ve of f i cer s and pr i nci pal shar ehol der s and to each of t hei r re-l ated i nt erest s. The Ti t l e I X report s must be made avai l abl e to thepubl i c by the i nsured bank and by the appropr i ate banki ng agency.

B* DI SCUSSI ON OF I SSUES

The bul k of the comment s the agenci es r ecei ved on the proposedr egul at i on f ocused on par t i cul ar si t uat i ons i n whi ch the r epor t i ng re-qui r ement s were not appr opr i ate, woul d be cost l y, woul d i mpose subst an-t i al bur den on r epor t i ng persons, or woul d be di f f i cul t , i f not i mpos-

si bl e, to compi l e. A di scussi on of the maj or i ssues r ai sed by the comment sand the st eps t aken by the agenci es to addr ess the i ssues f ol l ows.

1. Corr espondent Account . Whi l e the pr ohi bi t i ons andr epor t i ng requi r ement s of Ti t l e VI I I are based on the exi st ence of acorr espondent account r el at i onshi p, t he st at ut e does not def i ne thet erm corr espondent account . The pr oposed r egul at i on def i ned the t ermcor r espondent account as an account mai ntai ned by one bank wi t h anotherf or t he deposi t or pl acement of f unds. The not i ce accompanyi ng thepr oposed r egul at i on asked f or comment on thi s def i ni t i on as wel l ason whether t i me deposi t s and account s mai nt ai ned f or f ederal f unds t r ans-act i ons shoul d be excl uded f rom the def i ni t i on of corr espondent account .Most of the comment er s wer e general l y sat i sf i ed wi t h the def i ni t i on,

provi ded that the suggested excl usi ons f or t i me deposi t s and f ederalf unds were adopt ed.

5/ I n the r egul at i on i ssued f or comment , the agenci es proposed t hatthi s l i st i ncl ude each execut i ve of f i cer or pr i nci pal shar ehol der ofthe member bank, whet her or not the person was i ndebt eded to the memberbank. The agenci es have modi f i ed thi s sect i on to requi r e a l i st ofonl y t hose execut i ve of f i cer s or pr i nci pal shar ehol ders who wer e i ndebted,or whose r el ated i nt erests were i ndebt ed, as mor e accur atel y r ef l ect i ng

t he l egi sl at i ve i nt ent of the stat ut e as wel l as i ts str uctur e.

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I n t he f i nal r egul ati on, t he agenci es have excl uded t i medeposi t s and account s mai nt ai ned sol el y for f ederal f unds or Eurodol l art r ansact i ons at pr evai l i ng mar ket r at es f r om the def i ni t i on of cor r espondent account . These t ypes of t r ansact i ons are not general l y consi dered

as est abl i shi ng corr espondent account s. The agenci es bel i eve t heseexcl usi ons are appr opr i at e and consi st ent wi t h the Congr essi onal i nt entbehi nd the st atut e, whi ch appears t o have been f ocused on non- i nterestbeari ng or demand account s. Si nce the excl uded t r ansact i ons are general l y made onl y at prevai l i ng market r at es (and the excl usi on i s sol i mi t ed i n the r egul at i on) , the possi bi l i t y of abuse of t hese t ypesof account s f or the benef i t of persons associ ated wi t h t he bank i sremot e.

Whi l e a number of comment ers pr oposed addi t i onal excl usi onsf rom the def i ni t i on of cor r espondent account ( such as account s mai nt ai ned f or cr edi t car d f aci l i t i es or t r avel l er s checks, account s opened

i n a f i duci ar y capaci t y, account s mai nt ai ned to cl ear checks or f or

secur i t i es t r ansact i ons, account s used f or cor r espondent busi ness f orsmal l banks, or account s mai nt ai ned f or br i ef per i ods of t i me) , t heagenci es do not bel i eve t hat t hese excl usi ons are war r ant ed. The l egi sl at i ve hi st or y of the st at ut e i ndi cat es t hat t he reason f or i t s enact ment was t he di f f i cul t y experi enced i n determi ni ng whether an account( such as one used to cl ear checks) was bei ng used f or l egi t i mate pur poses or, i n whol e or i n par t , to secure benef i t s f or bank i nsi ders.

