After complaining that the Federal Reserve's limits on insider loans would devastate its members, the Independent Bankers Association of America has found that less than 1% of smaller banks are bumping up against the limit.

And only 6% of banks with deposits of less than $100 million have taken advantage of the Fed's temporary exception for small banks, according to the trade group.

The results of the IBAA's survey of 1,060 small banks appear to cast doubt on the impact of the Fed's Regulation O on small banks. But the trade group says that while the numbers may be small, comments received from bankers in conjunction with the survey showed great concern about the issue.

"Fewer banks are using it then we expected," said Diane M. Casey, the IBAA's executive director. "But the fear factor with regard to Regulation O has never been higher."

Bankers fear that any attention drawn to insider lending - even just notifying regulators that they are taking advantage of the special exemption - will bring retribution from examiners, Ms. Casey said.

"Low-profile is the buzzword when it comes to loans to insiders," Ms. Casey said.

In May, the IBAA surveyed community banks with deposits less than $100 million, after several Fed governors expressed amazement that so few small banks had taken advantage of its generous exemption. Only 38 of the 8,643 eligible banks have notified the agency, as required, that they are using the exemption.

Under Regulation O, most bank's loans to executive officers, directors, and principal shareholders cannot exceed 100% of unimpaired capital. But for banks with deposits of less than $100 million, the Fed temporarily has ruled that insider lending can reach 200%, as long as banks notify both the Fed and their primary regulator.

The IBAA has lobbied heavily to make permanent the Fed's exception to the limits for small banks, saying that without it banks will lose their most qualified directors. But the group's survey found that insider lending at small banks totaled only 19% of capital - one-fifth of the general limit.

Only 14% of bankers reported that Regulation O has prevented them from making an insider loan. Nine percent said the rule has prevented them from appointing a director, while 5% said directors were forced to resign because of the rule.

And almost 40% of the small banks surveyed said they "intentionally declined" to take advantage of the higher limit. In explaining why, half said they had no need, and 13% said fear of regulator scrutiny had stopped them. Almost 7% said their bank had a policy of not lending to insiders.

The IBAA survey found that Regulation O has had a greater impact on the smallest banks, those with deposits under $50 million. The vast majority of those that were prevented from naming directors were this size.

"The smaller the town, the smaller the bank, the more of a problem it is," Ms. Casey said.

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