Home > About the Fed > Federal Reserve Act

Federal Reserve Act

Section 22. Offenses of Examiners, Member Banks, Officers, and Directors

1. Insolvency of Member Banks

[Subsections (a), (b), and (c) were repealed by section 21, act of June 25, 1948 (62 Stat. 864), but substance thereof was incorporated in 18 USC 212, 213, 215, 655, 1906, and 1909.]

Purchases by Member Banks from Their Directors

(d) Any member bank may contract for, or purchase from, any of its directors or from any firm of which any of its directors is a member, any securities or other property, when (and not otherwise) such purchase is made in the regular course of business upon terms not less favorable to the bank than those offered to others, or when such purchase is authorized by a majority of the board of directors not interested in the sale of such securities or property, such authority to be evidenced by the affirmative vote or written assent of such directors: Provided, however, That when any director, or firm of which any director is a member, acting for or on behalf of others, sells securities or other property to a member bank, the Board of Governors of the Federal Reserve System by regulation may, in any or all cases, require a full disclosure to be made, on forms to be prescribed by it, of all commissions or other considerations received, and whenever such director or firm, acting in his or its own behalf, sells securities or other property to the bank the Board of Governors of the Federal Reserve System, by regulation, may require a full disclosure of all profit realized from such sale.

[12 USC 375. As added by act of Sept. 26, 1918 (40 Stat. 971), which completely revised this section.]

Sales by Member Banks to Their Directors

Any member bank may sell securities or other property to any of its directors, or to a firm of which any of its directors is a member, in the regular course of business on terms not more favorable to such director or firm than those offered to others, or when such sale is authorized by a majority of the board of directors of a member bank to be evidenced by their affirmative vote or written assent: Provided, however, That nothing in this subsection contained shall be construed as authorizing member banks to purchase or sell securities or other property which such banks are not otherwise authorized by law to purchase or sell.

[12 USC 375. As added by act of Sept. 26, 1918 (40 Stat. 971), which completely revised this section.]

Interest on Deposits of Directors, Officers, and Employees

(e) No member bank shall pay to any director, officer, attorney, or employee a greater rate of interest on the deposits of such director, officer, attorney, or employee than that paid to other depositors on similar deposits with such member bank.

[12 USC 376. As added by act of June 21, 1917 (40 Stat. 240); and amended by act of Sept. 26, 1918 (40 Stat. 971), which completely revised this section.]

Liability for Damages Resulting from Violations

(f) If the directors or officers of any member bank shall knowingly violate or permit any of the agents, officers, or directors of any member bank to violate any of the provisions of this section or regulations of the board made under authority thereof, or any of the provisions of sections 217, 218, 219, 220, 655, 1005, 1014, 1906, or 1909 of title 18, United States Code, every director and officer participating in or assenting to such violation shall be held liable in his personal and individual capacity for all damages which the member bank, its shareholders, or any other persons shall have sustained in consequence of such violation.

[12 USC 503. As added by act of Sept. 26, 1918 (40 Stat. 971), which completely revised this section; amended by act of Sept. 3, 1954 (68 Stat. 1236). Sections 217, 218, 219, and 220 were respectively redesignated sections 212, 213, 214, and 215 by the act of Oct. 23, 1962 (76 Stat. 1125).]

Loans to Executive Officers by Member Banks

(g)