The pref erent i al l endi ng prohi bi t i ons of Ti t l e VI I I were desi gned toel i mi nate t he necessi t y to pr ove t hat the account was not mai ntai nedf or a l egi t i mat e pur pose by pr ohi bi t i ng al l pr ef er ent i al credi t extensi ons by a cor r espondent bank, whether or not the cor r espondent accountwas mai ntai ned for a l egi t i mate purpose.

2. Cor r espondent Bank. The regul at i on publ i shed f or commentpr oposed to l i mi t the r epor t i ng r equi r ement s of Ti t l e VI I I t o t hosecor r espondent banks that mai ntai ned cor r espondent accounts f or the memberbank of $100, 000 or more dur i ng the report i ng year . I n other words,execut i ve of f i cers and pri nci pal shar ehol ders of a member bank woul d

r eport t hei r i ndebt edness to the member bank' s cor r espondent banks onl ywher e the cor r espondent account rel at i onshi p aggregated $100, 000 ormore dur i ng the year . A cut - of f f i gure was bel i eved appr opr i ate toel i mi nat e report i ng of i ndebt edness f r om banks mai nt ai ni ng correspondent account s of an i nsi gni f i cant si ze, wher e t here was bel i eved tobe l i t t l e i f any pot ent i al f or i nsi der abuse. Banks t hat hol d i nsi gni f i cant account s f or another bank are not general l y regarded as havi nga corr espondent account r el at i onshi p wi t h that bank.

Most of the comment ers f avor ed a cut - of f f i gure for the

cor r espondent account s based on an average dai l y bal ance dur i ng t heyear , si nce a cor r espondent account coul d exceed $100, 000 f or onl y af ew days dur i ng the year and t hus mi ght not accur atel y ref l ect the ext ent of t he corr espondent r el at i onshi p between the banks. Whi l e theagenci es bel i eve t hat a dol l ar cut - of f f or cor r espondent banks i s appropr i ate, t he agenci es bel i eve that an aver age dai l y bal ance of

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— — —— — — — — I mI n I I

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$100, 000 dur i ng the year may be too hi gh i n the case of smal l er banks.Accordi ngl y, t he agenci es have deci ded not to requi r e a member bank’sexecut i ve of f i cer s or pr i nci pal shar ehol der s t o repor t on thei r i ndebt edness to banks t hat mai ntai n cor r espondent accounts f or the member bank

that do not exceed an average dai l y bal ance of $100, 000 or 0. 5 per centof the member bank’ s total deposi t s (as report ed i n the member bank' sf i r st consol i dat ed repor t of condi t i on dur i ng the repor t i ng year ) , whi ch

ever amount i s smal l er.

3. "St ockhol der of Recor d" . The pr ohi bi t i ons of Ti t l e VI I Iappl y to any person ( company or i ndi vi dual ) t hat owns, cont rol s, orhas power to vot e more t han 10 per cent of a bank' s vot i ng shares.

The r eport i ng r equi r ement s of Ti t l es VI I I and I X, however, appl y toeach "st ockhol der of record" who "di r ect l y or i ndi rect l y" owns, cont rol s, or has t he power to vot e more than 10 per cent of a bank' s vot i ngshares. The t er m "st ockhol der of r ecord" i s not def i ned i n the Act.

