Ohio Administrative Code
Title 1301:1 - Division of Financial Institutions: Banks
Chapter 1301:1-3 - Lending Limits and Standards
Section 1301:1-3-01 - Lending limits
Universal Citation: OH Admin Code 1301:1-3-01
Current through all regulations passed and filed through September 16, 2024
(A) As used in this rule:
(1) "Borrower" means a person who is named as
a borrower or debtor in a loan or extension of credit, or any other person,
including a drawer, endorser, or guarantor, who is deemed to be a borrower
under the "direct benefit" or the "common enterprise" tests set forth in
paragraph (D) of this rule.
(2)
"Capital" has the same meaning as in rule 1301:1-2-01 of the Administrative Code.
(3)
"Close of business" means the time at which a state bank closes its accounting records for the
business day.
(4) "Consumer" means
the user of any products, commodities, goods or services, whether leased or
purchased, but does not include any person who purchases products or
commodities for resale or fabrication into goods for sale.
(5) "Consumer paper" means paper relating to
automobiles, mobile homes, residences, office equipment, household items,
tuition fees, insurance premium fees, and similar consumer items. Consumer
paper also includes paper covering the lease, where the state bank is not the owner or lessor, or purchase of
equipment for use in manufacturing, farming, construction, or
excavation.
(6)
(a) "Contractual commitment to advance funds"
includes a state bank's obligation to do any of
the following:
(i) A bank's obligation to make
payment, directly or indirectly, to a third person contingent upon default by a
customer of the state bank in performing an
obligation in keeping with the agreed upon terms of the customer's contract
with the third person, or to make payments upon some other stated
condition;
(ii) A
state bank's obligation to guarantee or act as
surety for the benefit of a person;
(iii) A state
bank's obligation to advance funds under a qualifying commitment to lend, as
defined in paragraph (A)(12) of this rule;
(iv) A state
bank's obligation to advance funds under a standby letter of credit as defined
in paragraph (A)(16) of this rule, a put, or other similar
arrangement.
(b)
"Contractual commitment to advance funds" does not include commercial letters
of credit and similar instruments where the issuing bank expects the
beneficiary to draw on the issuer, that do not guarantee payment, and that do
not provide for payment in the event of a default by a third party.
(7) "Control" is presumed to exist
when, directly or indirectly or acting through or together with one or more
persons, any of the following occurs:
(a) A
person owns, controls, or has the power to vote twenty-five per cent or more of
any class of voting securities of another person;
(b) A person controls, in any manner, the
election of a majority of the directors, trustees, or other persons exercising
similar functions of another person;
(c) A person has the power to exercise a
controlling influence over the management or policies of another
person.
(8) "Current
market value" means the bid or closing price listed for an item in a regularly
published listing or an electronic reporting service.
(9) "Financial instrument" means stocks,
notes, bonds, and debentures traded on a national securities exchange,
over-the-counter margin stocks as defined in 12 C.F.R. 221 , as in
effect on January 16, 1998, commercial paper, negotiable certificates of
deposit, bankers' acceptances, and shares in money market and mutual funds of
the type that issue shares in which banks may perfect a security interest.
Financial instruments may be denominated in foreign currencies that are freely
convertible to United States dollars. The term "financial instrument" does not
include mortgages.
(10) "Loans and
extensions of credit" means a state bank's direct
or indirect advance of funds to or on behalf of a borrower based on an
obligation of the borrower to repay the funds or repayable from specific
property pledged by or on behalf of the borrower.
