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8000 - Miscellaneous Statutes and Regulations
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PART32LENDING LIMITS
Sec. 32.1
Authority, purpose and scope.
32.2
Definitions.
32.3
Lending limits.
32.4
Calculation of lending limits.
32.5
Combination rules.
32.6
Nonconforming loans.
32.7
Residential real estate loans, small business loans, and small farm
loans.
Authority: 12 U.S.C. 1 et seq., 84, and 93a.
SOURCE: The provisions of this Part 32 appear at 60 Fed. Reg. 8526,
February 15, 1995, effective March 17, 1995, except as otherwise
noted.
§ 32.1 Authority, purpose and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C.
1 et seq., 12 U.S.C. 84, and 12 U.S.C. 93a.
(b) Purpose. The purpose of this part is to protect the
safety and soundness of national banks by preventing excessive loans to
one person, or to related persons that are financially dependent, and
to promote diversification of loans and equitable access to banking
services.
(c) Scope. (1) This part applies to all loans and
extensions of credit made by national banks and their domestic
operating subsidiaries. This part does not apply to loans made by a
national bank and its domestic operating subsidiaries to the bank's
"affiliates," as that term is defined in
12 U.S.C. 371c(b)(1), to the
bank's operating subsidiaries, or to Edge Act or Agreement Corporation
subsidiaries.
(2) The lending limits in this part are separate and independent
from the investment limits prescribed by 12 U.S.C. 24 (Seventh), and a
national bank may make loans or extensions of credit to one borrower up
to the full amount permitted by this part and also hold eligible
securities of the same obligor up to the full amount permitted under 12
U.S.C. 24 (Seventh) and 12 CFR part 1.
(3) Extensions of credit to executive officers, directors and
principal shareholders of national banks, and their related interests
are subject to limits prescribed by 12
U.S.C. 375a and 375b in
addition to the lending limits established by 12 U.S.C. 84 and this
part.
(4) In addition to the foregoing, loans and extensions of credit
made by national banks and their domestic operating subsidiaries must
be consistent with safe and sound banking practices.
[Codified to 12 C.F.R. § 32.1]
§ 32.2 Definitions.
(a) 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 § 32.5.
(b) Capital and surplus means--
(1) A bank's Tier 1 and Tier 2 capital calculated under the
OCC's risk-based capital standards set forth in Appendix A to 12 CFR
part 3 as reported in the bank's Consolidated Report of Condition and
Income filed under 12 U.S.C. 161; plus
(2) The balance of a bank's allowance for loan and lease losses
not included in the bank's Tier 2 capital, for purposes of the
calculation of risk-based capital described in paragraph (b)(1) of this
section, as reported in the bank's Call Report filed under 12 U.S.C.
161.
(c) Close of business means the time at which a bank
closes its accounting records for the business day.
(d) 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.
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(e) 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 bank is not the
owner or lessor) or purchase of equipment for use in manufacturing,
farming, construction, or excavation.
(f) Contractual commitment to advance funds. (1) The
term includes a bank's obligation to--
(i) Make payment (directly or indirectly) to a third person
contingent upon default by a customer of the bank in performing an
obligation and to make such payment 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) Guarantee or act as surety for the benefit of a person;
(iii) Advance funds under a qualifying commitment to lend, as
defined in paragraph (m) of this section; and
(iv) Advance funds under a standby letter of credit as defined in
paragraph (s) of this section, a put, or other similar arrangement.
(2) The term 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.
(g) Control is presumed to exist when a person directly
or indirectly, or acting through or together with one or more persons--
(1) Owns, controls, or has the power to vote 25 percent or more
of any class of voting securities of another person,
(2) Controls, in any manner, the election of a majority of the
directors, trustees, or other persons exercising similar functions of
another person, or
(3) Has the power to exercise a controlling influence over the
management or policies of another person.
(h) Current market value means the bid or closing price
listed for an item in a regularly published listing or an electronic
reporting service.
