review by no more than two of the Deputy Ethics Counselors referred to in § 336.735-3(c).

(b) When a statement submitted under § 336.735-31 and § 336.735-34, or information from other sources indicates a possible conflict between the interests of an employee or Special Corporatior. Employee and the performance of his or her service for the Corporation:

(1) The Ethics Counselor shall investigate the matter and allow the employee or Special Corporation Employee a reasonable opportunity, orally and in writing, to explain why he or she does not believe a conflict or appearance of conflict exists.

(2) The Ethics Counselor shall attempt to resolve the matter expeditiously.

(3) If an employee is dissatisfied with the Ethics Counselor's proposed resolution, and the matter cannot be resolved by the September 30 following the filing of a required statement, the information concerning the conflict or appearance of conflict shall be reported to the Chairman of the Board of Directors for resolution.) [43 FR 60269, Dec. 27, 1978]

§ 336.735-42 Disciplinary and other remedial actions.

(a) A violation of the regulations in this part by an employee or special Corporation employee may be cause for appropriate disciplinary action which may be in addition to any penalty prescribed by law.

(b) When, after consideration of the explanation of the employee or special Corporation employee provided by § 336.735-41, the Chairman of the Board decides that remedial action is required, he shall take immediate action to end the conflicts or appearance of conflicts of interest. Remedial action includes, but is not limited to: (1) Changes in assigned duties; (2) Divestment by the employee or special Corporation employee of his conflicting interest;

(3) Disciplinary action; or

(4) Disqualification for a particular assignment.

The provisions of this part apply to certain banking practices which are likely to have adverse effects on the safety and soundness of insured State nonmember banks or which are likely to result in violations of law, rule, or regulation.

§ 337.2 Standby Letters of Credit.

(a) Definition. As used in this § 337.2, the term "standby letter of credit" means any letter of credit, or similar arrangement however named or described, which represents an obligation to the beneficiary on the part of the issuer (1) to repay money borrowed by or advanced to or for the account of the account party, or (2) to make payment on account of any indebtedness undertaken by the account party, or (3) to make payment on account of any default (including any statement of default) by the account party in the performance of an obligation. The term "similar arrangement" includes the creation of an acceptance or similar undertaking.

'As defined in this paragraph (a), the term "standby letter of credit" would not include commercial letters of credit and similar instruments where the issuing bank expects the beneficiary to draw upon the issuer, which do not "guaranty" payment of a money obligation of the account party and which do not provide that payment is occasioned by default on the part of the account party.

(b) Restriction. A standby letter of credit issued by an insured State nonmember bank shall be combined with all other standby letters of credit and all loans for purposes of applying any legal limitation on loans of the bank (including limitations on loans to any one borrower, on loans to affiliates of the bank, or on aggregate loans); Provided, however, That if such standby letter of credit is subject to separate limitation under applicable State or federal law, then the separate limitation shall apply in lieu of the loan limitation. 2

(c) Exceptions. All standby letters of credit shall be subject to the provisions of paragraph (b) of this section except where:

(1) Prior to or at the time of issuance, the issuing bank is paid an amount equal to the bank's maximum liability under the standby letter of credit; or,

(2) Prior to or at the time of issuance, the issuing bank has set aside sufficient funds in a segregated deposit account, clearly earmarked for that purpose, to cover the bank's maximum liability under the standby letter of credit.

(d) Disclosure. Each insured State nonmember bank must maintain adequate control and subsidiary records of its standby letters of credit comparable to the records maintained in connection with the bank's direct loans so that at all times the bank's potential liability thereunder and the bank's compliance with this § 337.2 may be readily determined. In addition, all such standby letters of credit must be adequately reflected on the bank's published financial statements.

§ 337.3 Insider Transaction.

(a) Definitions-(1) Bank. The term "bank" means an insured State nonmember commercial or mutual savings bank, and any majority-owned subsidiary of such bank.

sociation, or other business entity; any trust; or any natural person.

(3) Control. The term "control" (including the terms “controlling”, “controlled by", and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.

(4) Insider. The term "insider" means any officer or employee who participates or has authority to participate in major policy-making functions of a bank, any director or trustee of a bank, or any other person who has direct or indirect control over the voting rights of ten percent of the shares of any class of voting stock of a bank or otherwise controls the management or policies of a bank.

(5) Person related to an insider. The term "person related to an insider" means any person controlling, controlled by or under common control with an insider, and also, in the case of a natural person, means:

(i) An insider's spouse;

(ii) An insider's parent or stepparent, or child or stepchild; or

(iii) Any other relative who lives in an insider's home.

