Federal Reserve Board Policy on Bank Examiner Borrowing

The Federal Reserve Board may change its administrative policy relating to borrowing by bank 

examiners, to allow bank examiners to borrow or hold credit cards from lending institutions 

affiliated with banks or bank holding companies which they are authorized to examine. The change 

proposed would not result in a violation of 18 U .S.C . §§ 212 and 213.

August 25, 1982

MEMORANDUM OPINION FOR THE SECRETARY OF THE BOARD, 

FEDERAL RESERVE BOARD

This responds to your request for our views on a proposed change in Federal 

Reserve Board policy pertaining to bank examiner borrowing. The proposed 

change would permit bank examiners employed by the Board to borrow or hold 

credit cards from lending institutions affiliated with banks or bank holding 

companies which they are authorized to examine. Your question is whether such a 

policy change can be accomplished consistent with the conflict of interest laws 

relating to bank examiner borrowing. We conclude that it can.

At issue is the scope of the prohibition contained in 18 U.S.C. §§ 212 and 213. 

Section 212 prohibits an officer, director, or employee of a bank which is a 

member of the Federal Reserve System or insured by the Federal Deposit 

Insurance Corporation (FDIC) from making a loan to an examiner who “examines or has authority to examine” the bank. Section 213 complements § 212 by 

prohibiting a bank examiner from accepting a loan from “any bank, corporation, 

association or organization examined by him or from any person connected 

herewith . . . .”'

1 Sections 212 and 213 provide in relevant part as follows.

§ 212. Offer c f loan or gratuity to bank examiner

Whoever, being an officer, director or employee of a bank which is a member of the Federal 

Reserve System or the deposits of which are insured by the Federal Deposit Insurance Corporation, 

or of any National Agricultural Credit Corporation, or of any land bank. Federal land bank 

association or other institution subject to examination by a farm credit examiner, or of any small 

business investment company, makes or grants any loan or gratuity, to any examiner or assistant 

examiner who examines or has authority to examine such bank, corporation, or institution, shall be 

fined . . or imprisoned . . or both . .

§ 213. Acceptance c f loan or gratuity by bank examiner

Whoever, being an examiner or assistant examiner of member banks of the Federal Reserve 

System or banks the deposits of which are insured by the Federal Deposit Insurance Corporation, or a 

farm credit examiner or examiner of National Agricultural Credit Corporations, or an examiner of 

small business investment companies, accepts a loan or gratuity from any bank, corporation, 

association or organization examined by him or from any person connected herewith, shall be fined 

. . or imprisoned . . or both . . .

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The rule against examiner borrowing contained in §§ 212 and 213 was first 

promulgated as § 22 of the Federal Reserve Act of 1913, 38 Stat. 272, and was 

intended to “proscribe certain financial transactions which could lead to a bank 

examiner carrying out his duties with less than total, unbiased objectivity.” 

United States v. Bristol, 473 F.2d 439, 442 (5th Cir. 1973). See also H.R. Rep. 

No. 69, 63d Cong., 1st Sess. (1913). As a conflict of interest rule, it has been 

interpreted by the major federal agencies responsible for bank examination to 

prohibit all credit transactions between banks and the federal officials who have 

authority to examine their affairs, whether or not they are corrupt.2 There is no 

provision in the statute or its legislative history which evinces an intent to exempt 

any particular kind of credit relationship, and the rule against examiner borrowing in §§ 212 and 213 has been applied to prohibit credit effected through credit 

cards, as well as direct loans.

Prior to 1979, bank examiners employed by the Federal Reserve Board were 

forbidden by Board policy to borrow or obtain credit from any bank which the 

Board was authorized by law to examine, including all member banks and their 

affiliates. See 12 U.S.C. §§ 248(a), 325, 338, and 483. In that year, however, 

recognizing the severe restrictions this policy placed on its examiners’ ability to 

obtain ordinary credit, the Board limited the authority of its examination personnel to state member banks, bank holding companies, and their non-bank affiliates. Primary federal authority for examining national banks and state nonmember banks affiliated with member banks was ceded to the Comptroller of the 

Currency and the FDIC, respectively, and Federal Reserve examiners were left 

with no authority to audit such banks until and unless it was specifically granted 

on an ad hoc basis by the Board. As a result, since 1979 Federal Reserve 

examiners have been permitted to borrow and hold credit cards from national and 

state nonmember banks.3

Under the Federal Reserve Board’s 1979 policy on borrowing, bank examiners 

employed by the Board could obtain credit from national banks and state 

nonmember banks even if those banks were “affiliated” with state member banks 

and holding companies which Federal Reserve examiners were authorized to 

audit.4 However, in this event, the examiner was not permitted to participate in the

2 See, e.g , 12 C.F.R. § 336.735-1 l(b)(5)(i) (1981) (FDIC examiners may not accept any extension of credit 

from insured banks they examine); Administrative Circular 53 (Revised) supplementing 31 C.F.R. § 0 735 

