We do not foresee any problems that would arise from including loans in your lending limit calculations that could potentially be excluded under the Illinois Banking Act.
In general, the Illinois Banking Act prohibits a state bank’s outstanding liabilities to any one person from exceeding 25% of the bank’s unimpaired capital and unimpaired surplus. However, this limitation represents the maximum percentage allowed by law, and we are not aware of any laws or regulations preventing banks from applying a stricter limit. We do recommend establishing consistent procedures for calculating your total outstanding liabilities to each customer for compliance with the lending limit and applying those procedures uniformly to avoid potential allegations of unfair or unequal treatment by persons who may be denied credit for exceeding your limit.
Sections 32, 34, and 35 of the Illinois Banking Act include multiple exceptions and exemptions for loans secured by certain types of collateral. For example, there are exemptions for loans secured by productive real estate (subject to several conditions), bonds and certain other commitments of the United States, segregated deposit accounts, and more. Additionally, there are limited exceptions for loans secured by obligations of the United States or Illinois (among other public entities), letters of credit, and more. Additional examples of exemptions and exceptions to the lending limits in the Illinois Banking Act are outlined in the resources below.
Additionally, a higher lending limit of 30% applies under Section 32 to loans secured by readily marketable collateral with a market value at least equal to the amount exceeding the 25% limit.
For resources related to our guidance, please see:
- Illinois Banking Act, 205 ILCS 5/32 (“The liabilities outstanding at one time to a state bank of a person for money borrowed, including the liabilities of a partnership or joint venture in the liabilities of the several members thereof, shall not exceed 25% of the amount of the unimpaired capital and unimpaired surplus of the bank.”)
- Illinois Banking Act, 205 ILCS 5/2 (“‘Person’ means an individual, corporation, limited liability company, partnership, joint venture, trust, estate, or unincorporated association.”)
- Equal Credit Opportunity Act, 15 USC 1691(a) (“It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction—(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under this chapter.”)
- Illinois Banking Act, 205 ILCS 5/32 (“The following shall not be considered as money borrowed within the meaning of this Section: . . . .
(3) The purchase of or loaning money in exchange for evidences of indebtedness which shall be secured by mortgage or trust deed upon productive real estate the value of which, as ascertained by the oath of 2 qualified appraisers, neither of whom shall be an officer, director, or employee of the bank or of any subsidiary or affiliate of the bank, is double the amount of the principal debt secured at the time of the original purchase of evidence of indebtedness or loan of money and which is still double the amount of the principal debt secured at the time of any renewal of the indebtedness or loan, and which mortgage or trust deed is shown, either by a guaranty policy of a title guaranty company approved by the Commissioner or by a registrar’s certificate of title in any county having adopted the provisions of the Registered Titles (Torrens) Act, or by the opinion of an attorney-at-law, to be a first lien upon the real estate therein described, and real estate shall not be deemed to be encumbered within the meaning of this subsection (3) by reason of the existence of instruments reserving rights-of-way, sewer rights and rights in wells, building restrictions or other restrictive covenants, nor by reason of the fact it is subject to lease under which rents or profits are reserved by the owners. . . .”)
- Illinois Banking Act, 205 ILCS 5/34 (“Exceptions to loans and investment limits. The limitations in Sections 32, 33, and 35.1 of this Act upon the liabilities of any one person and upon the purchase and holding of marketable investment securities shall not apply:
(1) To the extent of 50% of the unimpaired capital and unimpaired surplus of any bank, to loans to or obligations of any person to the extent that the loan shall be secured by a like amount of obligations of or guaranteed by the United States or by the State of Illinois, or by a like amount of obligations of any corporation wholly owned directly or indirectly by the United States or of any agency or instrumentality of the United States or of the State of Illinois, including any unit of local government or school district, provided that the total liabilities to any bank of any one person shall not exceed 50% of such unimpaired capital and unimpaired surplus.)
(2) To the extent of 30% of the unimpaired capital and unimpaired surplus of any bank, to loans to or obligations of any person to the extent that the same shall be secured by shipping documents or instruments transferring or securing title covering livestock or giving a lien on livestock when the market value of the livestock securing the obligation is not at the time of the making of the loan less than 115% of the principal amount of the obligation, provided that the total liabilities to any bank of any one person shall not exceed 50% of the unimpaired capital and unimpaired surplus. . . .
(5) To the issuance, advice, or confirmation of letters of credit; however, if the letter of credit is a standby letter of credit, it shall be included within the limit under Section 32 for the person who has procured the issuance of the standby letter of credit unless the issuing bank has, at the time of issuance, an irrevocable commitment by another bank to purchase or participate out any amounts that may later be drawn under the letter of credit that would create a loan in excess of the limits under Section 32 for the person or the amounts are secured by pledge of United States government securities, a segregated deposit account, or other security that would exempt a loan so secured by application of Section 34 or 35 of this Act; if, however, a commitment to purchase or participate is in place, the amounts are not included in the limits under Section 32 for the person until drafts are presented upon the letter.
(6) To the acceptance of drafts or bills of exchange that grow out of transactions involving the importation or exportation of goods; or that grow out of transactions involving the domestic shipment of goods, provided documents of title covering the goods secure the acceptances at the time of acceptance; or that are secured at the time of acceptances by documents of title covering readily marketable staples; but the aggregate amount of these acceptances by any State bank on behalf of any one person at any one time outstanding shall not exceed 20% of the unimpaired capital and unimpaired surplus of the bank unless the part thereof in excess of that percentum of unimpaired capital and unimpaired surplus is and will remain secured by accompanying documents of title or proceeds thereof growing out of the same transaction or by substituted security of similar character; provided further, however, that the aggregate amount of the acceptances on behalf of any one person outstanding at any one time shall not exceed 50% of the amount of unimpaired capital and unimpaired surplus of the bank. The provisions of this paragraph (6) apply to the acceptances by a State bank on behalf of any one person and not to the purchase by a State bank of other banks’ acceptances. A State bank may purchase acceptances from other banks in amounts not to exceed 50% of the State bank’s unimpaired capital and unimpaired surplus from any one bank. . . .”)
- Illinois Banking Act, 205 ILCS 5/35 (“Exemptions from loan and investment limits. The limitations in Sections 32, 33, 34, and 35.1 upon the liabilities of any one person and upon the purchase or holding of marketable investment securities shall not apply to the following as to which there shall be no limitation: . . .
(2) Loans to or obligations of any person to the extent that they are secured by not less than a like amount of bonds or notes of the United States, or certificates of indebtedness of the United States, or Treasury Bills of the United States or obligations fully guaranteed as to both principal and interest by the United States, or to the extent that the same shall be secured or covered by guaranty or by commitment or agreement to take over or purchase, made by any Federal Reserve Bank or by the United States or any department, bureau, board, commission or establishment of the United States, including any corporation wholly owned, directly or indirectly, by the United States. . . .
(5) Loans to or obligations of any person to the extent that they are secured by not less than the same amount of general obligations and tax anticipation warrants of each state of the United States and of each municipality located in whole or in part in the county in which the bank is located. . . .
(7) Loans or extensions of credit secured by a segregated deposit account in the lending bank. . . .”)
- Illinois Banking Act, 205 ILCS 5/32 (“The liabilities to any state bank of a person may exceed 25% of the unimpaired capital and unimpaired surplus of the bank, provided that (i) the excess amount from time to time outstanding is fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available quotations, at least equal to the excess amount outstanding; and (ii) the total liabilities shall not exceed 30% of the unimpaired capital and unimpaired surplus of the bank.”)