Federal Reserve Board Updates Regulation O FAQs

On July 8, 2022, the Federal Reserve Board ("Board") updated "Question 3" of its frequently asked questions (FAQs) regarding Regulation O, "Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks." In the update, the Board clarified that a bank's payment of premiums as part of a split-dollar life insurance arrangement is not an improper extension of credit to an insider if certain conditions are met.

The update explains a split-dollar life insurance arrangement as an arrangement under which the bank is entitled to receive a prenegotiated amount from the proceeds of the insurance policy upon the death of the insured or when the insured surrenders the policy. The FAQ notes that the arrangement can take many forms—the insurance policy can be owned by the bank, the employee, or a third party.