The proposed r egul at i on def i ned "st ockhol der of record" i nconf ormi t y wi t h the pr ohi bi t i ons of Ti t l e VI I I as any per son who di r ect l y or i ndi r ect l y owns, cont rol s, or has t he power to vot e the bank' sshares. Thi s def i ni t i on woul d i ncl ude t he act ual owner of the shares,whether or not that per son'g . name appear s on the bank' s st ock r egi st er

as the owner of the shar es. — The Board recei ved no adverse commenton thi s aspect of the def i ni t i on of pr i nci pal stockhol der . Thi s i nt er pr et at i on i s consi stent wi t h the l egi sl at i ve hi stor y of Ti t l es VI I Iand IX, whi ch shows a cl ear Congressi onal i nt ent to cover the act ualmaj or shar ehol der s of the bank rat her t han- i ust t hose per sons whosenames appear on the bank' s st ock r egi st er . — I f Ti t l e VI I I ' s r epor t i ngr equi r ement were conf i ned sol el y to st ockhol der s whose names appearon the bank' s st ock regi st er , the r epor t i ng r equi r ement s of the st at ut ewoul d not conf orm to the pr ohi bi t i ons of the st atute and woul d be al most ,i f not compl etel y, meani ngl ess. Accordi ngl y, t he agenci es have adopt edi n the f i nal rul e the def i ni t i on of "st ockhol der or record" as proposed.

6/ The def i ni t i on woul d al so i ncl ude those persons who cont r ol themember bank' s parent bank hol di ng company. A per son ( i ndi vi dual orcompany) that cont r ol s a member bank' s par ent bank hol di ng company woul d"i ndi r ect l y" cont r ol t he member bank. Cont r ol of a company i s def i ned,as i n Ti t l e I of FI RA and Subpart A of Regul at i on 0, as general l y 25per cent of the company' s out st andi ng vot i ng shares, cont r ol of theel ect i on of a maj or i t y of the company' s board of di r ect or s, or the power

to exerci se a cont r ol l i ng i nf l uence over the management or pol i ci esof the company.V See H. Rep. No. 95- 1383, 95th Cong. , 2d Sess. 6, 16 (1978) ; r emarksof Congr essman St Germai n, 124 Congr ess i onal Recor d H11724 (Oct. 5,1978) .

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4. Banks as Pr i nci pal Shar ehol der s. Under Ti t l es VIII andIX, a bank t hat cont r ol s another bank coul d be vi ewed as a pri nci palshar ehol der and subj ect to the r eport i ng r equi r ement s of Ti t l es VIII and IX. Thi s si t uat i on woul d ari se mai nl y i n the case of f orei gn banks,

si nce U. S. banks are general l y pr ohi bi t ed f r om hol di ng shares of anot herbank. The f i nal r egul ati on excl udes banks ( i ncl udi ng i nsur ed banksand foreign banks) from the definition of principal shareholder for the purposes of the reporting requirements of Titles VIII and IX. Of course, individuals and non-bank companies controlling banks that con

trol other banks are principal shareholders covered by the reporting requirements of Titles VIII and IX.

The agenci es do not bel i eve t hat nor mal and r out i ne i nterbank t r ansact i ons wer e the type of t r ansact i ons f or whi ch the r epor t i ngr equi r ements were desi gned or whi ch t hey can adequatel y accommodate.Several comment ers i ndi cated that , because of the vol ume of r out i nei nt er - bank t r ansact i ons, the bank pr i nci pal shar ehol der s woul d f i nd

t he report extr emel y burdensome and cost l y, i f not i mpossi bl e, to compi l e. I ncl usi on of i nt er - bank t r ansact i ons woul d al so i nf l at e the aggregate f i gur e report ed by the bank and woul d be mi sl eadi ng. The excl usi on of bank pr i nci pal shar ehol der s f r om the r epor t i ng requi r ement sof Ti t l es VI I I and I X i s consi st ent wi t h the l endi ng r est r i cti ons ofsect i on 22(h) of t he Feder al Reserve Act (Ti t l e I of FI RA, 12 U. S. C.375b) , whi ch excl udes i nsured banks as pr i nci pal shar ehol ders, the exempt i on fr om the af f i l i at e l endi ng r est r i cti ons of secti on 23A of the Feder al Reser ve Act (12 U. S. C. § 371c) f or l oans by a member bank to ani nsur ed bank, where t he member bank owns 50 per cent of t he i nsuredbank' s vot i ng shares, and the i nt ent by Congr ess not t o di sr upt t r ansact i ons bet ween a bank and i t s cor r espondent s. —

