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Financial Services Law Insights and Observations

Fed updates Regulation O FAQs

Bank Regulatory Federal Reserve Regulation O FAQs

On July 8, the Fed updated its frequently asked questions (FAQs) regarding Regulation O, Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks (12 CFR Part 215). The Fed clarified that a bank’s payment of premiums as part of a split dollar life insurance arrangement does not constitute as an extension of credit to an insider, provided that certain conditions are met. The agency noted that, “under a split dollar life insurance arrangement, a bank pays the premiums on a policy insuring the life of an employee of the bank. Split dollar life insurance arrangements can take many forms. For example, the insurance policy can be owned by the bank, the employee, or a third party (typically a trust).” The Fed further explained that “[r]egardless of form, the bank is entitled to receive from the proceeds of the insurance policy a pre-negotiated amount upon the death of the insured or when the insured surrenders the policy.”