BOARD OF GOVERNORS OF 

THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551

J VIRGIL MATTINGLY JR

SEP 16, 1992 GENERAL COUNSEL

Mr. N. P. Van Maren, Jr. 

Vice Chairman

Hilltop National Bank

P.O. Box 2680

Casper, Wyoming 82602

Dear Mr. Van Maren: 

This is in response to your letter of June 5, 1992, and 

the letter of R. Stanley Lowe, counsel of Hilltop National Bank, 

of June 15, 1992. You have requested advice whether various 

extensions of credit by your bank to its directors are 

"grandfathered" with respect to the aggregate lending limits 

applicable to extensions of credit from a member bank to all its 

insiders under Regulation O. 12 C.F.R. § 215.4(d). This 

provision became effective May 18, 1992, and was added to 

Regulation O in order to implement the Federal Deposit Insurance 

Corporation Improvement Act of 1992, Pub. L. No. 102-242, § 306 

("FDICIA").

Based on the information provided by you and Mr. Lowe( 

in your correspondence, it is my understanding that, at its 

annual organizational meeting held in April 1992, the board of 

directors of the bank approved lines of credit for individual 

members of the board of directors and various associated family 

members and businesses. Individual directors abstained from 

voting upon the approval of lines of credit in which they were 

interested. All lines of credit were approved for the ensuing 

year. It is the ordinary and customary procedure of the board of 

directors of the bank to approve loans and lines of credit for a 

period of approximately one year terminating at the subsequent 

annual organizational meeting of the board of directors, subject 

to earlier termination if intervening action is taken by the full 

board of directors.

As to one director and the persons associated with him 

as described above, the approved lines of credit included certain 

extensions of credit ("Excess Lines") that are excepted from the 

lending limit set forth in section 5200 of the Revised Statutes 

(12 U.S.C. § 84), pursuant to subsection (c} thereof, and, by 

reference, from the lending limit set forth in 12 C.F.R.

§ 215.4(c). However, the Excess Lines are hot excepted from the 

aggregate lending limit set forth in 12 C.F.R. § 215.4(d). 

Apparently, as a result, all “outstanding extensions of credit" 

by the bank to its "insiders," as such terms are defined in
Regulation O, exceed the bank's aggregate lending limit. Your 

concern is whether the Excess Lines are "grandfathered" as a 

result of their approval prior to the effective date of the 

revisions to Regulation O which introduced the aggregate lending 

limit.

The "grandfather" provision of Regulation O, set forth 

in 12 C.F.R. § 215.3(d), does not apply to the aggregate lending 

limit set forth in 12 C.F.R. § 215.4(d). However, the aggregate 

lending limit itself prohibits the extension of credit to an 

insider of a member bank only when the extension of credit, 

aggregated with the amount of all outstanding extensions of 

credit to all insiders, exceeds the aggregate lending limit.

12 C.F.R. § 215.4(d)(1). It does not make illegal any extension 

of credit outstanding prior to the prohibited extension of 

credit. In the case you present, the Excess Lines were granted 

before the effective date of the revisions to Regulation O. 

Further, the granting of a line of credit is included within the 

regulation's definition of an "extension of credit.” 12 C.F.R. 

§ 215.3(a). Thus, assuming that the Excess Lines were approved 

in good faith and not for the purpose of avoiding the aggregate 

lending limit requirements or other provisions of Regulation O, 

the Excess Lines were unaffected by the subsequent imposition 

upon your bank of an aggregate lending limit and were effectively 

"grandfathered."1/

The provisions of FDICIA also may serve to exempt the 

Excess Lines from the aggregate lending limit. section 306(n) of 

FDICIA provides that, "The amendments made by this section do not 

affect the validity of any extension of credit or other 

transaction lawfully entered into on or before the effective date 

of those amendments." The effective date of the amendments made 

by section 306 was May 18, 1992. The granting of a line of 

credit is included within the definition of an "extension of 

credit" under FDICIA. 12 U.S.C. § 375b(9)(D). since the Excess 

Lines were granted before the effective date of the amendments 

made by section 306 of FDICIA, they remain valid if they were 

lawfully approved. Assuming that no additional actions by the 

bank were required after the board of directors approved the 

Excess Lines in order for the person or persons to whom they were 

extended to draw on them, and that the Excess Lines were approved 

by the board of directors of the bank in good faith and not for 

the purpose of avoiding the aggregate lending limits or other

1/ It should be noted that pursuant to 12 C.F.R. § 215.3(a) 

the renewal of the approval of an extension of credit 

consititutes a new extension of credit, which would not be 

grandfathered. The preapproval by the board of directors of a 

member bank of an extension of credit that is made pursuant to a 

line of credit is not effective more than 14 months from the date 

of approval. 12 C.F.R. § 215.4(b)(3).
requirements of Regulation O, then the Excess Lines were lawfully 

approved and therefore were "grandfathered" for purposes of the 

aggregate lending limits under FDICIA. 12 U.S.C. § 215.4(d).

Regulation O also requires that an interested party 

abstain from participating directly or indirectly in the voting 

on the prior approval of an extension of credit, and states that 

participation in the discussion, or any attempt to influence the 

voting, by the board of directors regarding an extension of 

credit constitutes indirect participation in the voting by the 

board of directors on the extension of credit. 12 C.F.R.

§e215.4 (b). Your letter and the letter of Mr. Lowe do not fully 

address these criteria in the description of the activities of 

the board of directors of the bank. It has been assumed for the 

purpose of rendering this advice that these criteria have been 

satisfied. Any additional facts that do not conform to these 

criteria may cause the Excess Lines and other extensions of 

credit by the bank to its insiders to be in violation of 

Regulation O.

If you have any further questions concerning this 

matter, please do not hesitate to contact Gordon Miller of my 

office (202/452-2534).

Sincerely,

(signed)

J. Virgil Mattingly, Jr.e