As to the general lending limits, we believe that your bank may calculate the lending limit for each spouse individually. The Illinois Banking Act’s lending limit provisions would not require that the spouses’ individual loans be aggregated, unless one of the spouses guaranteed the other spouse’s loans, or your bank relied on the non-borrowing spouse’s creditworthiness when making the loans.

As to the application of Regulation O’s lending limits and other requirements to the wife’s loans, the answer depends on whether the wife is considered an “insider” of the bank and the application of the “tangible economic benefit rule.”

As a general rule, the Regulation O definition of “insider” does not include an insider’s family members. However, if your bank’s executive officer is a principal shareholder of the bank, his wife also would be considered a principal shareholder, and loans made to the wife would be subject to Regulation O. The definition of “principal shareholder” includes a person who owns, controls, or has voting power over more than 10% of any class of voting securities, including any “[s]hares owned or controlled by a member of an individual’s immediate family,” such as a spouse.

Also, Regulation O would apply to a loan made to the wife if the executive officer is found to have received a “tangible economic benefit” from the transaction, unless he also qualifies for an exception to the tangible economic benefit rule. Such a tangible economic benefit has been found, for example, when the son of a bank director transferred loan proceeds to his father, for purposes of paying off a loan the father had extended to the son. But even in that case, an exception applies when (1) the loan terms would satisfy the Regulation O requirements in Section 215.4(a) and (2) the loan proceeds are used in a “bona fide transaction to acquire property, goods, or services from the insider.”

For resources related to our guidance, please see:

• Illinois Banking Act, 205 ILCS 5/32 (“The liabilities outstanding at one time to a state bank of a person for money borrowed, including the liabilities of a partnership or joint venture in the liabilities of the several members thereof, shall not exceed 25% of the amount of the unimpaired capital and unimpaired surplus of the bank. . . .”)

• Illinois Banking Act, 205 ILCS 5/2 (“‘Person’ means an individual, corporation, limited liability company, partnership, joint venture, trust, estate, or unincorporated association.”)

• IDFPR Administrative Rules, 38 Ill. Adm. Code 330.110(a) (“A loan or extension of credit to one person shall be considered a loan or extension of credit to a second person if the credit worthiness of the one person does not justify the loan or extension of credit without reliance on the credit worthiness of the second person.”)

• IDFPR Administrative Rules, 38 Ill. Adm. Code 330.110(b) (“Factors which may be relevant in determining whether a loan or extension of credit to one person can be justified without reliance on the credit worthiness of a second person include the following: 1) Will the credit analysis and documentation on file at the bank at the time the loan or extension of credit was made substantiate that the one person has or will have the financial capacity to generate sufficient funds from his or her own assets and operations to repay the loan or extension of credit or is the source of repayment the second person?; . . .”)

• 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 215.2(h) (“Insider means an executive officer, director, or principal shareholder, and includes any related interest of such a person.”)

• Regulation O, 12 CFR 215.2(m)(1) (“Principal shareholder means a person (other than an insured bank) 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. Shares owned or controlled by a member of an individual’s immediate family are considered to be held by the individual.”)

• Regulation O, 12 CFR 215.2(g) (“Immediate family means the spouse of an individual, the individual's minor children, and any of the individual's children (including adults) residing in the individual's home.”)

• Regulation O, 12 CFR 215.3(f)(1) (The tangible economic benefit rule: “An extension of credit is considered made to an insider to the extent that the proceeds are transferred to the insider or are used for the tangible economic benefit of the insider.”
   
• Regulation O, 12 CFR 215.3(f)(2) (The tangible economic benefit exception: “An extension of credit is not considered made to an insider under paragraph (f)(1) of this section if: (i) The credit is extended on terms that would satisfy the standard set forth in § 215.4(a) of this part for extensions of credit to insiders; and (ii) The proceeds of the extension of credit are used in a bona fide transaction to acquire property, goods, or services from the insider.”)
   
• FRB Interpretive Letter (December 10, 1998)