(6) Insider transaction. The term "insider transaction" means any business transaction or series of related business transactions' between a bank and:

(i) An insider of the bank;

(ii) A person related to an insider of the bank;

(iii) Any other person where the transaction is made in contemplation of such person becoming an insider of the bank; or

(iv) Any other person where the transaction inures to the tangible economic benefit of an insider or a person related to an insider.

(7) Business transaction. The term "business transaction" includes, but is

'The phrase "series of related business transactions" includes transactions which are in substance part of an integrated business arrangement or relationship such as borrowings on a line of credit, law firm billings, or recurring transactions of a similar nature within a holding company system.

not limited to, the following types of transactions:

(i) Loans or other extensions of credit;

(ii) Purchases of assets or services from the bank;

(iii) Sales of assets or services to the bank;

(iv) Use of the bank's facilities, its real or personal property, or its personnel;

(v) Leases of property to or from the bank;

(vi) Payment by the bank of commissions and fees, including brokerage commissions and management, consultant, architectural and legal fees; and (vii) Payment by the bank of interest on time deposits which are in amounts of $100,000 or more.

For the purpose of this regulation, the term does not include deposit account activities other than those specified in paragraph (a)(7)(vii) of this section, safekeeping transactions, credit card transactions, trust activities, and activities undertaken in the capacity of securities transfer agent or municipal securities dealer.

(b) Approval and Disclosure of Insider Transactions. An insider transaction, either alone or when aggregated in accordance with paragraph (c) of this section, involving assets or services having a fair market value amounting to more than:

(1) $20,000 if the bank has not more than $100,000,000 in total assets;

(2) $50,000 if the bank has more than $100,000,000 and not more than $500,000,000 in total assets; or

(3) $100,000 if the bank has more than $500,000,000 in total assets

shall be specifically reviewed and approved by the bank's board of directors or board of trustees, provided, however, that, when an insider transaction is part of a series of related business transactions involving the same insider, approval of each separate transaction is not required so long as the bank's board of directors or board of trustees has reviewed and approved the entire series of related transactions and the terms and conditions under which such transactions

may take place. 2 The minutes of the meeting at which approval is given shall indicate the nature of the transaction or transactions, the parties to the transaction or transactions, that such review was undertaken and approval given, and the names of individual directors or trustees who voted to approve or disapprove the transaction or transactions. In the case of negative votes, a brief statement of each dissenting director's or trustee's reason for voting to disapprove the proposed insider transaction or transactions shall be included in the minutes if its inclusion is requested by the dissenting director or trustee.

(c) Aggregation of Loans or Other Extensions of Credit Which Are Insider Transactions. Any loan or extension of credit involving an insider shall be aggregated with the outstanding balances of all other loans or extensions of credit involving that insider. For purposes of this regulation, a loan or extension of credit involves a specific insider when the loan or extensior. of credit is made to that insider, to a person related to that insider, or to any other person where the loan or extension of credit inures to the tangible economic benefit of that insider or a person related to that insider.

(d) Information Pertaining to Insider Transactions. Each bank shall maintain a record of insider transactions requiring review and approval under paragraph (b) of this section in a manner and form that will enable examiner personnel to identify such insider transactions. Information pertaining to such insider transactions shall be readily accessible to examiners and shall include all documents and other material relied upon by the board in approving each transaction, including the name of the insider, the insider's position or relationship that causes such person to be considered an insider, the date on which the transac

"Although not specifically required by the proposed regulation, prior review and approval is desirable and should occur except under circumstances in which such review and approval is clearly impractical. Where prior review and approval by the board of directors or board of trustees is clearly impractical, subsequent action should occur as soon as possible.

tion was approved by the board, the type of insider transaction and the relevant terms of the transaction, any other pertinent facts which serve to explain or support the basis for the board's decision, and any statements submitted for the minutes or the file by directors or trustees who voted not to approve the transaction setting forth their reasons for such vote.

(e) Discovery of Insider Relationship. When a bank becomes aware of the existence of an insider relationship after entering into a transaction for which approval would have been required under paragraph (b) of this section,

the bank shall promptly report such transaction in writing to the Regional Director of the Corporation in charge of the Region in which the bank is headquartered.

(f) Knowledge of Proposed Insider Transaction. Any insider, having knowledge of an insider transaction between the bank and:

(3) Any other person where the transaction inures to the tangible economic benefit of that insider or person related to that insider

shall give timely notice of such transaction to the bank's board of directors or board of trustees.

