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Federal Reserve Bank of Dallas

DALLAS.TEXAS 75222

May 24, 1984

Mr. R. Bruce LaBoon

Liddell, Sapp, Zivley, Brown & LaBoon

Texas Commerce Tower

Houston, Texas 77002-3095

Re: Request for Staff Opinion - Regulation O

Dear Mr. LaBoon:

In your letter dated April 27, 1984, you requested on behalf of your

Firm's client, Texas Comerce Bank National AssociationJ(the "Bank"), the

opinion of the Staff of the Board of Governors of the Federal Reserve System

(the "Board") concerning the application of the Board's Regulation O

(12 C.F.R. 215) to the restructuring by the Bank of a loan transaction in

volving an individual. director of the Bank and its parent holding company, as

well as another individual director of another of the holding company's,

banking subsidiaries. Your letter and the accompanying letter from Mr. Lloyd

L. Bolton Vice Chairman of the Board of Directors of the Bank, presented the

history, present status and proposed restructuring of the loan transaction.

As we have discussed by telephone, as General Counsel of the Federal

Reserve Bank of Dallas, I am not a member of the Board's Legal Staff. How

ever, I have reviewed your request and the information submitted in the let

ters referenced above and have involved the appropriate members of the Board's

Legal Staff, and this letter represents our concurring views.

In your letters you and Mr. Bolton represented that the terms of the

restructuring of the subject loan reflect the terms upon which a comparable

workout of a loan secured by distressed property would be structured if no

directors or other insiders of the Bank or its affiliates were involved. Your

letters also contained representations that the advance authorizations

required under the provisions of Regulation O had been secured from the appro

priate boards of directors. and in our telephone discussion you indicated that

the involved directors had refrained from participating in any action of the

board of directors with respect to the subject transactions.
You are correct that the provisions of Regulation O would apply to

the subject transaction to the extent of any involvement of the renewal of a

loan guaranteed by directors of the Bank, its parent holding company, and an

affiliate bank. You are equally correct that the provisions of Regulation 0

require that the restructuring of the transaction, involving insiders, be

non-preferential, that is, be made on the same terms extended with reference

to a transaction of like type and amount but lacking involvement of directors

or other insiders. Regulation O, however, does not require that the terms of

a workout situation involving insiders, in order to be considered nonpreferential, be extended on terms prevailing for similar types of new exten

sions of credit with no distress record made to non-insiders; it is enough

that the restructuring involving insiders be made on the same terms offered in

workout situations involving non-insiders. Of course, compliance with 

Regulation O does not relieve the Bank from its duty to make every extension

of cred;t in a prudent business manner and in full conformity in all respects

with sound banking practice.

The general proscriptions of Regulation 0, as set forth in Section

215.4(a), not only require that extensions of credit to insiders be made on

substantially the same terms as those prevailing for comparable transactions

with non-insiders but also prohibit any extension of credit to insiders that

involves more than the normal risk of repayment or that presents other unfa

vorable features. These latter two considerations necessarily turn on factual

determinations relating to the soundness of the Bank's business decisions and

banking practices, but in opinion those determinations should be made in

the context of standards applied' by the Bank to comparable workout situations

and not measured against the standards applied to initial extensions of 

credit.

Such determinations, however, require full study and would be made

best in the context of the examination processes rather than the more

restricted confines of our limited communications. Since it is my under

standing that similar inquiries have been sent to the offices of the

Comptroller of the Currency, the Bank's primary regulator, I would defer to

that agency's reply with regard to these issues.

Based on the information contained in your letters and the

representations set forth therein, and within the limitations expressed in the

paragraphs above, it is therefore my opinion that the proposed restructuring

of the subject transaction as described in the letters sent for review would

not involve an apparent violation of the provisions of Regulation O. Of

course, this op;nion reflects an individual interpretation of law and is not

intended to represent a determination on the fact questions upon which a
finding on the question of a violation would ultimately be based, and, while

the appropriate members of the Board's legal Staff have communicated their

concurrence, my opinion would not be binding on the Board or upon a court of

competent jurisdiction. As a corollary matter, this opinion should not be

construed as any form of approval or affirmation of any of the proposed forms

of restructuring as a sound or prudent banking practice.

I hope that this fully responds to your inquiry. Should you have

further questions regarding this matter, please do not hesitate to contact me.

Very Truly Yours,

(signed)

Millard E. Sweatt, Jr.

Vice President and General Counsel