(a) Loans or extensions of credit for
purposes of section
1109.22
of the Revised Code and this rule include any of the following:
(i) A contractual commitment to advance
funds, as defined in paragraph (A)(6) of this rule;
(ii) A maker's or endorser's obligation
arising from a state bank's discount of
commercial paper;
(iii) A
state bank's purchase of securities subject to an
agreement that the seller will repurchase the securities at the end of a stated
period, but not including a state bank's purchase
of securities that are both of the following:
(a) Securities that are any of the following:
(i) Securities a state bank may invest in pursuant to divisions (A)(1)
to (A)(4) of section
1109.32
of the Revised Code;
(ii)
Securities a state bank may underwrite and deal
in pursuant to section
1109.36
of the Revised Code;
(iii) Other
securities the superintendent of financial institutions determines to be
eligible;
(b) Subject to
a repurchase agreement, where the purchasing bank has assured control over or
has established its rights to the securities as collateral;
(iv) A state
bank's purchase of third-party paper subject to an agreement that the seller
will repurchase the paper upon default or at the end of a stated period. The
amount of the state bank's loan is the total
unpaid balance of the paper owned by the bank less any applicable dealer
reserves retained by the state bank and held by
the state bank as collateral security. Where the
seller's obligation to repurchase is limited, the state bank's loan is measured by the total amount of
the paper the seller may ultimately be obligated to repurchase. A
state bank's purchase of third party paper
without direct or indirect recourse to the seller is not a loan or extension of
credit to the seller;
(v) An
overdraft, whether or not pre-arranged, but not an intra-day overdraft for
which payment is received before the close of business of the
state bank that makes the funds
available;
(vi) The sale of federal
funds with a maturity of more than one business day, but not federal funds with
a maturity of one day or less or federal funds sold under a continuing
contract;
(vii) Loans or extensions
of credit that have been charged off on the books of the
state bank in whole or in part, unless the loan
or extension of credit is any of the following:
(a) Is unenforceable by reason of discharge
in bankruptcy;
(b) Is no longer
legally enforceable because of expiration of the statute of limitations or a
judicial decision;
(c) Is no longer
legally enforceable for other reasons, provided that the
state bank maintains sufficient records to
demonstrate that the loan is unenforceable.
(b) The following items do not constitute
loans or extensions of credit for purposes of section
1109.22
of the Revised Code and this rule:
(i)
Additional funds advanced for the benefit of a borrower by a
state bank for payment of taxes, insurance,
utilities, security, and maintenance and operating expenses necessary to
preserve the value of real or personal property securing the loan, consistent
with safe and sound banking practices, but only if the advance is for the
protection of the state bank's interest in the
collateral, and provided that the amounts advanced must be treated as an
extension of credit if a new loan or extension of credit is made to the
borrower;
(ii) Accrued and
discounted interest on an existing loan or extension of credit, including
interest that has been capitalized from prior notes and interest that has been
advanced under terms and conditions of a loan agreement;
(iii) Financed sales of a
state bank's own assets, including other real
estate owned, if the financing does not put the state bank in a worse position than when the
state bank held title to the assets;
(iv) A renewal or restructuring of a loan as
a new loan or extension of credit, following the exercise by a
state bank of reasonable efforts, consistent with
safe and sound banking practices, to bring the loan into conformance with the
lending limit, unless any of the following apply:
(a) New funds are advanced by the
state bank to the borrower, except as permitted
by paragraph (B)(2)(e) of this rule;
(b) A new borrower replaced the original
borrower;
(c) The superintendent
determines that a renewal or restructuring was undertaken as a means to evade
the state bank's lending limit;
(v) Amounts paid against
uncollected funds in the normal process of collection;
(vi)
(a)
That portion of a loan or extension of credit sold as a participation by a
state bank on a non-recourse basis, provided that
the participation results in a pro rata sharing of credit risk proportionate to
the respective interests of the originating and participating lenders. Where a
participation agreement provides that repayment must be applied first to the
portions sold, a pro rata sharing will be deemed to exist only if the agreement
also provides that, in the event of a default or comparable event defined in
the agreement, participants must share in all subsequent repayments and
collections in proportion to their percentage participation at the time of the
occurrence of the event.
(b) When
an originating state bank funds the entire loan,
it must receive funding from the participants before the close of business of
its next business day. If the participating portions are not received within
that period, then the portions funded will be treated as a loan by the
originating state bank to the borrower. If the
portions so attributed to the borrower exceed the originating
state bank's lending limit, the loan may be
treated as nonconforming subject to paragraph (E) of this rule, rather than a
violation, if all of the following apply:
(i)
The originating state bank had a valid and
unconditional participation agreement with a participating bank or banks that
was sufficient to reduce the loan to within the originating
state bank's lending limit;
(ii) The participating bank reconfirmed its
participation and the originating state bank had
no knowledge of any information that would permit the participant to withhold
its participation;
(iii) The
participation was to be funded by close of business of the originating
state bank's next business day.
(11)
"Person" means an individual; sole proprietorship; partnership; joint venture;
association; trust; estate; business trust; corporation; limited liability
company; not-for-profit corporation; sovereign government or agency,
instrumentality, or political subdivision of a sovereign government; or any
similar entity or organization.
