Topic: Lending Limits
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One of our directors has a line of credit that is up for renewal within the week. The loan complied with our insider lending limits when it was made, but because our capital levels are lower today (due to the new Basel III standards), the loan now exceeds our insider lending limits. Can we renew the loan without violating our insider lending limits?
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No, the loan must comply with Regulation O’s insider lending limits when it is renewed. Regulation O applies to any extension of credit, including the renewal of an existing loan. Regulation O’s lending limits are based on your institution’s “unimpaired capital and unimpaired surplus,” a calculation that includes all Tier 1 and Tier 2 capital…
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Because the OCC consolidated the former OTS lending limits in a recent rulemaking, do the lending limits for savings associations now mirror those for national banks (25% of capital for secured lending and 15% for unsecured lending)?
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No, the lending limits for savings associations do not entirely mirror those for national banks, although the lending limits for both types of institutions will remain at 15% for unsecured lending and 25% for secured lending. When the OCC consolidated the OCC lending limit rules with the former OTS rules in 2012, it retained certain…
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What are the penalties for violations of the Illinois Banking Act’s lending limits?
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The Illinois Banking Act provides that every director or officer who violates the Act’s lending or investment limits, or participates in or assents to a violation, is personally liable for consequential damages sustained by the bank, its shareholders, or any other person. As explained in an Illinois appellate court decision, the director or officer need…
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Would a loan which is 100% secured by liquid marketable securities count against our lending limit under the Illinois Banking Act? Does it matter that the securities are not held at our institution but at our wealth management division, which is an affiliate of the bank?
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Yes, but the loan may exceed the Act’s general lending limit (25% of the unimpaired capital and unimpaired surplus), up to a higher limit of 30% — provided that it is secured by readily marketable collateral with a market value at least equal to the amount in excess of the 25% limit. For resources related…
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Do loans which are 100% secured by a segregated cash deposit account held at our bank count against our lending limit under the Illinois Banking Act?
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No. Loans that are secured by a segregated deposit account at the lending institution are exempt from the Act’s lending limit. For resources related to our guidance, please see below: Illinois Banking Act — 205 ILCS 5/32 (general lending limit provisions) Illinois Banking Act — 205 ILCS 5/35(7) (loans secured by deposits in a segregated…
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Does our overnight ACH exposure to another bank for uncollected ACH transactions in the normal process of collection count against our lending limit under the Illinois Banking Act?
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We spoke with an attorney at the IDFPR Division of Banking about this question and were informed that this issue is unsettled under Illinois law. The attorney told us that the Illinois Banking Act does not clearly exempt overnight exposures from its lending limits, even for uncollected electronic ACH transactions that are in the normal…
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We have extended loans to two businesses, A and B. A owns B but has not guaranteed B’s loans. Are we required to aggregate our loans to A and B for purposes of the Illinois Banking Act’s lending limits? We are a state-chartered, non-member bank.
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Without more facts, we are unable to provide specific guidance as to whether your loans to both of these businesses should be aggregated for lending limit purposes. However, we can provide general guidance that may assist you in making this determination based upon the specific facts. We spoke with an attorney at the IDFPR Division…
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We have a candidate in mind for the chairman of our board. The candidate has an outstanding loan of $XXX,XXX, so we are concerned about Regulation O. However, the chairman would not make any individual policy decisions for the bank. Does Regulation O apply?
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It is possible that the loan can be grandfathered, provided that it did not violate Regulation O at the time it was made. If you are concerned about whether the loan originally complied with Regulation O, you should confirm that it was not made on preferential terms and did not exceed the applicable Regulation O…
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We are concerned about our legal lending limit. One of our loan customers is a contractor. The contractor has been hired by some of our other loan customers for real estate development projects, and the contractor has provided guarantees to us for each project (referred to in our documents as “Guaranty of Completion and Payment”). Do we have to count the customer’s guarantees towards our lending limit, even though each one guarantees a different customer’s loan?
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Overview Whether you will be required to aggregate the contractor’s guarantees with your institution’s loans to the contractor depends on several factors, and we recommend analyzing the guarantees under three different tests, from the Illinois Banking Act, the Illinois Department of Financial and Professional Regulation (IDFPR) regulations, and the OCC regulations (which the IDFPR recommends,…