Guidance from federal banking regulators reasserts the fact that bank owned life insurance (BOLI) can “serve a number of appropriate business purposes” and specifically that “BOLI can provide attractive tax-equivalent yields to help offset the rapidly rising cost of providing employee benefits.” The referenced guidance is a joint interagency statement, OCC Bulletin 2004-56 (also cited as FIL 127-2004). Issued on December 7, 2004, by the federal banking regulators, the bulletin and first formal interagency statement on BOLI replaced and rescinded the previous guidance, OCC Bulletin 2000-23.
Like its predecessor, OCC 2000-23, OCC Bulletin 2004-56 discusses the risks associated with a BOLI purchase and establishes the supervisory expectations of both a pre-purchase analysis and the continuing post-purchase risk assessment. The guidance from OCC 2004-56 with respect to pre-purchase analyses of life insurance applies to all BOLI contracts entered into after the date of the bulletin (December 7, 2004). BOLI contracts entered into on or before December 7, 2004, would be subject to the prevailing guidance from an institution’s supervisory agency. The new post-purchase risk management guidance of OCC 2004-56 applies to all holdings of life insurance regardless of when the insurance was purchased.
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