What is Regulation O?

Regulation O is an administrative regulation promulgated by the Federal Reserve Bank. It was created in 1980 to effectuate provisions from the Financial Institutions Regulatory and Interest Rate Control Act of 1978 and later the Depository Institutions Act of 1982. It places specific limitations on the ability of member banks to extend credit to insiders (such as executives, directors, and principal shareholders) of the bank. The Dodd-Frank Act expanded the definitions of extensions of credit to include most situations in which the bank transfers value for a return obligation.

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How Does Regulation O Work?

The objective of Regulation O is to make certain that bank insiders do not receive special advantages in lending terms that are not available to non-insiders. The extent to which Regulation O regulates lending transactions to insiders varies based upon the type of credit extended and the relationship of the insider to the company. Regulation O also requires that member banks disclose in their quarterly reports any loans or other extensions of credit to insiders.