(12) "Qualifying commitment to lend" means a
legally binding written commitment to lend that, when combined with all other
outstanding loans and qualifying commitments to a borrower, was within the
state bank's lending limit when entered into, and
has not been disqualified.
(a) In determining
whether a commitment is within the state bank's
lending limit when made, the bank may deduct from the amount of the commitment
the amount of any legally binding loan participation commitments that are
issued concurrent with the state bank's
commitment and that would be excluded from the definition of loan or extension
of credit under paragraph (A)(10)(b)(vi) of this rule.
(b) If the state bank subsequently chooses to make an additional
loan and that subsequent loan, together with all outstanding loans and
qualifying commitments to a borrower, exceeds the state bank's applicable lending limit at that time,
the state bank's qualifying commitments to the
borrower that exceed the state bank's lending
limit at that time are deemed to be permanently disqualified, beginning with
the most recent qualifying commitment and proceeding in reverse chronological
order. When a commitment is disqualified, the entire commitment is disqualified
and the disqualified commitment is no longer considered a loan or extension of
credit. Advances of funds under a disqualified or non-qualifying commitment may
only be made to the extent that the advance, together with all other
outstanding loans to the borrower, do not exceed the state bank's lending limit at the time of the advance,
calculated pursuant to paragraph (C) of this rule.
(13) "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.
(14) "Readily marketable staple" means an
article of commerce, agriculture, or industry, such as wheat and other grains,
cotton, wool, and basic metals such as tin, copper, and lead, in the form of
standardized interchangeable units, that is easy to sell in a market with
sufficiently frequent price quotations.
(a) An
article comes within this definition if both of the following apply:
(i) The exact price is easy to
determine;
(ii) The staple itself
is easy to sell at any time at a price that would not be considerably less than
the amount at which it is valued as collateral.
(b) Whether an article qualifies as a readily
marketable staple is determined on the basis of the conditions existing at the
time the loan or extension of credit that is secured by the staple is
made.
(15) "Sale of
federal funds" means any transaction between depository institutions involving
the transfer of immediately available funds resulting from credits to deposit
balances at federal reserve banks, or from credits to new or existing deposit
balances due from a correspondent depository institution.
(16) "Standby letter of credit" means any
letter of credit, or similar arrangement, that represents an obligation to the
beneficiary on the part of the issuer to do any of the following:
(a) To repay money borrowed by or advanced to
or for the account of the account party;
(b) To make payment on account of any
indebtedness undertaken by the account party;
(c) To make payment on account of any default
by the account party in the performance of an obligation.
(B) Subject to paragraphs (D) and (E) of this rule, the following apply to a state bank's outstanding loans or extensions of credit to any one borrower:
(1) Generally a state bank's total outstanding loans and extensions of
credit to one borrower may not exceed fifteen per cent of the
state bank's capital, plus an additional ten per
cent of the state bank's capital, if the amount
that exceeds the state bank's fifteen per cent
general limit is fully secured by readily marketable collateral, as defined in
paragraph (A)(13) of this rule. This is a state
bank's "combined general limit." To qualify for the additional ten per cent
limit, the state bank must perfect a security
interest in the collateral under applicable law, and the collateral must have a
current market value at all times of at least one hundred per cent of the
amount of the loan or extension of credit that exceeds the
state bank's fifteen per cent general
limit.
(2) The following loans or
extensions of credit are subject to the special lending limits indicated, and,
in the case of loans and extensions of credit that qualify for more than one
special lending limit, the special limits are cumulative:
(a) A state
bank's loans or extensions of credit to one borrower secured by bills of
lading, warehouse receipts, or similar documents transferring or securing title
to readily marketable staples, as defined in paragraph (A) (14) of this rule,
may not exceed thirty-five per cent of the state
bank's capital in addition to the amount allowed under the
state bank's combined general limit, and then
only if all of the following conditions are met:
(i) The market value of the staples securing
the loan must at all times equal at least one hundred fifteen per cent of the
amount of the outstanding loan that exceeds the state bank's combined general limit.
(ii) Staples that qualify for this special
limit must be nonperishable or, when appropriate, may be refrigerated or
frozen, and must be fully covered by any insurance that is customary. Whether a
staple is non-perishable must be determined on a case-by-case basis because of
differences in handling and storing commodities.
