What Is Regulation G?
Federal banking regulation G requires banks, their affiliates, and their subsidiaries to publicly disclose written agreements with nongovernmental entities or persons (NGEPs).
As outlined by the Federal Reserve, Regulation G would cover, for example, an agreement made by a bank to make more loans to qualified applicants in a community or a neighborhood. The agreement must be submitted to the applicable federal banking agency and reported on annually.
The regulation applies to cash payments, grants, or other considerations (excluding loans) totaling more than $10,000 per calendar year. It applies to loans totaling more than $50,000 per calendar year, and it is required of state member banks, bank holding companies, and savings and loan holding companies with deposits that are insured by the Federal Deposit Insurance Company (FDIC).
The Securities and Exchange Commission's Regulation G addresses public companies' disclosure or release of information that is not calculated or presented in accordance with generally accepted accounting principles (GAAP). The SEC's Regulation G says that any companies releasing non-GAAP financial information must include "a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosed non-GAAP financial measure to the most directly comparable GAAP financial measure."
- Regulation G requires disclosure of a bank's compliance with anti-discriminatory lending laws.
- The Community Reinvestment Act of 1977 mandated an end to discriminatory lending practices.
- Regulation G is a federal rule that covers all banks insured by the FDIC.
Understanding Regulation G
Regulation G governs the disclosure and reporting of agreements related to the federal Community Reinvestment Act (CRA). That 1977 law was aimed at reducing discriminatory lending practices that denied loans to prospective homeowners and small business owners in low- and moderate-income neighborhoods.
The CRA essentially requires banks to make a good-faith effort to extend loans to qualified individuals and business people in low- and moderate-income neighborhoods and requires them to report regularly on those efforts. The regulations are enforced by the same agencies that are responsible for approving applications by banks to open new branches or merge with another institution. Their compliance with CRA is a factor to be considered.
The regulation also fulfills some requirements of the Gramm-Leach-Bliley Act. That 1999 law, also known as the Financial Modernization Act, removed barriers to a single company offering banking, investment, and insurance products under one umbrella, and led to the giant financial institutions of the modern era.
How Regulation G Is Applied
Covered agreements that must be reported under Regulation G include any contract, arrangement, or understanding that is made in writing when the parties include one or more insured depository institutions or affiliates of an insured depository institution and one or more NGEP.
The regulations are enforced by the agencies that must approve bank applications to open new branches or merge with another institution
Regulation G applies if the agreement is made in connection with the fulfillment of the CRA. This includes agreements made with an NGEP that has issued CRA communications prior to entering into the agreement.
CRA communications are defined as written or oral comments issued to a federal banking agency regarding the sufficiency of a bank’s CRA performance, any affiliated insured depository institutions, or any CRA affiliate.
Not Covered by Regulation G
The rules governing covered agreements do not include individual loans secured by real estate. Nor do they include extensions of credit to individuals, businesses, farms, or other entities. Regulation G’s definition of covered agreements does not apply if the funds in question are loaned at rates that are not substantially below market rates.
Regulation G also does not apply if the loan application or documentation does not indicate the borrower intends to use the funds to make a loan or extend credit to any third parties.