Loans To Insiders - Restrictions And Prohibited Practices - Financial - CA

Section § 1360

This law section's main goal is to ensure that California's financial regulations match up with the Federal Reserve Board's Regulation O. It means that anyone interpreting these state provisions should do so in a way that aligns with the federal rules and guidelines set by the Federal Reserve System. Essentially, the state wants its rules to be consistent with federal ones.

It is the intent of the Legislature that the provisions of this article, insofar as they are contained in Regulation O (12 C.F.R. Part 215) of the Federal Reserve Board, conform, and be interpreted by anyone construing the provisions of this article to so conform, to Regulation O, to any rule or interpretation promulgated thereunder by the Board of Governors of the Federal Reserve System, and to any interpretation issued by an official or employee of the Federal Reserve System duly authorized to issue the interpretation.

Regulation O Federal Reserve Board Board of Governors ...

Section § 1361

This section explains key definitions related to banks and financial institutions in California. It clarifies that a 'bank' can include various types of domestic and foreign establishments authorized to operate in the state, from commercial banks to foreign corporations licensed to conduct banking activities. The term 'company' aligns with definitions under federal regulations. An 'executive officer' includes managers of certain branches in California. 'Extension of credit' follows federal guidelines, with adjustments specific to the state. 'Regulation O' covers rules related to loans to bank insiders, and the term 'subsidiary' refers to definitions under U.S. Code, specifying that it means a bank-related entity.

As used in this article:

(a) “Bank” means:

(1) Any commercial bank, industrial bank, or trust company incorporated under the laws of this state.

(2) Any foreign (other nation) bank that is licensed by the commissioner under Article 3 (commencing with Section 1800) of Chapter 20 to maintain a depositary agency or branch office, as defined in Section 1750, in this state, with respect to any office of that type.

(3) Any corporation incorporated under the laws of this state that is incorporated for the purpose of engaging in, or that is authorized by the commissioner to engage in, business under Article 1 (commencing with Section 1850) of Chapter 21.

(4) Any foreign corporation that is licensed by the commissioner under Article 1 (commencing with Section 1850) of Chapter 21 to maintain an office in this state and to transact at the office business under that article, with respect to any office of that type.

(5) When used to designate a person that extends credit, any subsidiary of a bank, as defined in paragraph (1), (2), (3), or (4).

(b) “Company” has the meaning set forth in subdivision (b) of Section 215.2 of Regulation O.

(c) “Executive officer” has the meaning set forth in paragraph (1) of subdivision (e) of Section 215.2 of Regulation O. Also, “executive officer,” when used with respect to any bank of the type described in paragraph (2) or (4) of subdivision (a), includes the manager of each office of the type referred to in paragraph (2) or (4) of subdivision (a) that the bank maintains in this state.

(d) “Extension of credit” has the meaning set forth in Section 215.3 of Regulation O. However, for purposes of this subdivision, the term “member bank,” as used in Section 215.3, means a bank.

(e) “Regulation O” means Regulation O (Part 215 (commencing with Section 215.1) of Title 12 of the Code of Federal Regulations) of the Board of Governors of the Federal Reserve System.

(f) “Subsidiary” has the meaning set forth in Section 1841(d) of Title 12 of the United States Code. However, for purposes of this subdivision, the term “bank holding company,” as used in Section 1841(d) of Title 12 of the United States Code, means a bank holding company, as defined in Section 1841(a) of Title 12 of the United States Code, or a bank, and the term “board,” as used in Section 1841(d) of Title 12 of the United States Code, means the commissioner.

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Section § 1362

This section refers to certain parts of Regulation O about banking practices and incorporates them into California law with some changes. For instance, it changes some terminology, like treating 'member bank' as just 'bank' and changing the 'lending limit' to align with a California-specific law. It also defines what counts as a 'related interest,' meaning if executive officers or directors have businesses, those businesses are linked to them under these rules. However, there are exceptions for certain types of companies like nonprofit organizations or holding companies.

Sections 215.2, 215.3, 215.4, 215.5, 215.8, and 215.9 of Regulation O in all of their particulars, including footnotes, are hereby referred to, incorporated by reference into this article, and adopted, subject to the following:

(a) The term “this Subpart,” as used in the referenced sections of Regulation O, means this article.