5. Amount of I ndebt edness to be Repor t ed. Under Ti t l e VI I I ,t he execut i ve of f i cers and pr i nci pal st ockhol der s of an i nsur ed bankmust r eport to the boar d of di r ectors of t hei r bank t he "maxi mum amountof i ndebt edness" of t he of f i cer or st ockhol der and each of t hat per son' sr el ated i nt erest s t o each of t he i nsured bank' s corr espondent banks.

The proposed r egul at i on def i ned "maxi mum amount" as the hi ghest i ndebt edness out st andi ng dur i ng the year . The f i nal r egul at i on r et ai ns thi sdef i ni t i on of maxi mum amount , but al l ows the repor t i ng person t he opt i onof r eport i ng i nst ead the hi ghest end of the mont h i ndebt edness outst and

i ng dur i ng the year. A number of commenters f avor ed the hi ghest endof the mont h bal ance because smal l er banks do not mai ntai n recor ds thati ndi cat e dai l y borr ower i ndebt edness. Thi s opt i on woul d al l ow the repor t i ng person to check onl y the mont hl y l oan st atement s f r om l endi ng

banks, t her eby reduci ng the t i me and burden of the r eport i ng r equi r ementto the report i ng person as wel l as t he cor r espondent banks.

8/ Si nce f or ei gn banks and t hei r U. S. bank subsi di ar i es deal wi t h

many of the same cor r espondent banks, t he i ncl usi on of the f orei gn bankas a pr i nci pal shar ehol der woul d r est r i ct (and i n some cases prohi bi t )nor mal t r ansact i ons bet ween the f orei gn bank and i ts own cor r espondentbanks. Such a resul t does not appear to have been i ntended by Congress.

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I n the not i ce to the r egul at i on proposed f or comment , theBoard asked for comment on whether "maxi mum amount" shoul d be def i nedas t he si mpl e sumof al l ext ensi ons made dur i ng the year and whetherthi s al t er nat i ve def i ni t i on woul d be l ess bur densome for the repor t i ng

person. The comment ers uni versal l y r ecommended agai nst t hi s approachon the basi s t hat the sum approach woul d yi el d a hi ghl y i nf l at ed andmi sr epr esentat i ve f i gure. The comment ers al so di d not bel i eve t hatthe sum appr oach woul d reduce the repor t i ng burden to any si gni f i cantextent . Accordi ngl y, the agenci es have det ermi ned not to adopt thesum approach.

As i ndi cat ed above, under Ti t l e VI I I the i nsured bank repor t sto the appr opr i ate Federal banki ng agency, "t he aggr egate amount ofal l ext ensi ons of credi t " to i ts execut i ve of f i cer s and pr i nci pal sharehol der s and thei r r el at ed i nt erest s f r om corr espondent banks. Theagenci es have def i ned the "aggregate amount" as the sum of the maxi mumamount s of i ndebt edness r eport ed to the bank’s board of di r ectors by

i ts execut i ve of f i cer s and pr i nci pal sharehol ders. I n ot her words,the banks are onl y requi red to tot al t he f i gures r epor t ed to them bythei r of f i cer s and shar ehol ders and submi t thi s t ot al (a si ngl e f i gure)to the appropr i ate agency.