(Comptroller of the Currency examiners may not accept loan or extension of credit of any kind from national banks); 

Federal Reserve Board Ethics Manual, Fart D (examiners of Federal Reserve Board may not borrow from or hold 

credit cards issued by banks they are authorized to examine)

3 This change in Federal Reserve Board policy was approved as an interpretation of 18 U.S C. §§ 212 and 213 by 

the Criminal Division of this Department See letter of Feb. 7,1979 to Mr. J. Charles Partee, Member of the Board of 

Governors of the Federal Reserve. Several years earlier, the FDIC had taken similar steps to limit the authonty of its 

examination personnel to enable them to borrow from national banks and state member banks, also with the 

Criminal Division's approval. See letter of June 27, 1973 to Mr. Frank Wille, Chairman, FDIC. Because bank 

examiners employed by the Comptroller of the Currency have statutory authority to examine only national banks and 

their affiliates, see 12U .S C. § 48t,they have never been subject to the same constraints on their ability to obtain 

credit as have the examiners of the Federal Reserve and FDIC

4 As defined in applicable statutory provisions, a bank “affiliate” includes any corporation, business trust, or 

association (1) of which a bank owns or controls a majority of the voting shares; (2) of which control is held, directly 

or indirectly, by the shareholders of the bank; (3) a majority of whose directors are also directors of the bank; or (4) 

which owns or controls, directly or indirectly, a majority of the shares of capital stock of the bank. See 12 U.S C. 

§ 221a(b). See also 12 U.S.C §§ 371c and 1828(j) An “affiliate” of a bank thus includes the holding company of 

which the bank is a subsidiary, and any other subsidiary of that holding company

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examination of the affiliated bank or holding company. With this restriction, the 

Board sought to ensure that none of its examiners would be involved in a credit 

relationship with an affiliate of an institution he was actually responsible for 

examining.5 The change which the Board now proposes to make in its policy 

would remove this restriction to permit one of its examiners to audit a state 

member bank or holding company notwithstanding any current credit relationship he may have with an affiliate of that bank or holding company.

In 1980, advising with respect to a substantially similar change proposed by 

the FDIC, this Office took the position that § 213 does not prevent a bank 

examiner from accepting a loan from an institution affiliated with a bank which 

he examines, so long as the loan is not approved by a “person connected with” the 

latter institution.6 Our review of the legislative history of § 213 indicated that 

Congress intended to do no more than bar a bank examiner from accepting a loan 

from a bank, or an individual connected with a bank he was responsible for 

examining; its prohibition was not intended to extend to loans from affiliated 

institutions however tenuous their relationship with the bank subject to examination. We have reexamined that position, and we believe it to be the correct 

interpretation of § 213. Accordingly, we do not believe that § 213 poses an 

obstacle to the policy change now proposed by the Federal Reserve, which would 

bring its policy on examiner borrowing into line with that of the FDIC.7 And, 

while our earlier opinion focused on § 213, we reach the same conclusion with 

respect to the complementary provisions of § 212. Section 212 prohibits loans by 

“an officer, director or employee of a bank” to an examiner who “has authority to 

examine such bank.” The gravamen of the offense covered by § 212, like that 

covered by § 213, is the approval of credit for a bank examiner by a person 

connected with the same bank which the examiner has authority to audit. If bank 

officials of the lending institution are not also “officers, directors, or employees” 

of the bank or holding company subject to the examiner’s audit authority, there is 

no opportunity for the conflict of interest sought to be avoided by §§ 212 and 213 

to arise.8

Ro b e r t B . S h a n k s

Deputy Assistant Attorney General

Office of Legal Counsel

5 Attempting to achieve the same end by a different route, the analogous FDIC policy approved by the Criminal 

Division in 1973 provided that FDIC examiners could not borrow from an affiliate of a bank within the ambit of their 

examination authority

6 See July 10,1980, Memorandum for the Executive Secretary, FDIC, “Proposed Amendments to Regulations of 

Federal Deposit Insurance Corporation (FDIC) Relating to Bank Loans to Examiners/'

7 See also Administrative Circular 53 (Revised), supplementing 31 C.F.R. § 0.735, which articulates a substantially similar credit policy for examiners employed by the Comptroller of the Currency

8 We do not suggest that §§212 and 213 would permit an examiner to borrow or accept credit from an affiliate in a 

case where the relationship between the institution being examined and the affiliated lending institution is such as to 

suggest common control, or where the two entities have a common majority of officers or directors. In such a case, a 

loan from an affiliate might be tantamount to a loan from the bank being examined, thus giving rise to the very 

conflict of interest which §§212 and 213 were intended to prevent. We understand from discussions with members 

of your staff that the structure of the banking industry is such as lo make this eventuality highly unlikely Cf. United

States v. Bristol, supra, in which the court held that a bank officer’s loan to an examiner violated §§212 and 213 

even though it was funneled through an entity which the examiner had no authonty to examine.

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