Is the Spouse of a Bank Insider Subject to Regulation O?

Issue/Inquiry

The wife of a trustee of the Bank has several accounts that are student advantage accounts for her grandchildren. These are overdraft accounts with a $500 maximum allowed per account, for a total of six accounts with available credit totaling $3,000. Are these considered loans to an insider or related interest? The grandchildren are the primary accountholders and the wife is named as the secondary accountholder. Should the Bank be tracking these accounts for Regulation O purposes?

Response Detail

The overdraft accounts for the grandchildren would not be covered by Regulation O, and thus, there would be no need to track them, in that the wife of the trustee is not an insider and the accounts provide the trustee with no obvious beneficial interest to the trustee.

Response Summary

An “insider” for Regulation O purposes is an executive officer, director, or principal shareholder of a financial institution or any related interest of such a person. A “related interest” is a company or political campaign controlled by that person. 12 CFR §215.2(h), (n). The spouse of an insider, therefore, would not be considered an insider for that reason alone.

Under the “beneficial interest” rule of section 215.3(f) of Regulation O, however, an extension of credit to someone other than the insider can still be deemed to the insider, if it appears that the purpose was to “mask” the insider as the intended beneficiary:       

Tangible economic benefit rule–(1) In general. An extension of credit is considered made to an insider to the extent that the proceeds are transferred to the insider or are used for the tangible economic benefit of the insider.

In this case, the wife of the trustee is secondarily liable on the overdraft accounts established for her grandchildren. Such an account would be considered an extension of credit under Regulation O, had it been made to an insider, since she is obligated to pay money to a bank under certain circumstances. 12 CFR §215.3(a)(7).

Since she is not an insider, the question is whether the trustee obtains a “tangible economic benefit” as a result of the overdraft accounts established by his wife for the benefit of their grandchildren. Barring any facts indicating that he has use of the accounts or that account proceeds are being transferred to him, it would seem that the benefit to him is the satisfaction of knowing that his grandchildren have such accounts. This would be an intangible benefit, however, and thus outside the beneficial interest rule of Regulation O.

This entry was posted on Monday, May 4th, 2015 at 3:30 pm.