(i) Eligible bank means a national bank that:
(1) Is well capitalized as defined in 12 CFR 6.4(b)(1); and
(2) Has a composite rating of 1 or 2 under the Uniform Financial
Institutions Rating System in connection with the bank's most recent
examination or subsequent review, with at least a rating of 2 for asset
quality and for management.
(j) Financial instrument means stocks, notes, bonds, and
debentures traded on a national securities exchange, OTC margin stocks
as defined in Regulation U, 12 CFR
part 221, 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 converted to U.S. dollars. The term
"financial instrument" does not include mortgages.
(k) Loans and extensions of credit means a 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.
(1) Loans or extensions of credit for purposes of 12 U.S.C. 84
and this part include--
(i) A contractual commitment to advance funds, as defined in
paragraph (f) of this section;
(ii) A maker or endorser's obligation arising from a bank's
discount of commercial paper;
(iii) A 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 bank's purchase of Type I securities, as
defined in part 1 of this chapter, subject to a repurchase agreement,
where the purchasing bank has assured control over or has established
its rights to the Type I securities as collateral;
{{12-31-01 p.9387}}
(iv) A 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 bank's loan is the total
unpaid balance of the paper owned by the bank less any applicable
dealer reserves retained by the bank and held by the bank as collateral
security. Where the seller's obligation to repurchase is limited, the
bank's loan is measured by the total amount of the paper the seller may
ultimately be obligated to repurchase. A 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 prearranged, but not an
intra-day overdraft for which payment is received before the close of
business of the 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; and
(vii) Loans or extensions of credit that have been charged off on
the books of the bank in whole or in part, unless the loan or extension
of credit--
(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; or
(C) Is no longer legally enforceable for other reasons, provided
that the bank maintains sufficient records to demonstrate that the loan
is unenforceable.
(2) The following items do not constitute loans or extensions of
credit for purposes of 12 U.S.C. 84 and this part--
(i) Additional funds advanced for the benefit of a borrower by a
bank for payment of taxes, insurance, utilities, security, and
maintenance and operating expenses necessary to preserve the value of
real property securing the loan, consistent with safe and sound banking
practices, but only if the advance is for the protection of the bank's
interest in the collateral, and provided that such amounts 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 bank's own assets, including Other Real
Estate Owned, if the financing does not put the bank in a worse
position than when the 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 bank of reasonable
efforts, consistent with safe and sound banking practices, to bring the
loan into conformance with the lending limit, unless new funds are
advanced by the bank to the borrower (except as permitted by
§ 32.3(b)(5)), or a new borrower replaces the original borrower, or
unless the OCC determines that a renewal or restructuring was
undertaken as a means to evade the bank's lending limit;
(v) Amounts paid against uncollected funds in the normal process
of collection; and
(vi)(A) That portion of a loan or extension of credit sold as a
participation by a bank on a nonrecourse 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 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 bank to the borrower. If the portions so attributed
to the
{{12-31-01 p.9388}}borrower exceed the
originating bank's lending limit, the loan may be treated as
nonconforming subject to § 32.6, rather than a violation, if:
(1) The originating 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 bank's lending
limit.
(2) The participating bank reconfirmed its
participation and the originating bank had no knowledge of any
information that would permit the participant to withhold its
participation; and
(3) The participation was to be funded by close of
business of the originating bank's next business day.
(l) 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 thereof; or any similar entity or organization.
(m) 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 bank's lending limit when entered into, and has not been
disqualified.
(1) In determining whether a commitment is within the 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 bank's commitment and
that would be excluded from the definition of "loan or extension of
credit" under paragraph (k)(2)(vi) of this section.
(2) If the 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 bank's applicable
lending limit at that time, the bank's qualifying commitments to the
borrower that exceed the 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 nonqualifying commitment may only be made to the extent
that the advance, together with all other outstanding loans to the
borrower, do not exceed the bank's lending limit at the time of the
advance, calculated pursuant to § 32.4.
(n) 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.
(o) 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.
(1) An article comes within this definition if--
(i) The exact price is easy to determine; and
(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.
(2) 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 staples is made.
(p) Residential real estate loan means a loan or
extension of credit that is secured by 1--4 family residential real
estate.
(q) 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.
