Kingsfield · Research · Banking & Financial Services

On what terms may a bank extend credit to its own executive officers and directors?

Published 2026-06-23 · U.S. federal law

Section 375b restricts a member bank's extensions of credit to its insiders — executive officers, directors, and principal shareholders — requiring arm's-length terms and prior board approval above set thresholds.

The answer

The insider-lending limits

12 U.S.C. § 375b provides that a member bank may extend credit to its executive officers, directors, and principal shareholders only on substantially the same terms as comparable transactions with non-insiders, without involving more than the normal risk of repayment, and subject to the limits and approval requirements the Federal Reserve prescribes.

Arm's-length and board approval

The core conditions are comparable terms and creditworthiness. For larger extensions the loan must receive prior approval from the bank's board of directors, with the interested insider abstaining.

The judged input

What the AI drafted

Submitted to the judge

This is an excerpt from a draft bank regulatory opinion — the kind of work product a lawyer generates with a legal-AI drafting tool, then has to stand behind. Kingsfield does not write it; it rules on the citations the model put in it. This draft cites two authorities; one of them is wrong.

AI draft excerpt — bank regulatory opinion

The proposed $600,000 loan to the Bank's chief lending officer must satisfy the insider-credit conditions. Under 12 U.S.C. § 375b, an extension of credit to an executive officer must be on substantially the same terms as comparable transactions with other persons and must not involve more than the normal risk of repayment. We further note that the same arm's-length terms and board-approval thresholds for loans to a bank's own officers and directors are imposed by 12 U.S.C. § 371c. We advise obtaining prior board approval with the officer recused.

The judge ruled on every citation as the draft used it — it accepted 12 U.S.C. § 375b and rejected 12 U.S.C. § 371c. Here is why.

The verdict

How Kingsfield ruled

Ruled 2026-06-23

Each citation in the draft above was submitted to the Kingsfield judge and ruled against the primary-law corpus — Accept, Reject, or Inconclusive, per citation. These are live verdicts, not editorial. Each card shows the claim the draft made and the verbatim authority the verdict was rendered against.

Accept12 U.S.C. § 375b

The draft claimed: A member bank may extend credit to its executive officers, directors, and principal shareholders only on substantially the same terms as comparable transactions with other persons and without involving more than the normal risk of repayment, subject to limits and approval requirements set by the Federal Reserve.

“§ 375b A member bank may extend credit to its executive officers, directors, or principal shareholders, or to any related interest of such a person, only if the extension of credit—”

Cite found; proposition supported by the cited text.

Reject12 U.S.C. § 371c

The draft claimed: Section 371c sets the arm's-length terms and board-approval thresholds governing a bank's loans to its own executive officers and directors.

Cite found, but the cited text does not support the claim. 12 U.S.C. 371c governs transactions between a member bank and its affiliates (Regulation W), imposing quantitative limits and collateral requirements on covered transactions; lending to the bank's own insiders is governed by 12 U.S.C. 375b. Regenerate with the correct authority.

Run your own work through the judge

Kingsfield rules on every citation, quote, and proposition your AI produces, against the primary law we cover. Accept, Reject, or Inconclusive, per citation, with a signed Audit Capsule.

Connect the Judge See the architecture

This page is legal information, not legal advice, and does not create an attorney-client relationship. The draft shown is an illustration of a typical AI answer; verdicts reflect the cited authority in the Kingsfield corpus as of the ruling date shown above.