Under Ti t l e IX, the i nsured bank repor t s to the appr opr i ateagency the "aggregat e amount of al l extensi ons of credi t " the i nsuredbank makes t o i ts execut i ve of f i cer s and pr i nci pal shar ehol ders andthei r r el at ed i nterest s. Consi st ent wi t h t he def i ni t i on i n Ti t l e VI I I ,t he agenci es have def i ned "aggr egate amount " i n Ti t l e I X as t he sumof the hi ghest amount s of cr edi t out st andi ng dur i ng t he year ( or as ' anal t ernat i ve the hi ghest end of the mont h cr edi t out st andi ng dur i ng the

year) f r om the member bank to each of i ts execut i ve of f i cers and pri nci pal shar ehol der s and to each of the rel at ed i nt erest s of such persons The sum of the hi ghest amounts ( rather t han the sum of al l ) cr edi t ext ended woul d be repor ted. Thi s approach woul d, as i n the Ti t l e VI I Irepor t , mor e accur atel y ref l ect the extent to whi ch the bank i s ext endi ng credi t t o i ts i nsi ders. The comment er s f avored thi s def i ni t i onof "aggregate amount " because i t woul d be more repr esent at i ve of theext ent of l endi ng by a bank to i ts of f i cers and sharehol ders.

6. Banks as Rel ated I nterest s. Under Ti t l e I X, each memberbank must report the aggregate amount of cr edi t ext ended to i ts pr i nci pal shar ehol ders (whi ch by def i ni t i on woul d i ncl ude the bank' s par entbank hol di ng company) and the rel at ed i nt erest s of the pr i nci pal shar e

hol ders, whi ch woul d i ncl ude al l t he other subsi di ar i es ( i ncl udi ngbanks) of the par ent bank hol di ng company. I n the case of mul t i - bankhol di ng compani es, the vol ume of i ndebt edness bet ween bank subsi di ari escoul d be subst ant i al . The comment ers i ndi cat ed that the pr act i cal di f f i cul t i es and the bur den and cost of cal cul at i ng and keepi ng t rack oft hese i nterbank t r ansact i ons woul d be i mmense. Several of the comment ers i ndi cat ed they di d not bel i eve i t possi bl e to compl y becauseof the number of t hei r subsi di ar i es and the extent of thei r operat i ons.Mor eover , thi s i nt er - bank i ndebt edness woul d t r emendousl y i nf l at e theaggregate amount of debt report ed and render the f i gure al l but meani ngl ess.

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Thi s same probl em exi st s i n Ti t l e VI I I but i s greatl ymagni f i ed. Under Ti t l e VI I I , a pr i nci pal shar ehol der of an i nsuredbank must r eport on i ndebt edness to the shar ehol der and to each of t heshar ehol der ' s r el at ed i nt er est s f r om each of t he i nsur ed bank' s cor

r espondent banks. Si nce a bank hol di ng company qual i f i es as a pr i nci palsharehol der, a bank hol di ng company must r eport not onl y on i t s i ndebt edness t o each of the cor r espondent banks of each of i t s subsi di ary banks,

but al so on the i ndebt edness of each of t he hol di ng company' s r el atedi nt er est s ( i ncl udi ng each of i t s subsi di ar y banks) t o each of t he corr espondent banks of each of t he hol di ng company' s subsi di ary banks.I n the case of a mul t i - bank hol di ng company syst em, the number and compl exi t y of t he report s and the corr espondi ng recor dkeepi ng bur den isi mmense. — To compl y wi t h the report i ng requi r ement s, t he hol di ng company must mai ntai n recor ds on the t r ansact i ons bet ween each of i tssubsi di ar y banks and al l t he cor r espondent s of al l of i t s ot her subsi di ary banks. Consi der i ng the vol ume of i nt er bank t r ansact i ons betweencor r espondent s and the number of cor r espondent banks i nvol ved, the

r ecor dkeepi ng burden woul d be subst ant i al , woul d exceed any benef i tder i ved f r om the report , and woul d t end t o di sr upt nor mal banki ng re

l at i onshi ps.