{{6-30-05 p.9389}}
(r) Small business loan means a loan or extension of
credit "secured by nonfarm nonresidential properties" or "a
commercial or industrial loan" as defined in the instructions for
preparation of the Consolidated Report of Condition and Income.
(s) Small farm loans or extensions of credit means "loans to
small farms," as defined in the instructions for preparations of the
Consolidated Report of Condition and Income.
(t) 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:
(1) To repay money borrowed by or advanced to or for the account
of the account party;
(2) To make payment on account of any indebtedness undertaken by
the account party; or
(3) To make payment on account of any default by the account
party in the performance of an obligation.
[Codified to 12 C.F.R. § 32.2]
[Section 32.2 amended 63 Fed. Reg. 15746, April 1, 1998,
effective May 1, 1998; 66 Fed. Reg. 31120, June 11, 2001, effective
September 10, 2001; 66 Fed. Reg. 55072, November 1, 2001, effective
September 10, 2001; 69 Fed. Reg. 51357, August 19,
2004]
§ 32.3 Lending limits.
(a) Combined general limit. A national bank's total
outstanding loans and extensions of credit to one borrower may not
exceed 15 percent of the bank's capital and surplus, plus an additional
10 percent of the bank's capital and surplus, if the amount that
exceeds the bank's 15 percent general limit is fully secured by readily
marketable collateral, as defined in § 32.2(n). To qualify for the
additional 10 percent limit, the 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 100 percent of the amount
of the loan or extension of credit that exceeds the bank's 15 percent
general limit.
(b) Loans subject to special lending limits. The
following loans or extensions of credit are subject to the lending
limits set forth below. When loans and extensions of credit qualify for
more than one special lending limit, the special limits are cumulative.
(1) Loans secured by bills of lading or warehouse receipts
covering readily marketable staples. (i) A national 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 § 32.2(o), may not
exceed 35 percent of the bank's capital and surplus in addition to the
amount allowed under the bank's combined general limit. The market
value of the staples securing the loan must at all times equal at least
115 percent of the amount of the outstanding loan that exceeds the
bank's combined general limit.
(ii) Staples that qualify for this special limit must be
nonperishable, may be refrigerated or frozen, and must be fully covered
by insurance if such insurance is customary. Whether a staple is
nonperishable must be determined on a case-by-case basis because of
differences in handling and storing commodities.
(iii) This special limit applies to a loan or extension of credit
arising from a single transaction or 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;
or
(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 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
{{6-30-05 p.9390}}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.
(2) Discount of installment consumer paper. (i) A
national bank's loans and extensions of credit to one borrower
that arise from the discount of negotiable or nonnegotiable installment
consumer paper, as defined at § 32.2(e), that carries a full recourse
endorsement or unconditional guarantee by the person selling the paper,
may not exceed 10 percent of the bank's capital and surplus in addition
to the amount allowed under the bank's combined general limit. An
unconditional guarantee may be in the form of a repurchase agreement or
separate guarantee agreement. A condition reasonably within the power
of the 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 bank, the lending limits of this section apply to the obligation
of the seller to the bank, which is measured by the total amount of
paper the seller may be obligated to repurchase or has guaranteed.
(iii) Where the bank is relying primarily upon the maker of the
paper for payment of the loans or extensions of credit and not upon any
full or partial recourse endorsement or guarantee by the seller of the
paper, the lending limits of this section apply only to the maker. The
bank must substantiate its reliance on the maker with--
(A) Records supporting the bank's independent credit analysis of
the maker's ability to repay the loan or extension of credit,
maintained by the bank or by a third party that is contractually
obligated to make those records available for examination purposes; and
(B) A written certification by an officer of the bank authorized
by the bank's board of directors or any designee of that officer, that
the 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 quantity of paper involved. The bank may use sampling
techniques, or other appropriate methods, to independently verify the
reliability of the credit information supplied by the seller.
(3) Loans secured by documents covering livestock.