Except as authorized under this subsection, no member bank may extend credit in any manner to any of its own executive officers. No executive officer of any member bank may become indebted to that member bank except by means of an extension of credit which the bank is authorized to make under this subsection. Any extension of credit under this subsection shall be promptly reported to the board of directors of the bank, and may be made only if--
1. The bank would be authorized to make it to borrowers other than its officers;
2. it is on terms not more favorable than those afforded other borrowers;
3. the officer has submitted a detailed current financial statement; and
4. it is on condition that it shall become due and payable on demand of the bank at any time when the officer is indebted to any other bank or banks on account of extensions of credit of any one of the three categories respectively referred to in paragraphs (2), (3), and (4) in an aggregate amount greater than the amount of credit of the same category that could be extended to him by the bank of which he is an officer.
A member bank may make a loan to any executive officer of the bank if, at the time the loan is made--
1. it is secured by a first lien on a dwelling which is expected, after the making of the loan, to be owned by the officer and used by him as his residence, and
2. no other loan by the bank to the officer under authority of this paragraph is outstanding.
A member bank may make extensions of credit to any executive officer of the bank, to finance the education of the children of the officer.
A member bank may make extensions of credit not otherwise specifically authorized under this subsection to any executive officer of the bank, in an amount prescribed in a regulation of the member bank's appropriate Federal banking agency.
Except to the extent permitted under paragraph (4), a member bank may not extend credit to a partnership in which one or more of its executive officers are partners having either individually or together a majority interest. For the purposes of paragraph (4), the full amount of any credit so extended shall be considered to have been extended to each officer of the bank who is a member of the partnership.
This subsection does not prohibit any executive officer of a member bank from endorsing or guaranteeing for the protection of the bank any loan or other asset previously acquired by the bank in good faith or from incurring any indebtedness to the bank for the purpose of protecting the bank against loss or giving financial assistance to it.
Each day that any extension of credit in violation of this subsection exists is a continuation of the violation for the purposes of section 8 of the Federal Deposit Insurance Act.
The Board of Governors of the Federal Reserve System may prescribe such rules and regulations, including definitions of terms, as it deems necessary to effectuate the purposes and to prevent evasions of this subsection.

[12 USC 375a. As added by act of June 16, 1933 (48 Stat. 182); amended by Public Resolution approved June 14, 1935 (49 Stat. 375); and by acts of Aug. 23, 1935 (49 Stat. 716); April 25, 1938 (52 Stat. 223); June 20, 1939 (53 Stat. 842); July 3, 1967 (81 Stat. 109); Nov. 10, 1978 (92 Stat. 3665); Oct. 15, 1982 (96 Stat. 1522); Sept. 23, 1994 (108 Stat. 2233); and Oct. 13, 2006 (120 Stat. 1978).]

Extensions of Credit to Executive Officers, Directors, and Principal Shareholders of Member Banks

(h)