I n l i ght of t he undue burden t hat woul d r esul t i n t hese casesand i n accor dance wi t h the i nt ent of Congr ess i n Ti t l es VI I I and I Xnot to di sr upt r out i ne t r ansact i ons between banks, t he agenci es havedetermi ned to excl ude banks ( i ncl udi ng f or ei gn banks) f r om the def i ni t i on of " r el at ed i nt erest " i n t he f i nal r egul at i on. The excl usi onof i nsur ed banks i s ent i r el y consi st ent wi t h the st at ut or y def i ni t i on

of "company" i n sect i on 22(h) of t he Federal Reser ve Act ( Ti t l e I ofFI RA) . I n t hat Ti t l e, Congr ess expr essl y excl uded i nsur ed banks f romthe def i ni t i on of company so as not to i nt er f er e wi th, and i n r ecogni t i on

of t he t r emendous vol ume of , i nt er - bank t r ansact i ons. Si nce the Ti t l eI X r eport was i nt ended by Congr ess as a r eport f or Ti t l e I i ndebt edness

( that i s i ndebt edness of a bank' s own i nsi ders to the bank), t he agenci es bel i eve the excl usi on of i nsur ed bank f r om t he def i ni t i on of company i s appr opr i ate and consi st ent wi t h the Congr essi onal i nt ent underl yi ng Ti t l e I X. The i nf or mati on on i nt er - bank tr ansact i ons among bank

hol di ng company subsi di ary banks i s avai l abl e to the agenci es thr ough

r eport s and exami nat i ons of bank hol di ng compani es.

9/ This is particularly true since in many cases affiliate banks have correspondent account relationships with many of the same banks. The statute was clearly not intended to prohibit or require reports on ex

tensions of credit to a bank from its correspondent banks. Inclusion of banks as related interests would have this effect in many cases.

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The excl usi on of banks f rom the def i ni t i on of r el ated i nterestf or the Ti t l e VI I I r epor t i s al so consi st ent wi t h the Congr essi onali ntent under l yi ng Ti t l e VTI I . I n t hat Ti t l e, Congr ess i nt ended to pr o

hi bi t the mi suse of a bank' s corr espondent account f or the benef i t ofi nsi der s t hr ough pr ef er ent i al extensi ons of credi t . Ther e was no i nt entto rest r i ct, or requi re repor t s on, r out i ne i nt er - bank tr ansacti onsor cr edi t . extensi ons by a corr espondent bank t o t he deposi t i ng banki t sel f . — See H. Rep. No. 1383, 95th Cong. , 2d Sess. , 8, 13 (1978).

Thi s Congressi onal i ntent i s al so evi denced i n the i ncorpor at i on i n Ti t l e VI I I of the def i ni t i on of "extensi on of cr edi t " i n sect i on 23Aof the Feder al Reserve Act, whi ch def i ni t i on excl udes cer t ai n rout i nei nt er - bank t r ansact i ons.

7. Types of I ndebt edness Repor t ed. Under Ti t l e VI I I ,execut i ve of f i cer s or pr i nci pal shar ehol ders must repor t on t hei r i ndebt edness and thei r r el at ed i nterest s' i ndebt edness to cor r espondent

banks. The pr oposed r egul at i on i ncor por at ed the def i ni t i on of "extensi on of credi t " cont ai ned i n Subpar t A of the Boar d' s Regul at i on 0.Under t hat def i ni t i on, a pur chase by a cor r espondent bank of commerci alpaper , publ i cl y t r aded bonds or debent ures i ssued by a pr i nci pal shar ehol der of a bank (or a rel at ed i nt erest of the pr i nci pal sharehol der )f or whi ch t he cor r espondent bank mai ntai ned a cor r espondent accountwoul d const i t ut e an ext ensi on of cr edi t and woul d be repor t abl e. Anumber of comment ers i ndi cated that the burden i mposed on the report i ngperson to mai ntai n records on pur chases of commerci al paper of the repor t i ng per son or of a r el at ed i nt erest woul d be consi derabl e. I ndeed,i f the paper i s i n bearer f orm, the report i ng per son may not know whi ch,i f any, cor r espondent banks may have pur chased the paper.