(iii) The loan or extension of credit arises
from a single transaction or is secured by the same staples, provided that the
duration of the loan or extension of credit is:
(a) Not more than ten months if secured by
nonperishable staples;
(b) Not more
than six months if secured by refrigerated or frozen staples.
(iv) The holder of the warehouse
receipts, order bills of lading, documents qualifying as documents of title
under the uniform commercial code, or other similar documents, must have
control and be able to obtain immediate possession of the staple so that the
state bank is able to sell the underlying staples
and promptly transfer title and possession to a purchaser if default should
occur on a loan secured by such documents. The existence of a brief notice
period, or similar procedural requirements under applicable law, for the
disposal of the collateral will not affect the eligibility of the instruments
for this special limit.
(a) Field warehouse
receipts are an acceptable form of collateral when issued by a duly bonded and
licensed grain elevator or warehouse having exclusive possession and control of
the staples even though the grain elevator or warehouse is maintained on the
premises of the owner of the staples.
(b) Warehouse receipts issued by the
borrower-owner that is a grain elevator or warehouse company, duly-bonded and
licensed and regularly inspected by state or federal authorities, may be
considered eligible collateral under this provision only when the receipts are
registered with an independent registrar whose consent is required before the
staples may be withdrawn from the warehouse.
(b) A state
bank's loans and extensions of credit to one borrower that arise from the
discount of negotiable or nonnegotiable installment consumer paper, as defined
in paragraph (A)(5) of this rule, that carries a full recourse endorsement or
unconditional guarantee by the person selling the paper, may not exceed ten per
cent of the state bank's capital in addition to
the amount allowed under the state bank's
combined general limit and only if consistent with all of the following that
apply:
(i) An unconditional guarantee may be
in the form of a repurchase agreement or separate guarantee agreement. A
condition reasonably within the power of the state bank to perform, such as the repossession of
collateral, will not make conditional an otherwise unconditional
guarantee.
(ii) Where the seller of
the paper offers only partial recourse to the state bank, the lending limits of this rule apply to
the obligation of the seller to the state bank,
which is measured by the total amount of paper the seller may be obligated to
repurchase or has guaranteed.
(iii)
Where the state bank is relying primarily on the
maker of the paper for payment of the loans or extensions of credit and not on
any full or partial recourse endorsement or guarantee by the seller of the
paper, the lending limits of this rule apply only to the maker. The
state bank must substantiate its reliance on the
maker with both of the following:
(a) Records
supporting the state bank's independent credit
analysis of the maker's ability to repay the loan or extension of credit,
maintained by the state bank or by a third party
that is contractually obligated to make those records available for examination
purposes;
(b) A written
certification by an officer of the state bank
authorized by the state bank's board of directors
or any designee of that officer, that the state
bank is relying primarily upon the maker to repay the loan or extension of
credit.
(iv) Where paper
is purchased in substantial quantities, the records, evaluation, and
certification must be in a form appropriate for the class and quality of paper
involved. The state bank may use sampling
techniques, or other appropriate methods, to independently verify the
reliability of the credit information supplied by the seller.
(c) A state bank's loans or extensions of credit to one
borrower secured by shipping documents or instruments that transfer or secure
title to or give a first lien on livestock may not exceed ten per cent of the
state bank's capital in addition to the amount
allowed under the state bank's combined general
limit, and only if all of the following conditions that apply are met:
(i) The market value of the livestock
securing the loan must at all times equal at least one hundred fifteen per cent
of the amount of the outstanding loan that exceeds the bank's combined general
limit. For purposes of paragraph (B)(2)(c) of this rule, the term livestock
includes dairy and beef cattle, hogs, sheep, goats, horses, mules, poultry and
fish, whether or not held for resale.
(ii) The state
bank must maintain in its files an inspection and valuation for the livestock
pledged that is reasonably current, taking into account the nature and
frequency of turnover of the livestock to which the documents relate, but in
any case not more than twelve months old.
