Is real estate, such as farmland, considered “readily marketable collateral” for Regulation O proposes? Regulation O’s definition of “lending limit” references “loans that are fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations at least equal to the amount of the loan.”

No, real estate (including farmland) is not considered to be “readily marketable collateral” under federal or state law.

Although this term is not defined in Regulation O, the OCC’s lending limit rules define “readily marketable collateral” as “financial instruments and bullion that are salable under ordinary market conditions with reasonable promptness at a fair market value . . . .” The FDIC’s real estate lending standards also define “readily marketable collateral” as “insured deposits, financial instruments, and bullion in which the lender has a perfected interest.”

The lending limit provisions of the Illinois Banking Act and Illinois Savings Bank Act also refer to “readily marketable collateral having a market value, as determined by reliable and continuously available [price] quotations.” The Illinois Banking Act does not define the term, but the Illinois Savings Bank Act defines “readily marketable collateral” as “financial instruments or bullion that are salable under ordinary circumstances with reasonable promptness at a fair market value on an auction or a similarly available daily bid-and-ask price market.”

We have obtained an interpretive letter from the IDFPR that provides “[a]s the [Illinois Banking Act] does not define readily marketable collateral, the [Illinois Savings Bank Act], OCC and FDIC definitions may be used for guidance. Fundamentally, readily marketable collateral is a financial instrument or bullion treated at market value on a daily bid-and-ask price market.” The IDFPR also notes in its letter that other factors its examiners will consider include “the securities’ trading ease, reliable price quotations on a daily basis, and the trading through a regulated market.”

For resources related to our guidance, please see:

FDIC Lending Limits, 12 CFR 337.3(a) (“{I}nsured nonmember banks are subject to the restrictions contained in subpart A of Federal Reserve Board Regulation O (12 CFR part 215, subpart A) to the same extent and to the same manner as though they were member banks.”)

Regulation O, 12 CFR 215.2(i) (“Lending limit. The lending limit for a member bank is an amount equal to . . . 15 percent of the bank's unimpaired capital and unimpaired surplus in the case of loans that are not fully secured, and an additional 10 percent of the bank’s unimpaired capital and unimpaired surplus in the case of loans that are fully secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan. . . .”)

OCC Lending Limit Rules, 12 CFR 32.2(v) (“Readily marketable collateral means financial instruments and bullion that are salable under ordinary market conditions with reasonable promptness at a fair market value determined by quotations based upon actual transactions on an auction or similarly available daily bid and ask price market.”)

FDIC Real Estate Lending Standards, Appendix A to Part 365 (“Readily marketable collateral means insured deposits, financial instruments, and bullion in which the lender has a perfected interest. Financial instruments and bullion must be salable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions, on an auction or similarly available daily bid and ask price market.”)

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.”)

Illinois Savings Bank Act, 205 ILCS 205/6013(b) (“Except as provided in subsection (c), the total loans and extensions of credit, both direct and indirect, by a savings bank to any person outstanding at one time and at least 100% secured by readily marketable collateral having a market value, as determined by reliable and continuously available price quotations, shall not exceed 10% of the savings bank's total capital plus general loan loss reserves. This limitation shall be separate from and in addition to the limitation contained in subsection (a).”)

Illinois Savings Bank Act, 205 ILCS 205/6013(g) (“For the purposes of this Section, the term ‘readily marketable collateral’ means financial instruments or bullion that are salable under ordinary circumstances with reasonable promptness at a fair market value on an auction or a similarly available daily bid-and-ask price market. “Financial instruments” include stocks, bonds, notes, debentures traded on a national exchange or over the counter, commercial paper, negotiable certificates of deposit, bankers' acceptances, and shares in money market or mutual funds.”)

IDFPR Interpretive Letter (March 15, 2019) (“As the IBA does not define readily marketable collateral, the ISBA, OCC and FDIC definitions may be used for guidance. Fundamentally, readily marketable collateral is a financial instrument or bullion traded at market value on a daily bid-and-ask price market.”)
IDFPR Interpretive Letter (March 15, 2019) (“Other factors that the Division's examiners would consider for securities to be readily marketable include the securities' trading ease, reliable price quotations on a daily basis, and the trading through a regulated market.”)