(i) A national 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 10
percent of the bank's capital and surplus in addition to the amount
allowed under the bank's combined general limit. The market value of
the livestock securing the loan must at all times equal at least 115
percent of the amount of the outstanding loan that exceeds the bank's
combined general limit. For purposes of this subsection, the term
"livestock" includes dairy and beef cattle, hogs, sheep, goats,
horses, mules, poultry and fish, whether or not held for resale.
(ii) The 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 12 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 bank's loan or extension of
credit is assigned to the bank by a recordable instrument and protected
against being defeated by some other lien or claim, by payment to a
person other than the 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 115 percent of the portion of the loan or extension of credit
that exceeds the bank's combined general
{{12-31-01 p.9391}}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.
(4) Loans secured by dairy cattle. A national 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 10 percent of the bank's capital and surplus in
addition to the amount allowed under the bank's combined general limit.
To qualify, the paper--
(i) Must carry the full recourse endorsement or unconditional
guarantee of the seller; and
(ii) Must be secured by the cattle being sold, pursuant to liens
that allow the bank to maintain a perfected security interest in the
cattle under applicable law.
(5) Additional advances to complete project financing
pursuant to renewal of a qualifying commitment to lend. A national
bank may renew a qualifying commitment to lend, as defined by
§ 32.2(m), 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 bank;
(ii) The completion of funding will enable the borrower to
complete the project for which the qualifying commitment to lend was
made; and
(iii) The amount of the additional funding does not exceed the
unfunded portion of the bank's qualifying commitment to lend.
(c) Loans not subject to the lending limits. The
following loans or extensions of credit are not subject to the lending
limits of 12 U.S.C. 84 or this part.
(1) Loans arising from the discount of commercial or
business paper. (i) 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. The paper--
(A) Must be 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; and
(B) Must bear 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 Bank.
(ii) 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
such 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 12 U.S.C. 84 and this part.
(2) Bankers' acceptances. A bank's acceptance of
drafts eligible for rediscount under 12 U.S.C. 372 and 373, or a bank's
purchase of acceptances created by other banks that are eligible for
rediscount under those sections; but not including--
(i) A bank's acceptance of drafts ineligible for rediscount
(which constitutes a loan by the bank to the customer for whom the
acceptance was made, in the amount of the draft);
(ii) A bank's purchase of ineligible acceptances created by other
banks (which constitutes a loan from the purchasing bank to the
accepting bank, in the amount of the purchase price); and
(iii) A bank's purchase of its own acceptances (which constitutes
a loan to the bank's customer for whom the acceptance was made, in the
amount of the purchase price).
(3)(i) Loans secured by U.S. obligations. Loans or
extensions of credit, or portions thereof, to the extent fully secured
by the current market value of:
(A) Bonds, notes, certificates of indebtedness, or Treasury bills
of the United States or by similar obligations fully guaranteed as to
principal and interest by the United States;
{{12-31-01 p.9392}}
(B) Loans to the extent guaranteed as to repayment of principal
by the full faith and credit of the U.S. government, as set forth in
paragraph (c)(4)(ii) of this section.
(ii) To qualify under this paragraph, the bank must perfect a
security interest in the collateral under applicable law.
(4) Loans to or guaranteed by a Federal agency.
(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 thereof,
to the extent secured by unconditional takeout commitments or
guarantees of any of the foregoing governmental entities. The
commitment or guarantee--
(A) Must be payable in cash or its equivalent within 60 days
after demand for payment is made;
(B) Is considered unconditional if the protection afforded the
bank is not substantially diminished or impaired if loss should result
from factors beyond the 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 bank.
(5) Loans to or guaranteed by general obligations of a
State or political subdivision. (i) A loan or extension of
credit to a State or political subdivision that constitutes a general
obligation of the State or political subdivision, as defined in part 1
of this chapter, and for which the lending bank has an opinion of
counsel or the opinion of that State Attorney General, or other State
legal official with authority to opine on the obligation in question,
that the loan or extension of credit is a valid and enforceable general
obligation of the borrower; and
(ii) A loan or extension of credit, including portions thereof,
to the extent guaranteed or secured by a general obligation of a State
or political subdivision and for which the lending bank has an opinion
of counsel or the opinion of that State Attorney General, or other
State legal official with authority to opine on the guarantee or
collateral in question, that the guarantee or collateral is a valid and
enforceable general obligation of that public body.
