On December 18, the OCC and FDIC issued a statement clarifying their supervisory expectations for banks regarding insider lending restrictions and related reporting requirements as they pertain to certain investment funds and their portfolio companies. The agencies announced they would not take action against banks for extending credit to fund complex-controlled portfolio companies that otherwise would violate Regulation O, provided specific conditions are met. This statement, effective immediately upon release and with no set expiration, replaces prior annual extensions and will remain in effect unless the Fed adopts a final rule amending Regulation O to address these issues, according to the agencies.
The agencies noted this action responded to banks’ concerns that treating fund complex-controlled portfolio companies as insiders under Regulation O could force banks to unwind existing lending relationships abruptly. Under the current rules, Regulation O imposes limits and qualitative restrictions on loans to insiders, including executive officers, directors, principal shareholders, and their related interests. The agencies noted that the statement provides banks flexibility, provided they ensure loans to these portfolio companies are made on “substantially the same terms” as those for unaffiliated third parties and do not present abnormal risk. The agencies also stated they would not take action for failures to report such loans under FDIC regulations at 12 CFR 363.2 as long as the outlined conditions are satisfied.
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