17:9A-72. Prerequisites to incurring liability; amounts

Prerequisites to incurring liability; amounts. A. No bank shall permit a director or an executive officer of the bank or a corporation or partnership to become liable to the bank, and no such director, executive officer, corporation or partnership shall become liable to a bank, except as authorized by this article.

B. A bank may permit a director or an executive officer of the bank or a corporation or a partnership to become liable to the bank; provided that:

(1) An application for the incurring of the proposed liability, containing such information as the commissioner may by regulation require, shall first be approved by resolution of the board of directors or of the executive committee; such resolution and the vote of each person thereon shall be recorded in the minutes of the meeting;

(2) If the applicant is an executive officer, the proposed liability will not cause the total of all liabilities of such officer to the bank to exceed $10,000.00;

(3) If the applicant is a director, corporation or partnership, the bank shall be offered security having an ascertainable market value at least 20% greater than the amount of the proposed liability, or, if no such security or only partial security is offered, the proposed unsecured liability or the portion thereof for which no security is offered is, in the opinion of the board of directors or the executive committee, warranted by a written statement of the financial condition of the applicant;

(4) The proposed liability will not cause the total of

(a) The liabilities of a director or an executive officer, and

(b) The liabilities of each corporation in which such director or executive officer has a controlling interest, or in which such director or executive officer together with one or more other directors or executive officers has a controlling interest, and

(c) The liabilities of each partnership in which such director or executive officer is a partner, to exceed 10% of the amount of the capital funds of the bank, as defined in section 60 of P.L. 1948, c. 67 (C. 17:9A-60);

(5) Notwithstanding the limitations of paragraphs (2), (3) and (4) of this subsection, the proposed liability of the director or executive officer may be up to or equal to an amount that is permitted by the commissioner by regulation, or by separate regulations for directors and for executive officers, which regulations shall be directed toward creating and maintaining a substantial parity between banks and national banks.

C. When an application is made by a director of a bank or by a corporation or partnership, the applying director and any director who alone or with any one or more other directors or executive officers of the bank has a controlling interest in the corporation, and any director who is a general or limited partner in the partnership shall not vote to grant such application.

D. When an application is approved by the executive committee, the application shall be presented and the approving resolution of the executive committee shall be read at the next meeting of the board of directors, and such presentation and reading shall be noted in the minutes of such meeting.

L. 1948, c. 67, p. 251, s. 72. Amended by L. 1965, c. 171, s. 23; L. 1966, c. 273, s. 2; L. 1979, c. 226, s. 3, eff. Oct. 12, 1979; L. 1985, c. 528, s. 8, eff. Jan. 21, 1986.