(iii) Under the laws of certain states,
persons furnishing pasturage under a grazing contract may have a lien on the
livestock for the amount due for pasturage. If a lien that is based on
pasturage furnished by the lien or prior to the state bank's loan or extension of credit is assigned
to the state bank by a recordable instrument and
protected against being defeated by some other lien or claim, by payment to a
person other than the state bank, or otherwise,
it will qualify under this exception provided the amount of the perfected lien
is at least equal to the amount of the loan and the value of the livestock is
at no time less than one hundred fifteen per cent of the portion of the loan or
extension of credit that exceeds the state bank's
combined general limit. When the amount due under the grazing contract is
dependent upon future performance, the resulting lien does not meet the
requirements of the exception.
(d) A state
bank's loans and extensions of credit to one borrower that arise from the
discount by dealers in dairy cattle of paper given in payment for the cattle
may not exceed ten per cent of the state bank's
capital in addition to the amount allowed under the state bank's combined general limit, and only if both
of the following conditions are met:
(i) The
paper carries the full recourse endorsement or unconditional guarantee of the
seller.
(ii) The paper is secured
by the cattle being sold, pursuant to liens that allow the
state bank to maintain a perfected security
interest in the cattle under applicable law.
(e) A state
bank may renew a qualifying commitment to lend, as defined in paragraph (A)(12)
of this rule, and complete funding under that commitment if all of the
following criteria are met:
(i) The completion
of funding is consistent with safe and sound banking practices and is made to
protect the position of the state bank.
(ii) The completion of funding will enable
the borrower to complete the project for which the qualifying commitment to
lend was made.
(iii) The amount of
the additional funding does not exceed the unfunded portion of the
state bank's qualifying commitment to
lend.
(3) The
following loans or extensions of credit are not subject to the lending limits
of section
1109.22
of the Revised Code or this rule:
(a) Loans
or extensions of credit arising from the discount of negotiable commercial or
business paper that evidences an obligation to the person negotiating the
paper, if both of the following conditions are met:
(i) The paper is given in payment of the
purchase price of commodities purchased for resale, fabrication of a product,
or any other business purpose that may reasonably be expected to provide funds
for payment of the paper;
(ii) The
paper bears the full recourse endorsement of the owner of the paper, except
that paper discounted in connection with export transactions, that is
transferred without recourse, or with limited recourse, must be supported by an
assignment of appropriate insurance covering the political, credit, and
transfer risks applicable to the paper, such as insurance provided by the
export-import state bank.
A failure to pay principal or interest on commercial or business paper when due does not result in a loan or extension of credit to the maker or endorser of the paper; however, the amount of the paper thereafter must be counted in determining whether additional loans or extensions of credit to the same borrower may be made within the limits of section 1109.22 of the Revised Code and this rule.
(b) A state
bank's acceptance of drafts eligible for rediscount under divisions (B) and (C)
of section
1109.17
of the Revised Code, or a state bank's purchase
of acceptances created by other banks that are eligible for rediscount under
those sections; other than all of the following:
(i) A state
bank's acceptance of drafts ineligible for rediscount, which constitutes a loan
by the state bank to the customer for whom the
acceptance was made, in the amount of the draft;
(ii) A state
bank's purchase of ineligible acceptances created by other banks, which
constitutes a loan from the state purchasing bank
to the accepting bank, in the amount of the purchase price;
(iii) A state
bank's purchase of its own acceptances, which constitutes a loan to the
state bank's customer for whom the acceptance was
made, in the amount of the purchase price.
(c) Loans or extensions of credit, or
portions of them, to the extent fully secured by United States obligations if
both of the following apply:
(i) The extent of
the security is determined by the current market value of the collateral, which
may be either of the following:
(a) Bonds,
notes, certificates of indebtedness, or treasury bills of the United States or
similar obligations fully guaranteed as to principal and interest by the United
States;
(b) Loans to the extent
guaranteed as to repayment of principal by the full faith and credit of the
United States government, as set forth in paragraph (B)(3)(d)(ii) of this
rule.
(ii) The
state bank perfects a security interest in the
collateral under applicable law.
(d) Loans to or guaranteed by a federal
agency, which may be either of the following:
(i) Loans or extensions of credit to any
department, agency, bureau, board commission, or establishment of the United
States or any corporation wholly owned directly or indirectly by the United
States;
(ii) Loans or extensions of
credit, including portions of them, to the extent secured by unconditional
takeout commitments or guarantees of any of the governmental entities listed in
paragraph (B)(3)(d)(i) of this rule, subject to both of the following:
(a) The commitment or guarantee is payable in
cash or its equivalent within sixty days after demand for payment is
made.