The f i nal r egul at i on def i nes the t erm " i ndebt edness" as anextensi on of credi t as def i ned i n Subpar t A of Regul at i on 0, but excl udes commerci al paper , bonds, and debentures i ssued i n the ordi nar ycourse of busi ness. The agenci es bel i eve t hat Congr ess di d not i nt endto requi re repor t s on these types of t r ansact i ons as t here appear sl i t t l e i f any pot ent i al f or the t ype of cor r espondent account abusethat the repor t i ng r equi r ement s of Ti t l e VI I I wer e i nt ended to reveal .Accordi ngl y, the agenci es have det ermi ned t hat i t woul d be appropr i ateand consi st ent wi t h the Act not to i ncl ude such i t ems as i ndebt edness.

The agenci es have al so excl uded f rom the t erm i ndebt ednessconsumer cr edi t aggregat i ng $5, 000 or l ess f romeach corr espondent bank,

provi ded the i ndebt edness i s i ncur red under t erms t hat are not moref avor abl e t han those of f er ed to the gener al publ i c. Thi s excl usi onmerel y car r i es f orwarded the excl usi on of $5, 000 i n open end credi tf r om the def i ni t i on of "ext ensi on of credi t " i n Subpar t A of Regul at i on 0.

10/ The focus of Congressional attention in this area was on individuals who had used their bank positions for their personal benefit. There is little, if any, evidence that Congress intended to cover bank holding companies as insiders or bank subsidiaries as related interests for the purposes of these reports.

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8• Descr i pt i on of the Ter ms and Condi t i ons of I ndebt edness.

I n addi t i on to r eport i ng i nf ormati on on the amount of i ndebt edness t ocor r espondent banks, t he pr i nci pal shar ehol der or execut i ve of f i ceri s requi r ed by Ti t l e VI I I to repor t i nf or mat i on on the t erms and con

di t i ons ( i ncl udi ng the r ange of i nt er est s rates) of such i ndebt edness. The f i nal r egul at i on r equi r es the r epor t i ng per son to submi t i nf ormat i onon the ter ms and condi t i ons ( i ncl udi ng the r ange of i nt er est rates,the or i gi nal amount , dat e, mat ur i t y, payment t erms, secur i t y, i f any,and any ot her unusual t er m or condi t i on) on each extensi on of credi tt hat i s i ncl uded i n the maxi mum amount of i ndebt edness report ed. Thet er ms and condi t i ons must be r eport ed f or ext ensi ons of cr edi t t o ther epor t i ng per son as wel l as t he r el at ed i nt er est s of the repor t i ng person. The r epor t i ng person i s not r equi r ed to pr ovi de thi s i nf ormat i onf or the i ndebt edness r eport ed 10 days before the r eport i s f i l ed.

9. Ti me f or Fi l i ng Repor t s. The pr oposed r egul at i on

r equi r ed execut i ve of f i cer s and pr i nci pal shar ehol der s t o f i l e r epor t s

of i ndebt edness wi t h thei r bank' s boar d of di r ect ors by J anuary 10 ofeach year . The i nsur ed bank was requi r ed to r eport to the appropr i atebank agency by J anuary 31. A l arge number of comment ers i ndi cated thatthe J anuary 10 date i s t oo cl ose t o the end of t he year when numerousot her r eport s must be f i l ed. A number of banks al so suggest ed a l ater

dat e f or the bank' s J anuar y 31 r eport i ng date.

In view of these comments, the final regulation provides that executive officers and principal shareholders must report to their bank on or before January 31 of each year, rather than by January 10. The bank must report to the appropriate agency by March 31 of each year,

rather than January 31.

