American Bankers Association

Sarah A. Miller
Center for Securities, Trust and Investments

June 24, 2002

Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Form 8-K Disclosure of Certain Management Transactions, Release No. 33-8090; File No. S7-09-02; 67 Federal Register 19914 (April 23, 2002).

Dear Mr. Katz:

The American Bankers Association ("ABA") appreciates the opportunity to offer its comments on the proposal issued by the Securities and Exchange Commission ("Commission") requiring public companies to file current reports on Form 8-K describing: directors' and executive officers' transactions in company equity securities, directors' and executive officers' arrangements for the purchase and sale of company equity securities, and loans of money to a director or executive officer made or guaranteed by the company or an affiliate of the company. The proposed amendments are intended to provide investors with prompt disclosure of information and enable investors to make better-informed investment and voting decisions.

The ABA is very interested in the Commission's proposal. The ABA brings together all categories of banking institutions to best represent the interests of this rapidly changing industry. Its membership-which includes community, regional, and money center banks and bank holding companies, as well as savings associations, trust companies, and savings banks-makes ABA the largest banking trade association in the country. Many of our members are impacted by the Commission's proposal as a result of being traded on a national securities exchange or due to their asset size and numbers of shareholders are Section 12(g) filers under the Securities Exchange Act of 1934 ("Exchange Act"). Indeed, 1,643 banks and thrifts are either publicly traded or owned by publicly-traded holding companies and, as such, are subject to the Exchange Act's periodic reporting requirements.1

One particular aspect of the Commission's proposal causes us a great deal of concern. Specifically, the Commission has proposed that loans of money to directors and executive officers made or guaranteed by the company or an affiliate of the company are to be reported on Form 8-K. If loans and equity transactions

to each director or executive officer are in the aggregate valued at $100,000 or more, the Form 8-K would be required to be filed within two business days of the transactions. Equity transactions and loans with less than $100,000 in aggregate value generally would be due by the close of business on the second business day of the following week. Equity transactions and loans with an aggregate value of less than $10,000 would be deferred until the aggregate cumulative value of the unreported events for the same director or executive officer exceeded $10,000.

The ABA's concern is largely due to the fact that the Commission's proposal strikes at the very heart of the business of banking. Unlike other corporations that manufacture specific products and services, banks are in the business of, among other things, making loans. We believe the Commission's proposal will have the unintended, but very detrimental, effect on the ability of our members to provide "product," i.e., loans to many of our customers who also happen to be executive employees or company directors. It is very common for directors and executive officers to obtain home mortgage loans, home equity lines of credit, credit cards, or personal or company lines of credit through the same bank for which they work or on whose board they sit.2 Requiring these common, everyday transactions to be disclosed within two to seven business days of occurrence will surely exacerbate the current difficulties our members face in finding qualified candidates to serve on their boards.3

Banking regulations recognize that it is appropriate to allow banking organizations to engage in legitimate lending relationships with its directors and executive officers. Specifically, Regulation O requires that extensions of credit made to directors and other insiders be on substantially the same terms and conditions as comparable credit extensions to comparable borrowers. Interest rates, collateral requirements, credit underwriting standards, and repayment terms cannot be more favorable for insider borrowers.4 Violations of Regulation O can result in civil penalties of more than $1 million per day per violation being assessed against the offending banking organization.

In addition to the severe money penalties associated with violations of Regulation O, the Commission should take comfort from the fact that Regulation O is construed most broadly. For example, Regulation O applies not only to banks but also to bank subsidiaries, any company, including a bank holding company that owns a bank, as well as any affiliate of the bank holding company. The definition of insider under Regulation O would appear to include all directors and executive officers affected by the Commission's proposal.5 Extensions of credit are also defined broadly to include not only loans of money but also repurchase arrangements, standby letters of credit, and advances against unearned salary in excess of 30 days. Extensions of credit do not include indebtedness of $15,000 or less under a bank credit card plan or $5,000 or less on an overdraft protection plan on an insider's checking account. See 12 CFR Section 215.3.

Moreover, where it is permissible to engage in non-preferential lending with insiders, stringent lending limits apply. These lending limits are applied both individually to directors and other insiders, but also in the aggregate to all insiders. Regulation O also requires, under certain circumstances, significant recordkeeping, reporting and disclosure requirements.

In view of the fact that loans to directors and executive officers are already subject to federal banking regulations; that banks are examined for compliance with these strict requirements, and that banks are subject to severe money penalties for failure to comply with the prescribed lending limits, the ABA would suggest that any extension of credit permissible under Regulation O should also be exempt from the proposed Form 8-K disclosures. After all credit extensions made on a non-preferential basis do not present the same types of conflicts of interest that investors need to be made aware of in order to make more informed investment and voting decisions.

We also support the view advocated by some that the deficiencies associated with current reporting of insider transactions in equity securities should be fixed, rather than develop an additional and duplicative mechanism for disclosing to the market much of the same information. Specifically, the Commission should consider accelerating the current insider filing requirements for Forms 4 and 5, rather than require similar disclosures to be added to the company's Form 8-K. In any event, a two to seven business day window for filing insider transaction information is NOT, in many of our members' opinion, doable. We would suggest a ten-business day filing requirement more akin to that required under Section 13(d) of the Exchange Act. Finally, we would respectfully suggest that the Commission strive to cure the current difficulties associated with filing Forms 4 and 5 electronically, rather than require the same information to be filed on the Form 8-K as proposed.

In conclusion, the ABA hopes that its comments will prove useful to the Commission and its staff. We are hopeful that the Commission will agree with us that lending is the very lifeblood of the banking industry and legitimate, arms-length transactions with insiders should not be discouraged.

Sincerely yours,

Sarah A. Miller

cc: Anne M. Krauskopf, Esq.
Mark A. Borges, Esq.

1 Source: Sheshunoff Information Services.
2 For many of these same reasons, the ABA is quite concerned about the proposals recently issued by the New York Stock Exchange and the NASDAQ to require a majority of listed company boards to be independent. These proposals could impact the continued ability of many of our members to engage in legitimate lending activities with directors.
3 We recognize that current Commission regulations require annual disclosure of any director or executive officer's indebtedness to the company or its subsidiaries in an amount in excess of $60,000 on Form 10-K and on the proxy statement for the annual meeting at which directors are to be elected. Annual disclosure is vastly different (and less burdensome) than the current event disclosure proposed.
4 An exception exists to allow reduced rate loans as an employment benefit. Reduced rate loans must, however, be made "widely available" to employees. See 12 CFR 215.4(a)(2).
5 "Insider" is defined to include not only executive officers and directors, but also principal shareholders, and related interests of any executive officer, director or principal shareholder. See 12 CFR 215.2.