If your bank has made a binding commitment for the whole amount of the $250,000 line of credit and does not retain a right of refusal for draws on the line, then your bank should use the entire $250,000 amount to determine whether board approval is required.

As you have indicated, Regulation O imposes limitations on extensions of credit to bank directors, including that extensions of credit over a certain threshold require board approval. An extension of credit is made “at the time the bank enters into a binding commitment to make the extension of credit.” In the context of a line of credit, if the borrower becomes immediately obligated for the whole amount of the credit line at the time it is approved, the entire amount would be an extension of credit for determining whether board approval is required. However, if a lender retains a right of refusal for and separately evaluates each new draw, the FDIC has opined that credit is extended only “when the draw is made and the borrower becomes obligated to the bank.”

Based on informal guidance we received from an attorney with the FDIC (your primary federal regulator), a line of credit typically is structured so that the borrower is immediately obligated for the entire amount of the line. We recommend reviewing the loan documents to confirm that this is the case and that your bank has not retained a right of refusal for each draw on the line. If so, your bank should consider the entire amount of the line of credit for purposes of determining whether Regulation O requires prior board approval.

For resources related to our guidance, please see:

• FDIC Lending Limits, 12 CFR 337.3(a) (“{I}nsured nonmember banks are subject to the restrictions contained in subpart A of Federal Reserve Board Regulation O (12 CFR part 215, subpart A) to the same extent and to the same manner as though they were member banks.”)

• FDIC Lending Limits, 12 CFR 337.3(b) (“For the purposes of compliance with §215.4(b) of Federal Reserve Board Regulation O, no insured nonmember bank may extend credit or grant a line of credit to any of its executive officers, directors, or principal shareholders or to any related interest of any such person in an amount that, when aggregated with the amount of all other extensions of credit and lines of credit by the bank to that person and to all related interests of that person, exceeds the greater of $25,000 or five percent of the bank's capital and unimpaired surplus, or $500,000 unless (1) the extension of credit or line of credit has been approved in advance by a majority of the entire board of directors of that bank and (2) the interested party has abstained from participating directly or indirectly in the voting.”)

• Regulation O, 12 CFR 215.3(d) (“For purposes of § 215.4 of this part, an extension of credit by a member bank is considered to have been made at the time the bank enters into a binding commitment to make the extension of credit.”)

• FDIC Advisory Opinion 94-38 (August 30, 1994) (“The FDIC advisory opinion which you cite discussed a line of credit where the issuing bank retained a right of refusal when the borrower drew upon the line of credit. Credit is therefore only extended when the draw is made and the borrower becomes obligated to the bank. In those particular circumstances, we are of the opinion that only the amounts drawn under the line of credit would count for purposes of Regulation O. In a situation, however, where a borrower becomes immediately obligated when the bank grants a line of credit for the whole amount of the line of credit, that entire amount would be taken into consideration for purposes of Regulation O.”) [The FDIC has informed the IBA that it has removed all of its advisory opinions from its website due to a high risk of staleness. We have provided links to archived versions of the advisory opinions for your convenience. If you have a question about an advisory opinion, the FDIC recommends that you contact your FDIC Field Office, which you can find by clicking here.]