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My bank made a balloon loan to an insider that required approval by the board of directors. If the borrower requests renewal, must the board again approve the loan prior to the renewal?

My bank made a balloon loan with a term of five years to an insider that required approval by the board of directors per Regulation O (§215.4(b)). If the borrower requests renewal for another five-year term, must the board again approve the loan prior to the renewal? No loan terms, such as interest rate, collateral, etc., are changing.

Likely, yes. The definition of extension of credit under §215.3 includes the “renewal of any loan,” unless otherwise excluded. Therefore, assuming the trigger for the prior approval under §215.4(b) remains, then so does the requirement for board approval for renewal. If, instead, for example, the original loan contained a provision that the loan will automatically renew provided the borrower meets stated caveats (e.g., submission of annual financial reports or paying as agreed) then it could be argued that the term of the original loan has not expired and as such the “renewal” is not a new extension of credit. It would be prudent, however, to discuss this with legal counsel and/or your bank’s primary regulator. (February 2021)

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