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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
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
Certain conditions must be met in order for the split-dollar
life insurance arrangement not to constitute an improper extension
of credit. Specifically, the arrangement is not an extension of
credit when “(i) the bank is not entitled to payment in an
amount greater than the premiums paid by the bank (for example, the
bank is not entitled to payment of the premiums plus some assessed
interest), and (ii) the insider has no independent obligation to
repay the premiums to the bank, other than out of the proceeds of
the insurance policy.”
Reprinted with permission from the American Bar
Association’s Business Law Today July Month-In-Brief:
Business Regulation & Regulated Industries.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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