By the Division of Banks

Laws Applicable To Insider Loans

Under Mass. Gen. Laws chapter 170 § 19, all loans made by a bank to its officers and directors must have the prior approval of the bank's Board of Directors. The statute does not provide for an exception based on either the type or dollar amount of the loan. The amounts set forth in Mass. Gen. Laws chapter 170 § 19 represent the maximum loan amounts that a bank may make for the specified loan types to officers. A loan to a director is governed by the lending limit to one person set out in Mass. Gen. Laws chapter 167E § 14. Administrative Bulletin 9-1 (AB 9-1) defines assets as all loans or other extensions of credit exclusive of credit card transactions. Accordingly, residential mortgage loans are subject to AB 9-1. Under AB 9-1, a credit transaction must be specifically approved prior to being executed. Ratification of a prior action would not satisfy the requirements of AB 9-1.

Under AB 9-1, a "Vice President" does not include individuals who do not participate in major policy making functions and whose authority is limited by policy set by senior management. Thus, an individual whose title is "Vice President" may not be subject to AB 9-1. Mass. Gen. Laws chapter 170 § 19 also states that the term does not include a person who may have an official title and may exercise a certain measure of discretion in the performance of duties but does not participate in the determination of major policies of the corporation and whose decisions are limited by policy standards fixed by senior management of the corporation.

Federal Regulation O has no effect on the duty of a state-chartered bank to comply with requirements of Massachusetts law regarding loans to insiders. The requirements of each are separate and distinct bodies of law.