(g) Supervisory Action in Regard to Certain Insider Transactions. Notwithstanding compliance with the review and approval requirements of paragraph (b) of this section, the Corporation will take appropriate supervisory action against the bank, its officers or its directors or trustees when the Corporation determines that an insider transaction, alone or when aggregated with other insider transactions, is indicative of unsafe or unsound practices. Such supervisory action may involve institution of formal proceedings under section 8 of the Federal Deposit Insurance Act. Among the factors which the Corporation will consider in determining the presence of unsafe or unsound banking practices involving insider transactions are:

(1) Whether, because of preferential terms and conditions, such insider

transactions are likely to result in significant loan losses, excessive costs, or other significant economic detriment which would not occur in a comparable arm's length transaction with a person of comparable creditworthiness or otherwise similarly situated;

(2) Whether transactions with an insider and all persons related to that insider are excessive in amount, either in relation to the bank's capital and reserves or in relation to the total of all transactions of the same type; or

(3) Whether, from the nature and extent of the bank's insider transactions, it appears that certain insiders are abusing their positions with the bank.

§ 337.11 Effect on other banking practices.

Nothing in this part shall be construed as restricting in any manner the Corporation's authority to deal with any banking practice which is deemed to be unsafe or unsound or otherwise not in accordance with law, rule, or regulation; or which violates any condition imposed in writing by the Corporation in connection with the granting of any application or other request by an insured State nonmember bank, or any written agreement entered into by such bank with the Corporation. Compliance with the provisions of this Part shall not relieve an insured State nonmember bank from its duty to conduct its operations in a safe and sound manner nor pre

AUTHORITY: Sec. 2, Pub. L. 86-671, 74 Stat. 547 (12 U.S.C. 1817); sec. 8, Pub. L. 797, 64 Stat. 879, as amended by sec. 202, 204, Pub. L. 89-695, 80 Stat. 1046, 1054, and sec. 110, Pub. L. 93-495, 88 Stat. 1506 (12 U.S.C. 1818); sec. 9, Pub. L. 797, 64 Stat. 881, as amended by sec. 205, Pub. L. 89-695, 80 Stat. 1055 (12 U.S.C. 1819); sec. 203, Pub. L. 89695, 80 Stat. 1053 (12 U.S.C. 1920(b)); sec. 805, Pub. L. 90-284, 82 Stat. 83, 84, as amended by sec. 808, Pub. L. 93-383, 88 Stat. 729 (42 U.S.C. 3605, 3608); sec. 501, Pub. L. 93-495, 88 Stat. 1521, as amended by sec. 2, Pub. L. 94-239, 90 Stat. 251 (15 U.S.C. 1691, et seq.); 40 FR 49306, 12 CFR Part 202; 37 FR 3429, 24 CFR Part 110.

SOURCE: 43 FR 11563, Mar. 20, 1978, unless otherwise noted.

§ 338.1 Definitions.

(a) "Applicant" means a natural person, including a coapplicant, who makes an application.

(b) "Application" means a written, or an oral in-person,' request for a home loan by a natural person which is receive on a bank's premises by any person at the bank who customarily receives or is authorized to received such requests.

(c) "Bank" means an insured State nonmember bank as defined in section 3 of the Federal Deposit Insurance Act.

(d) "Controlled entity” means a corporation, partnership, association, or other business entity with respect to which a bank possesses, directly or indirectly, the power to direct or cause the direction of management and poli

Telephone communications are excluded.

cies, whether through the ownership of voting securities, by contract or otherwise.

(e) "Dwelling" means any building, structure (including a mobile home), or portion thereof which is occupied as, or designed or intended for occupancy as, a residence by one or more natural persons and any vacant land which is offered for sale or lease for the construction or location thereon of any such building, structure or portion thereof.

(f) "Home loan" means any extension of credit relating to:

(1) The purchase or construction of or the refinancing for a dwelling which is or will be comprised of one to four residential units, at least one of which the applicant intends to occupy as a principal residence, and which secures or will secure the extension of credit; or

(2) The improvement, repair or maintenance of a dwelling which is comprised of one to four residential units, at least one of which the applicant intends to occupy as a principal residence, and which secures or will secure the extension of credit.

(g) "Inquirer" means a natural person who makes an inquiry.

(h) "Inquiry" means a written, or an oral in-person,2 request for information about the terms of a home loan by a natural person on his behalf which is received on a bank's premises by any person at the bank who customarily receives or is authorized to receive such requests.

§ 338.2 Nondiscriminatory advertising.

(a) Any bank which directly or through third parties engages in any form of advertising of loans for the purpose of purchasing, constructing, improving, repairing, or maintaining a dwelling shall prominently indicate in such advertisement, in a manner appropriate to the advertising medium and format utilized, that the bank makes such loans without regard to race, color, religion, sex, or national origin.

(1) With respect to written and visual advertisement, this requirement may be satisfied by including in the

"Telephone communications are excluded.