No member bank may extend credit to any of its executive officers, directors, or principal shareholders, or to any related interest of such a person, except to the extent permitted under paragraphs (2), (3), (4), and (6).
1. A member bank may extend credit to its executive officers, directors, or principal shareholders, or to any related interest of such a person, only if the extension of credit--
  1. is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the bank with persons who are not executive officers, directors, principal shareholders, or employees of the bank;
  2. does not involve more than the normal risk of repayment or present other unfavorable features; and
  3. the bank follows credit underwriting procedures that are not less stringent than those applicable to comparable transactions by the bank with persons who are not executive officers, directors, principal shareholders, or employees of the bank.
2. Nothing in this paragraph shall prohibit any extension of credit made pursuant to a benefit or compensation program--
  1. that is widely available to employees of the member bank; and
  2. that does not give preference to any officer, director, or principal shareholder of the member bank, or to any related interest of such person, over other employees of the member bank.
A member bank may extend credit to a person described in paragraph (1) in an amount that, when aggregated with the amount of all other outstanding extensions of credit by that bank to each such person and that person's related interests, would exceed an amount prescribed by regulation of the appropriate Federal banking agency (as defined in section 3 of the Federal Deposit Insurance Act) only if--
1. the extension of credit has been approved in advance by a majority vote of that bank's entire board of directors; and
2. the interested party has abstained from participating, directly or indirectly, in the deliberations or voting on the extension of credit.
A member bank may extend credit to any executive officer, director, or principal shareholder, or to any related interest of such a person, only if the extension of credit is in an amount that, when aggregated with the amount of all outstanding extensions of credit by that bank to that person and that person's related interests, would not exceed the limits on loans to a single borrower established by section 5200 of the Revised Statutes. For purposes of this paragraph, section 5200 of the Revised Statutes shall be deemed to apply to a State member bank as if the State member bank were a national banking association.
1. A member bank may extend credit to any executive officer, director, or principal shareholder, or to any related interest of such a person, if the extension of credit is in an amount that, when aggregated with the amount of all outstanding extensions of credit by that bank to its executive officers, directors, principal shareholders, and those persons' related interests would not exceed the bank's unimpaired capital and unimpaired surplus.
2. The Board may, by regulation, prescribe a limit that is more stringent than that contained in subparagraph (A).
3. The Board may, by regulation, make exceptions to subparagraph (A) for member banks with less than $100,000,000 in deposits if the Board determines that the exceptions are important to avoid constricting the availability of credit in small communities or to attract directors to such banks. In no case may the aggregate amount of all outstanding extensions of credit to a bank's executive officers, directors, principal shareholders, and those persons' related interests be more than 2 times the bank's unimpaired capital and unimpaired surplus.
1. If any executive officer or director has an account at the member bank, the bank may not pay on behalf of that person an amount exceeding the funds on deposit in the account.
2. Subparagraph (A) does not prohibit a member bank from paying funds in accordance with--
  1. a written preauthorized, interest-bearing extension of credit specifying a method of repayment; or
  2. a written preauthorized transfer of funds from another account of the executive officer or director at that bank.
No executive officer, director, or principal shareholder shall knowingly receive (or knowingly permit any of that person's related interests to receive) from a member bank, directly or indirectly, any extension of credit not authorized under this subsection.
1. For purposes of this subsection, any executive officer, director, or principal shareholder (as the case may be) of any company of which the member bank is a subsidiary, or of any other subsidiary of that company, shall be deemed to be an executive officer, director, or principal shareholder (as the case may be) of the member bank.
2. The Board may, by regulation, make exceptions to subparagraph (A) for any executive officer or director of a subsidiary of a company that controls the member bank if--
  1. the executive officer or director does not have authority to participate, and does not participate, in major policymaking functions of the member bank; and
  2. the assets of such subsidiary do not exceed 10 percent of the consolidated assets of a company that controls the member bank and such subsidiary (and is not controlled by any other company).
For purposes of this subsection:
1. 1. Except as provided in clause (ii), the term "company" means any corporation, partnership, business or other trust, association, joint venture, pool syndicate, sole proprietorship, unincorporated organization, or other business entity.
  2. The term "company" does not include--
    1. an insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act); or
    2. a corporation the majority of the shares of which are owned by the United States or by any State.
2. A person controls a company or bank if that person, directly or indirectly, or acting through or in concert with 1 or more persons--
  1. owns, controls, or has the power to vote 25 percent or more of any class of the company's voting securities;
  2. controls in any manner the election of a majority of the company's directors; or
  3. has the power to exercise a controlling influence over the company's management or policies.
3. A person is an "executive officer" of a company or bank if that person participates or has authority to participate (other than as a director) in major policymaking functions of the company or bank.
4. 1. A member bank extends credit by making or renewing any loan, granting a line of credit, or entering into any similar transaction as a result of which a person becomes obligated (directly or indirectly, or by any means whatsoever) to pay money or its equivalent to the bank.
  2. The Board may, by regulation, make exceptions to clause (i) for transactions that the Board determines pose minimal risk.
5. The term "member bank" includes any subsidiary of a member bank.
6. The term "principal shareholder"--
  1. means any person that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 percent of any class of voting securities of a member bank or company; and
  2. does not include a company of which a member bank is a subsidiary.
7. A "related interest" of a person is--
  1. any company controlled by that person; and
  2. any political or campaign committee that is controlled by that person or the funds or services of which will benefit that person.
8. The term "subsidiary" has the same meaning as in section 2 of the Bank Holding Company Act of 1956.
The Board of Governors of the Federal Reserve System may prescribe such regulations, including definitions of terms, as it determines to be necessary to effectuate the purposes and prevent evasions of this subsection.
[12 USC 375b. As added by act of Nov. 10, 1978 (92 Stat. 3644) and amended by acts of Oct. 15, 1982 (96 Stat. 1520, 1522); Dec. 19, 1991 (105 Stat. 2355, 2358, 2359); Oct. 28, 1992 (106 Stat. 3895, 4086); Sept. 23, 1994 (108 Stat. 2233); and Sept. 30 1996 (110 Stat. 3009-410).]

[Subsections (i), (j), and (k) were repealed by section 21, act of June 25, 1948 (62 Stat. 866). However, substance of subsections (h), (i), and (k) was incorporated in 18 USC 214, 656, 1005, and 1014. Subsection (j), which prohibited members of Congress from receiving benefits from any contracts or agreements of any Federal Reserve Bank was in effect continued in title 18, section 433, which does not include contracts of Federal Reserve Banks as exempt from the prohibition of section 431 against such members having an interest in federal agency contracts.]

Back to Top

Last update: August 13, 2008

Home | About the Fed

Accessibility Contact us Disclaimer Leaving the Board

Linking Policy FOIA

PDF Reader Leaving the Board