Little Things Neglected Can Become Big Things - Reg O

For all of my banking career there has been Regulation O. As a young guy when I was in college, all the news was focused for a period of time on President Carter's head of OMB, Burt Lance, and allegations surrounding his tenure during banking directorships in Georgia. Those allegations are generally regarded as the start of Regulation O.

During my time in the industry, I recall very few changes to Reg O itself, only a couple of revisions, in fact. I saw bank exams come and go over the decades and for a period often saw banks cited with Reg O related violations. The regulators viewed such quite seriously. However, I rarely see violations out there these days. But that does not diminish the importance of Reg O in and of itself.

Just last night a friend was telling me how her HVAC was not working properly, though she had never had an issue all the years she owned the house. Yet, when she called the repairman, the problem resulted because a cat had got under her house and pulled down the ductwork. This is much like Reg O. Maybe you have had no Reg O issues at your institution, but beware of the implications to your regulatory audit if such an issue creeps up during your next exam. Thus, maybe now is a good time to check that ductwork. Have your internal audit group or your external outsourced independent reviewers check your Reg O system in terms of process, reporting, and functionality.

Typical examples:

  • Are required demand features present?
  • Are related interests properly and timely reported?
  • Are prior board approval requirements met?
  • Is there compliance with the non-preferential overdraft limit and terms?
  • Is sufficient financial and other information presented in sufficient detail for the Board to make an insider credit decision, just as that presented for any other customer? Does the affected insider refrain from voting and preferably leave the director meeting during discussion?
The list can continue, but bottom line, just because you have had no issues in Reg O, maybe it's time for a detailed Reg O check. Winter is upon us, so better check that ductwork.