how the legal lending limit works
the legal lending limit for national banks was established under the united states code u s c and is overseen by the occ details on national bank lending limits are reported in u s c title 12 part 32 3 1the 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 statutes the lending limit legal code applies to national banks and savings associations across the nation the federal code on lending limits states that a national bank or savings association may not issue a loan to a single borrower for more than 15 of the institution s capital and surplus 1this is the base standard and requires an institution to closely follow capital and surplus levels that are also regulated under federal law banks are allowed an additional 10 percentage points for the lending limit for collateralized loans thus they can lend up to 25 of capital and surplus if a loan is secured by readily marketable securities 1state chartered banks may have their own lending limits but they are often similar to the occ standard for example new york chartered banks have a lending limit of 15 of their capital stock surplus fund and undivided profits cups and 25 for loans secured by appropriate collateral 2special considerationssome loans may be allowed special lending limits loans that may qualify for special lending limits include the following loans secured by bills of lading or warehouse receipts installment consumer paper loans secured by livestock and project financing advances pertaining to a pre qualifying lending commitment additionally some loans may not be subject to lending limits at all these loans may include 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 student loan marketing association sallie mae loans to industrial development authorities loans to leasing companies credit from transactions financing certain government securities and intraday credit banks are required to hold significant amounts of capital which typically causes lending limits to apply only to institutional borrowers generally capital is divided into tiers based on liquidity tier 1 capital includes its most liquid capital such as statutory reserves tier 2 capital may include undisclosed reserves and general loss reserves national banks are required to have a total capital to assets ratio of 8 3surplus may refer to a number of components at a bank categories included as surplus may be profits loss reserves and convertible debt among others 