(b) The commitment or
guarantee is considered unconditional if the protection afforded the
state bank is not substantially diminished or
impaired if loss should result from factors beyond the state bank's control. Protection against loss is not
materially diminished or impaired by procedural requirements, such as an
agreement to pay on the obligation only in the event of default, including
default over a specific period of time, a requirement that notification of
default be given within a specific period after its occurrence, or a
requirement of good faith on the part of the state bank.
(e) Loans or extensions of credit to a state
or political subdivision that constitute a general obligation of the state or
political subdivision, and for which the lending state bank has obtained the opinion of counsel that
the loan or extension of credit is a valid and enforceable general obligation
of the borrower, and loans or extensions of credit, including portions of them,
to the extent guaranteed or secured by a general obligation of a state or
political subdivision and for which the lending state bank has obtained the opinion of counsel that
the guarantee or collateral is a valid and enforceable general obligation of
that public body.
(f) Loans or
extensions of credit, including portions of them, to the extent secured by a
segregated deposit account in the lending state
bank, provided a security interest in the deposit has been perfected under
applicable law, and subject to both of the following:
(i) Where the deposit is eligible for
withdrawal before the secured loan matures, the state bank must establish internal procedures to
prevent release of the security without the lending state bank's prior consent.
(ii) A deposit that is denominated and
payable in a currency other than that of the loan or extension of credit that
it secured may be eligible for this exception if the currency is freely
convertible to United States dollars, subject to both of the following
conditions:
(a) This exception applies to only
that portion of the loan or extension of credit that is covered by the United
States dollar value of the deposit.
(b) The lending bank must establish
procedures periodically to revalue foreign currency deposits to ensure that the
loan or extension of credit remains fully secured at all times.
(g) Loans or extensions
of credit to any financial institution or to any receiver, conservator,
superintendent of financial institutions, or other agent in charge of the
business and property of a financial institution when an emergency situation
exists and a state bank is asked to provide
assistance to another financial institution, and the loan is approved by the
superintendent. For purposes of this paragraph, "financial institution" means a
commercial bank, savings bank, trust company, savings association, or credit
union.
(h) Loans or extensions of
credit to the student loan marketing association.
(i) A loan or extension of credit to an
industrial development authority or similar public entity created to construct
and lease a plant facility, including a health care facility, to an industrial
occupant is deemed a loan to the lessee, if all of the following conditions are
met:
(i) The state bank evaluates the creditworthiness of the
industrial occupant before the loan is extended to the authority;
(ii) The authority's liability on the loan is
limited solely to whatever interest it has in the particular
facility;
(iii) The authority's
interest is assigned to the state bank as
security for the loan or the industrial occupant issues a promissory note to
the state bank that provides a higher order of
security than the assignment of a lease;
(iv) The industrial occupant's lease rentals
are assigned and paid directly to the state
bank.
(j) A loan or
extension of credit to a leasing company for the purpose of purchasing
equipment for lease is deemed a loan to the lessee, if all of the following
conditions are met:
(i) The
state bank evaluates the creditworthiness of the
lessee before the loan is extended to the leasing corporation;
(ii) The loan is without recourse to the
leasing corporation;
(iii) The
state bank is given a security interest in the
equipment and in the event of default, may proceed directly against the
equipment and the lessee for any deficiency resulting from the sale of the
equipment;
(iv) The leasing
corporation assigns all of its rights under the lease to the
state bank;
(v) The lessee's lease payments are assigned
and paid to the state bank;
(vi) The lease terms are subject to the same
limitations that would apply to a state bank
acting as a lessor.
(C)
(1) For
purposes of determining compliance with section
1109.22
of the Revised Code and this rule, a state bank
shall determine its lending limit as of the most recent of the following dates:
(a) The last day of the preceding calendar
quarter;
(b) The date on which
there is a change in the state bank's capital
category for purposes of
12 U.S.C. 1831.
(2)
(a)
A state
bank's lending
limit calculated in accordance with paragraph (C) (1) (a) of this rule will be
effective as of the earlier of the following dates:
(i) The date on which the
state bank's consolidated report of condition and
income (call report) is submitted;
(ii) The date on which the
state bank's call report is required to be
submitted.
