Insider Activities

Management and Other Fees

Fees paid to insiders for services rendered to, or on behalf of, the bank must be for services that meet the legitimate needs of the bank, must be justified, and must be reasonable in amount. The OCC considers fees reasonable if they are based on fair market cost, or fair market cost plus a fair profit. Reasonable costs may include overhead expenses to the extent they are a legitimate and integral part of the services provided. Debt service requirements of a parent company or other shareholders do not represent a legitimate overhead expense that may be imposed upon or allocated to a national bank.

Banks that pay management or other fees to insiders should retain well-documented records that demonstrate the fair value of the goods and services received, their benefit to the bank, and the appropriateness of the fees paid. These records should be reviewed by the board of directors as part of its ongoing oversight of the bank’s affairs.

If excessive management or other fees are paid to insiders, the board of directors is responsible for taking corrective action, possibly to include making restitution. Further, if the payment of excessive fees results in the levy of additional income taxes, the recipient and the members of the board of directors that approved the fees may be responsible for paying those taxes.

Prepayment of fees by a bank for services not yet received may constitute a violation of section 23B of the Federal Reserve Act (12 USC 371c-1), if the insider is also an "affiliate" under section 23B.

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