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A Higher Standard for Bank HR Departments (Part 3)

on Wednesday, 30 April 2014 in Banking Update

With an additional overlay of state and federal regulation, employment law issues at financial institutions take on an additional level of complexity. Whether it is the new regulations affecting permissible compensation practices for mortgage loan originators, state and federal licensing requirements or complex rules applicable to insider transactions, human resource professionals who work in financial services need to be attuned to the special rules that apply to employees and executives at their institutions.

This article is the third installment in a six-part series on banking regulations that impact your financial institution’s Human Resources Department. These materials originally were presented to attendees of 26th Annual Baird Holm Labor Law Forum.

Part 3: Special Rules for Executives and Insiders

Nebraska Executive Officer Licenses

Section 8-139 of the Nebraska Banking Act provides that “No person shall act as an active executive officer of a bank until such bank shall apply for and obtain from the Department a license to so act.” For purposes of this statute, there are two classes of “executive officers,” defined as follows:

  • Class 1: Any employee or independent contractor who does not directly or indirectly make loans or investments but otherwise exercises significant management functions, major policymaking functions or exercises substantial employee supervision (including the power to terminate employees). Titles of such employees may include President, Vice President, Cashier, Assistant Cashier, CEO, Loan Officer or Investment Officer; and
  • Class 2: Any person who qualifies for a Class 1 license but also directly or indirectly makes loans or investments for the bank.

A copy of the executive officer license application required by the Nebraska Department of Banking & Finance is available at:

Transactions with Executive Officers

The Board of Governors of the Federal Reserve System’s “Regulation O” (12 CFR part 215) governs any extension of credit to a bank’s or its affiliates’ executive officers, directors, or principal shareholders. Regulation O also applies to any extension of credit to a company controlled by a bank official or a political or campaign committee that benefits an executive of the financial institution. Individual and aggregate limits apply to the amount of credit extended to insiders, as well as restrictions on the quality and terms of such loans.

More stringent limits apply to executive officers. For example, extensions of credit to executive officers may not exceed $100,000 unless the credit is for the education of the officer’s children, secured by a first lien on the officer’s personal residence or secured by permissible collateral (generally various classes of liquid assets). In addition, any extension of credit to any executive officer of a bank must be: (1) promptly reported to the bank’s board of directors; (2) comply with Regulation O’s provisions regarding market terms and creditworthiness; (3) Preceded by the submission of a detailed current financial statement of the executive officer; and (4) Made subject to the condition in writing that the extension of credit will, at the option of the member bank, become due and payable at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than limits provided for under the Regulation.

Part 4 >>

Jonathan J. Wegner

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