(b) A
state bank's lending limit calculated in
accordance with paragraph (C)(1) (b) of this rule will be effective on the date
that the limit is to be calculated.
(3) If the superintendent determines for
safety and soundness reasons that a state bank
should calculate its lending limit more frequently than required by paragraph
(C)(1) of this rule, the superintendent may provide written notice to the
state bank directing the state bank to calculate its lending limit at a more
frequent interval, and the state bank shall
thereafter calculate its lending limit at that interval until further
notice.
(D)
(1) Loans or extensions of credit to one
borrower are attributed to another person and each person is deemed a borrower
in either of the following circumstances:
(a)
When proceeds of a loan or extension of credit are to be used for the direct
benefit of the other person, to the extent of the proceeds so used;
(b) When a common enterprise exists between
the persons.
(2) The
proceeds of a loan or extension of credit to a borrower are deemed to be used
for the direct benefit of another person and are attributed to the other person
when the proceeds, or assets purchased with the proceeds, are transferred to
another person, other than in a bona fide arm's length transaction where the
proceeds are used to acquire property goods or services.
(3) A common enterprise exists and loans to
separate borrowers are aggregated in each of the following cases:
(a) When the expected source of repayment for
each loan or extension of credit is the same for each borrower and neither
borrower has another source of income from which the loan, together with the
borrower's other obligations, may be fully repaid. An employee is not treated
as a source of repayment under this paragraph because of wages and salaries
paid to an employee, unless the standards of paragraph (C)(3)(b) of this rule
are met.
(b) When loans or
extensions of credit are made to borrowers who are related, directly or
indirectly, through common control, including where one borrower is directly or
indirectly controlled by another borrower, and substantial financial
interdependence exists between or among the borrowers. Substantial financial
interdependence exists when fifty per cent or more of one borrower's gross
receipts or gross expenditures, on an annual basis, are derived from
transactions with the other borrower. Gross receipts and expenditures include
gross revenues and expenses, intercompany loans, dividends, capital
contributions, and similar receipts or payments.
(c) When separate persons borrow from a
state bank to acquire a business enterprise of
which those borrowers will own more than fifty per cent of the voting
securities or voting interests, in which case a common enterprise exists
between the borrowers for purposes of combining the acquisition
loans.
(d) When the superintendent
determines, based upon an evaluation of the facts and circumstances or
particular transactions, that a common enterprise exists.
(4)
(a)
Loans or extensions of credit by a state bank to
a corporate group may not exceed fifty per cent of the state bank's capital. This limitation applies only to
loans subject to the combined general limit and not otherwise excepted by the
superintendent. A corporate group includes a person and all of its
subsidiaries. For purposes of this paragraph a corporation or a limited
liability company is a subsidiary of a person if the person owns or
beneficially owns, directly or indirectly, more than fifty per cent of the
voting securities or voting interests of the corporation or company.
(b) Except as provided in paragraph (D)(4)(a)
of this rule, loans or extensions of credit to a person and its subsidiary, or
to different subsidiaries of a person, are not combined unless either the
direct benefit or the common enterprise test is met.
(5) In the case of loans to partnerships,
joint ventures, and associations, the following requirements apply:
(a) Loans and extensions of credit to a
partnership, joint venture, or association are deemed to be loans or extensions
of credit to each member of the partnership, joint venture, or association.
This requirement does not apply to limited partners in limited partnerships or
to members of joint ventures or associations if the partners or members, by the
terms of the partnership or membership agreement, are not held generally liable
for the debts or actions of the partnership, joint venture, or association, and
those provisions are valid under applicable law.
(b)
(i)
Loans or extensions of credit to members of a partnership, joint venture, or
association are not attributed to the partnership, joint venture, or
association unless either the direct benefit or the common enterprise tests are
met. Both the direct benefit and common enterprise tests are met between a
member of a partnership, joint venture or association and the partnership,
joint venture or association, when loans or extensions of credit are made to
the member to purchase an interest in the partnership, joint venture or
association.
(ii) Loans or
extensions of credit to members of a partnership, joint venture, or association
are not attributed to other members of the partnership, joint venture, or
association unless either the direct benefit or common enterprise test is
met.
(6)
(a) Loans and extensions of credit to foreign
governments, their agencies, and instrumentalities are aggregated with one
another only if the loans or extensions of credit fail to meet either the means
test or the purpose test at the time the loan or extension of credit is made.
