What Is the Legal Lending Limit?

The legal lending limit represents the maximum dollar amount a single bank can lend to a borrower. A bank expresses its legal lending limit as a percentage of the institution’s capital and surplus. The limits are regulated by the 澳洲幸运5官方开奖结果体彩网:Office of the ♑Comptroller of the Currency (OCC).

How the Legal Lending Limit Works

The legal lending limit for national banks was established under the United States Code (U.S.C.), reported in U.S.C. Title 12, .

The Office of the Comptroller of the Currency (OCC) oversees legal lending limits, while the 澳洲幸运5官方开奖结果体彩网:Federal Deposit ﷽Insurance Corp. (FDIC) provides insurance for U.S. depositors. Both the FDIC and the OCC are involved in the national bank chartering process. Both entities also work to ensure that national banks follow established rules defined in the United States Code, which details federal ඣstatutes.

The lending limit legal code applies to 澳洲幸运5官方开奖结果体彩网:national banks and 澳洲幸运5官方开奖结果体彩网:savings associations nationwide. The federal code on lending limits states that a national bank or 澳洲幸运5官方开奖结果体彩网:savings association may not issue a loan to a single borrower for more than 15% of the institution’s capital and surplus.

The base standard of 15% requires an institution to closely follow capital and surplus levels regulated under federal law. Banks are allowed an additional 10 percentage points for the lending limit for 澳洲幸运5官方开奖结果体彩网:collateralized loans. Thus, they can lend up to 25% of capital and surplus if readily marketable securities secure the loan.

For example, New York-chartered banks have a lending limit of 15% of their capital stock, surplus fund, and undivided profits (CUPS), but 25% for loans secured by appropriate collateral.

Special Considerations

Some loans can qualify for special lending limits, including loans secured by 澳洲幸运5官方开奖结果体彩网:bills of lading or warehouse receipts, installment consumer paper, loans secured by 𒀰livestock and project financing advances pertaining to a pre-qualifyꦡing lending commitment.

Additionally, some loans may not be sꦇubject to lending limits at all, including:

• Certain commercial paper or business paper discounted loans
• Bankers' acceptances
• Loans secured by U.S. obligations
• Loans affiliated with a federal agency
• Loans associated with a state or political subdivision
• Loans secured by segregated deposit accounts
• Loans to financial institutions with the approval of a specified federal banking agency
• Loans to the 澳洲幸𝔍运5官方开奖结果体彩网:Student Loan Marketing Association (Sall🅷ie Mae)
• Loans to industrial development authorities,
• Loans to leasing companies
• Credit from transactions financing certain government securities
• Intraday credit

Generally, capital is divided into tiers based on liquidity. 澳洲幸运5官方开奖结果体彩网:Tier 1 capital includes its most liquid capital, such as statutory reserves. Tier 2 capital may consist of undisclosed reserves and general loss reserves. National banks must have a total capital to assets ratio of 8%.

Surplus may refer to a num⭕ber of components at a bank. Ca▨tegories included as surplus may be profits, loss reserves, and convertible debt, among others.

The Bottom Line

Expressed as a percentage of an institution’s capital and surplus, the legal lending limit represents the maximum amount a bank can lend to a borrower. The federal code on lending limits states that a national bank or 澳洲幸运5官方开奖结果体彩网:savings association may not issue a loan to a single borrower for more than 15% of the institution’s capital and surplus. However, due to the extensive capital holdings of banks, the legal lending limit won't affe🌠ct most retail or small business borrowers.