Do you have a template or form that goes over how to calculate the Illinois legal lending limit? Or can you direct me to the place in the statute regarding how to calculate the Illinois legal lending limit?

We do not have a template or form going over how to calculate the Illinois legal lending limit. We will make a request to our Compliance Division Advisory Committee for sample templates or forms and will send you any submissions we receive.

Calculations of the general lending limit for Illinois-chartered banks are governed by Sections 32, 34, 35, and 35.1 of the Illinois Banking Act. In general, Section 32 prohibits a state bank’s outstanding liabilities to any one person from exceeding 25% of the bank’s “unimpaired capital and unimpaired surplus,” defined as “the sum of the state bank’s Tier 1 Capital and Tier 2 Capital.” 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.

Sections 32, 34, 35, and 35.1 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.

The Illinois Administrative Code provides rules for determining when loans must be aggregated and treated as loans to a single borrower and including derivative transactions in the calculation of lending limits.

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.”)

Illinois Banking Act, 205 ILCS 5/2 (“‘Unimpaired capital and unimpaired surplus’ for the purposes of paragraph (21) of Section 5 and Sections 32, 33, 34, 35.1, 35.2, and 47 of this Act means the sum of the state bank’s Tier 1 Capital and Tier 2 Capital plus such other shareholder equity as may be included by regulation of the Commissioner. Unimpaired capital and unimpaired surplus shall be calculated on the basis of the date of the last quarterly call report filed with the Commissioner preceding the date of the transaction for which the calculation is made, provided that: (i) when a material event occurs after the date of the last quarterly call report filed with the Commissioner that reduces or increases the bank’s unimpaired capital and unimpaired surplus by 10% or more, then the unimpaired capital and unimpaired surplus shall be calculated from the date of the material event for a transaction conducted after the date of the material event; and (ii) if the Commissioner determines for safety and soundness reasons that a state bank should calculate unimpaired capital and unimpaired surplus more frequently than provided by this paragraph, the Commissioner may by written notice direct the bank to calculate unimpaired capital and unimpaired surplus at a more frequent interval. In the case of a state bank newly chartered under Section 13 or a state bank resulting from a merger, consolidation, or conversion under Sections 21 through 26 for which no preceding quarterly call report has been filed with the Commissioner, unimpaired capital and unimpaired surplus shall be calculated for the first calendar quarter on the basis of the effective date of the charter, merger, consolidation, or conversion.”)

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 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. . . .”)

IDFPR Administrative Rules, 38 Ill. Adm. Code 330.110(a) (“A loan or extension of credit to one person shall be considered a loan or extension of credit to a second person if the credit worthiness of the one person does not justify the loan or extension of credit without reliance on the credit worthiness of the second person.”)

IDFPR Administrative Rules, 38 Ill. Adm. Code 330.110(b) (“Factors which may be relevant in determining whether a loan or extension of credit to one person can be justified without reliance on the credit worthiness of a second person include the following:

1) Will the credit analysis and documentation on file at the bank at the time the loan or extension of credit was made substantiate that the one person has or will have the financial capacity to generate sufficient funds from his or her own assets and operations to repay the loan or extension of credit or is the source of repayment the second person?;

2) Were the proceeds of the loan or extension of credit to one person used for the primary benefit of the one person or was a substantial portion of the proceeds used for the benefit of the second person without a corresponding economic benefit to the one person?;

3) In instances involving a guaranty or other secondary liability, is the liability of the second person that an accommodation party pursuant to Section 32(5) of the Act, namely a person who becomes obligated on the loan or extension of credit to one person and does not receive any of the proceeds thereof, or is the purpose of the guaranty or other secondary liability to enhance the loan or extension of credit for reasons other than repayment, such as to obtain an investment grade rating or to reduce the rate of interest charged on the loan or extension of credit, or would the loan or extension of credit to one person not have been made without the second person’s guaranty or other secondary liability?”)

IDFPR Administrative Rules, 38 Ill. Adm. Code 330.110(c) (“This Section shall not apply to loan combination questions involving loans or extensions of credit to a partnership and its general partner(s) or to a joint venture and its member(s). These lending situations are governed by Section 32 of the Act.”)

IDFPR Administrative Rules, 38 Ill. Adm. Code 330.210 (“For purposes of Section 32 of the Act and Section 6013 of the Savings Bank Act, derivative transactions shall be included in the calculation of lending limits.”)

IDFPR Administrative Rules, 38 Ill. Adm. Code 330.230(a) (“This Section sets forth the standards for calculating the credit exposure arising from a derivative transaction entered into by a state bank for purposes of determining the bank’s lending limit pursuant to Section 32 of the Act, Section 6013 of the Savings Bank Act or, as applicable, this Part.”)