(i) The means test is satisfied if the
borrower has resources or revenue of its own sufficient to service its debt
obligations. If the government's support, excluding guarantees by a central
government of the borrower's debt, exceeds the borrower's annual revenues from
other sources, it is presumed that the means test is not satisfied.
(ii) The purpose test is satisfied if the
purpose of the loan or extension of credit is consistent with the purposes of
the borrower's general business.
(b) In order to show that the means and
purpose tests have been satisfied, a bank shall, at a minimum, retain in its
files all of the following items:
(i) A
statement, accompanied by supporting documentation, describing the legal status
and the degree of financial and operational autonomy of the borrowing
entity;
(ii) Financial statements
for the borrowing entity for a minimum of three years prior to the date the
loan or extension of credit was made or for each year that the borrowing entity
has been in existence, if less than three;
(iii) Financial statements for each year the
loan or extension of credit is outstanding;
(iv) The bank's assessment of the borrower's
means of servicing the loan or extension of credit, including specific reasons
in support of that assessment, including an analysis of the borrower's
financial history, its present and projected economic and financial
performance, and the significance of any financial support provided to the
borrower by third parties, including the borrower's central
government;
(v) A loan agreement or
other written statement from the borrower that clearly describes the purpose of
the loan or extension of credit. The written representation ordinarily
constitutes sufficient evidence that the purpose test has been satisfied.
However, when, the time the funds are disbursed, the state bank knows or has reason to know of other
information suggesting that the borrower will use the proceeds in a manner
inconsistent with the written representation, it may not, without further
inquiry, accept the representation.
(c) Notwithstanding paragraphs (D)(1) to
(D)(5) of this rule, when previously outstanding loans and other extensions of
credit to a foreign government, its agencies, and instrumentalities,
public-sector obligors that qualified for a separate lending limit under
paragraph (D)(6)(a) of this rule are consolidated under a central obligor in a
qualifying restructuring, the loans are not aggregated and attributed to the
central obligor. This includes any substitution in named obligors, solely
because of the restructuring. The loans, other than loans originally attributed
to the central obligor in their own right, are not considered obligations of
the central obligor and continue to be attributed to the original public-sector
obligor for purposes of the lending limit.
(i)
Loans and other extensions of credit to a foreign government, its agencies, and
instrumentalities will qualify for the non-combination process under paragraph
(D)(6)(c)(i) of this rule only if they are restructured in a sovereign debt
restructuring approved by the superintendent, upon request by a
state bank for application of the noncombination
rule. The factors that the superintendent will use in making the determination
include, but are not limited to, the following:
(a) Whether the restructuring involves a
substantial portion of the total commercial bank loans outstanding to the
foreign government, its agencies, and instrumentalities;
(b) Whether the restructuring involves a
substantial number of the foreign country's external commercial bank
creditors;
(c) Whether the
restructuring and consolidation under a central obligor is being done primarily
to facilitate external debt management;
(d) Whether the restructuring includes
features of debt or debt-service reduction.
(ii) With respect to any case in which the
non-combination process under paragraph (D)(6)(c)(i) of this rule applies, a
state bank's loans and other extensions of credit
to a foreign government, its agencies and instrumentalities, including
restructured debt, shall not exceed, in the aggregate, fifty per cent of the
state bank's capital.
(E)
(1) A loan, within a state bank's legal lending limit when made, will not
be deemed a violation but will be treated as nonconforming if the loan is no
longer in conformity with the state bank's
lending limit because of either of the following:
(a) The state
bank's capital has declined, borrowers have subsequently merged or formed a
common enterprise, lenders have merged, the lending limit or capital rules have
changed;
(b) Collateral securing
the loan to satisfy the requirements of a lending limit exception has declined
in value.
(2) A
state bank shall use reasonable efforts to bring
a loan that is nonconforming as a result of paragraph (E)(1)(a) of this rule
into conformity with the bank's lending limit unless to do so would be
inconsistent with safe and sound banking practices.
(3) A state
bank shall bring a loan that is nonconforming as a result of circumstances
described in paragraph (E)(1)(b) of this rule into conformity with the
state bank's lending limit within thirty calendar
days, except when judicial proceedings, regulatory actions or other
extraordinary circumstances beyond the state
bank's control prevent the state bank from taking
action.
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