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Loans involving a bank's executives, directors or significant shareholders, whose relationship may influence lending decisions.
Controls can require disclosure, independent approval, comparable terms and limits on the amount lent. Reviewers need to consider indirect relationships as well as the named borrower: a company controlled by a director may create the same conflict as a personal loan. The exact legal definition of an insider, and the applicable restrictions, depend on the jurisdiction and institution.
Suppose a bank normally requires similar business borrowers to provide collateral and pay 8% interest. A director’s company requests a loan at 3% with no collateral, despite having no stronger finances. Independent reviewers would need to examine whether that difference represents unjustified preference. A director borrowing on properly assessed, comparable terms presents a different situation from this hypothetical example.
Fed extends deadline for comments on insider-lending proposal