Under Ti t l e VI I I , execut i ve of f i cer s and pr i nci pal shar ehol der smust st i l l r epor t on t hei r i ndebt edness to corr espondent banks out st andi ng10 days before t he date t he r epor t i s f i l ed wi t h thei r bank’s boardof di rectors. A number of comment ers i ndi cated t hat t he 10 day per i oddi d not provi de enough ti me to compi l e t he amount of i ndebt edness out st andi ng to cor r espondent banks 10 days bef ore the date the r eport i sf i l ed. The 10- day t i me l i mi t i s a r equi r ement of t he st at ute. However ,

i n vi ew of t he f act t hat the report i ng per son may not be abl e to det ermi ne thi s amount i n the shor t t i me peri od pr ovi ded, the agenci eshave pr ovi ded i n the f i nal r egul at i on that the of f i cer or sharehol dermay est i mate the amount of i ndebt edness out st andi ng 10 days bef ore ther epor t i s f i l ed pr ovi ded the cor r ect amount i s f i l ed wi t hi n the next

30 days.

In the notice accompanying the proposed regulation, the

agencies indicated that they would consider limiting the time period for which the reports must be filed in the first year to the period from July 1 through December 31, 1979. The agencies believe this is

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necessary in order to provide for the orderly implementation of the statute's reporting requirements. The agencies do not believe that any further extension of the period is necessary since the reporting

persons and banks were allowed sufficient time between the publication

of the proposed regulation and the beginning of the reporting period to make adequate preparations for the reporting requirements.

10. Forms. The agenci es are pr epar i ng f orms f or the publ i cr epor t s r equi r ed to be f i l ed by i nsured banks under Ti t l es VIII andIX. The f i r st of t hese report s i s not due to be f i l ed unt i l March 31,1980. A suggest ed f ormat f or the r eport s t o be made by execut i ve of -f i cer s and pr i nci pal shar ehol der s t o thei r bank' s boar d of di r ect or si s al so bei ng pr epared. Thi s f orm i s not a mandat ory agency f orm, butwi l l be pr ovi ded as a gui de to assi st execut i ve of f i cer s and pr i nci palshar ehol ders i n compl yi ng wi t h thei r r epor t i ng requi r ement s under Ti t l e

VIII. These f orms wi l l be made avai l abl e to member banks i n the nearf uture for di st r i but i on to t hei r execut i ve of f i cer s and pr i nci pal shar e-

hol der s.

11• Responsi bi l i t y of I nsured Banks to I nf or m Of f i cer s andSharehol ders of Requi r ement s of Ti t l e VI I I . The agenci es have al sor equi r ed that each, i nsur ed bank advi se i t s execut i ve of f i cer s and pr i n-ci pal sharehol ders (to the ext ent known by the bank) of the r eport sr equi r ed by Ti t l e VI I I and to make avai l abl e to these persons a l i stof the i nsured bank' s cor r espondent banks. Thi s r equi r ement i s nec-essar y to ensur e that al l per sons r equi red to f i l e the Ti t l e VI I I re-port s wi t h thei r bank' s boar d of di r ectors are aware of the requi r ement sof the st atute and are pr ovi ded wi t h the names of cor r espondent banksnecessary to compl y wi t h the stat ut e.

The expanded procedures set f ort h i n the Boar d' s pol i cyst atement of J anuary 15, 1979 (44 F. R. 3957) , were not st r i ct l y f ol l owedi n devel opi ng t hi s regul at i on, si nce the pr oposal was i ni t i at ed bef or ethe pol i cy st atement was adopt ed. The r egul at i on i mposes no reportbur dens or r ecor d keepi ng cost s t hat are not r equi red by the st atute.I n the devel opment of thi s f i nal regul at i on, the Boar d has compl i edwi t h the spi r i t and i nt ent of i ts pol i cy st atement by maki ng everyef f ort to reduce unnecessar y r egul atory bur dens wi t h due r egar d forthe purposes of the statute.

Accordi ngl y, the Boar d of Governor s of the Federal Reser veSyst em her eby amends the Board' s Regul at i on 0 (12 CFR Par t 215) to readas set f ort h bel ow:

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