(b) Subdivision (j) of Section 215.2 of Regulation O is not applicable. Instead, the term “member bank,” as used in the referenced sections of Regulation O, means a bank.

(c) The term “executive officer,” as used in the referenced sections of Regulation O, includes, in the case of a bank of the type described in paragraph (2) or (4) of subdivision (a) of Section 1361, the manager of each office of the type referred to in paragraph (2) or (4) of subdivision (a) of Section 1361 that the bank maintains in this state.

(d) The definition of “lending limit” in subdivision (i) of Section 215.2 of Regulation O is not applicable; instead, the term “lending limit,” as used in the referenced sections of Regulation O, means an amount equal to the limit on obligations of a single obligor set forth in Section 1481, and any reference in the referenced sections of Regulation O to the lending limit specified in subdivision (i) of Section 215.2 is considered to be a reference to the limit specified in Section 1481.

(e)

(1) Any company which is majority owned by one or more executive officers or directors of a bank, individually or collectively, is deemed to be a related interest of each of those executive officers or directors for purposes of the referenced sections of Regulation O.

(2) In case an individual who is an executive officer of a bank is also a director or executive officer of a company, the company is deemed to be a related interest of the individual for purposes of the referenced sections of Regulation O except subdivision (c) of Section 215.4. However, this paragraph shall not apply to an extension of credit by a bank to any of the following companies:

(A) A bank holding company of which the bank is a subsidiary.

(B) Any subsidiary of the bank holding company.

(C) Any nonprofit company engaged in religious, charitable, educational, scientific, literary, social, or recreational purposes, provided that the individual whose position as a director or executive officer of the company at issue does not receive compensation in excess of one thousand dollars ($1,000) per year for serving as a director or executive officer of the company.

(3) In case a bank in making an extension of credit becomes subject to the requirements set forth in subdivision (b)(1)(i) of Section 215.4 of Regulation O because of paragraph (1) or (2), the bank shall be deemed to fulfill the requirement if the extension of credit is promptly reported to the board of the bank.

Regulation O member bank executive officer ...

Section § 1363

This law prohibits banks from lending more money than permitted by federal regulations to companies mainly owned by their own executives. Essentially, if a bank’s executive officers own a company, any loans the bank provides to that company are treated as loans to those executives themselves.

No bank shall extend credit in an aggregate amount greater than the amount permitted in paragraph (4) of subdivision (c) of Section 215.5 of Regulation O to any company that is majority owned by one or more executive officers of the bank, individually or collectively. For purposes of paragraph (4) of subdivision (c) of Section 215.5 of Regulation O, the total amount of credit extended by the bank to the company is considered to be extended to each of those executive officers.

bank credit limits executive loan restrictions company ownership ...

Section § 1364

This law requires banks to follow all the rules in this division when they extend credit to customers. It ensures that banks comply with existing regulations specific to lending activities.

In making any extension of credit that is subject to this article, a bank shall comply with all other applicable provisions of this division relating to extensions of credit by banks.

bank credit extension bank lending regulations credit compliance ...

Section § 1365

This law states that the rules in this article and another related section do not apply when a bank advances money according to specific guidelines in the Corporations Code.

No provision of this article or of Article 3 (commencing with Section 1480) of Chapter 14 shall apply to an advance of money made by a bank pursuant to Section 317 of the Corporations Code.

bank money advance Corporations Code Section 317 bank lending exceptions ...

Section § 1366

This law allows a bank to give a loan to a trust, even if the bank or its executives are trustees of that trust, as long as the loan follows other banking rules.

A bank may make a loan, otherwise complying with the provisions of this division, for the benefit of a trust, notwithstanding that the bank or any one or more executive officers or directors of the bank are trustees of the trust.

bank loan trust loan bank trustees ...

Section § 1367

This law states that if a bank improperly extends credit, it will face financial penalties. Moreover, if any person, other than the bank, knowingly helps make or arrange such improper credit, they could be charged with a serious crime known as a felony.

Any bank that makes an extension of credit in violation of this article is subject to a civil penalty pursuant to Section 329. Any person, other than the bank making the extension of credit, who knowingly makes or procures an extension of credit in violation of this article is guilty of a felony.

extension of credit civil penalty bank penalties ...