The Regulation of Loans to Executive Officers of Commercial Banks

Abstract

S INCE important revisions of banking laws are expected to be made either by present or by next session of Congress, this seems like a suitable time to appraise our present banking regulations. One technical regulation which has received inadequate attention from students of banking is regulation of loans to executive officers. No discussion of such loans has appeared in recent years,I even though more than 25 per cent of banks cited for unsound practices by Federal Deposit Insurance Corporation in three years, I937-39, were cited for unwarranted and excessive loans to officers, directors, employees, or their interests, 12 as well as for other reasons. Prior to I933 Congress placed no express restrictions on right of any officer of a national bank to borrow from bank of which he an officer. The courts held that the president or other officers of a national bank may borrow money of bank as other persons,3 but usually also held that the consent of managing body of corporation-that is, board of directors was necessary.4 Although there were no legal restrictions, potential dangers inherent in such practices by unscrupulous individuals were recognized, and as early as i84I Ohio Supreme Court warned that it might be well if restrictions were imposed by Legislature, upon amount of its