(6) Loans secured by segregated deposit accounts.
Loans or extensions of credit, including portions thereof, to the
extent secured by a segregated deposit account in the lending bank,
provided a security interest in the deposit has been perfected under
applicable law.
(i) Where the deposit is eligible for withdrawal before the
secured loan matures, the bank must establish internal procedures to
prevent release of the security without the lending 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 secures may
be eligible for this exception if the currency is freely convertible to
U.S. dollars.
(A) This exception applies to only that portion of the loan or
extension of credit that is covered by the U.S. dollar value of the
deposit.
(B) The lending bank must establish procedures to periodically
revalue foreign currency deposits to ensure that the loan or extension
of credit remains fully secured at all times.
(7) Loans to financial institutions with the approval of
the Comptroller. Loans or extensions of credit to any financial
institution or to any receiver, conservator, superintendent of banks,
or other agent in charge of the business and property of a financial
institution when an emergency situation exists and a national bank is
asked to provide assistance to another financial institution, and the
loan is approved by the Comptroller. For purposes of this paragraph,
financial institution means a commercial bank, savings bank, trust
company, savings association, or credit union.
{{12-31-01 p.9393}}
(8) Loans to the Student Loan Marketing Association.
Loans or extensions of credit to the Student Loan Marketing
Association.
(9) Loans to industrial development authorities. 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 will be
deemed a loan to the lessee, provided that--
(i) The 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 bank as
security for the loan or the industrial occupant issues a promissory
note to the bank that provides a higher order of security than the
assignment of a lease; and
(iv) The industrial occupant's lease rentals are assigned and
paid directly to the bank.
(10) Loans to leasing companies. A loan or extension
of credit to a leasing company for the purpose of purchasing equipment
for lease will be deemed a loan to the lessee, provided that--
(i) The 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 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 bank;
(v) The lessee's lease payments are assigned and paid to the
bank; and
(vi) The lease terms are subject to the same limitations that
would apply to a national bank acting as a lessor.
[Codified to 12 C.F.R. § 32.3]
[Section 32.3 amended at 63 Fed. Reg. 15746, April 1,
1998, effective May 1, 1998; 66 Fed. Reg. 31120, June 11, 2001
effective September 10, 2001]
§ 32.4 Calculation of lending limits.
(a) Calculation date. For purposes of determining
compliance with 12 U.S.C. 84 and this part, a bank shall determine its
lending limits as of the most recent of the following dates:
(1) The last day of the preceding calendar quarter; or
(2) The date on which there is a change in the bank's capital
category for purposes of 12 U.S.C.
1831o and 12 CFR 6.3.
(b) Effective date. (1) A bank's lending limit
calculated in accordance with paragraph (a)(1) of this section will be
effective as of the earlier of the following dates:
(i) The date on which the bank's Call Report is submitted; or
(ii) The date on which the bank's Call Report is required to be
submitted.
(2) A bank's lending limit calculated in accordance with
paragraph (a)(2) of this section will be effective on the date that the
limit is to be calculated.
(c) More frequent calculations. If the OCC determines
for safety and soundness reasons that a bank should calculate its
lending limit more frequently than required by paragraph (a) of this
section, the OCC may provide written notice to the bank directing the
bank to calculate its lending limit at a more frequent interval, and
the bank shall thereafter calculate its lending limit at that interval
until further notice.
[Codified to 12 C.F.R. § 32.4]
[Section 32.4 amended at 63 Fed. Reg. 15746, April 1,
1998, effective May 1, 1998; 66 Fed. Reg. 55072, November 1, 2001,
effective September 10, 2001]
{{12-31-01 p.9394}}
§ 32.5 Combination rules.
(a) General rule. Loans or extensions of credit to one
borrower will be attributed to another person and each person will be
deemed a borrower--
(1) 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; or
(2) When a common enterprise is deemed to exist between the
persons.
(b) Direct benefit. The proceeds of a loan or extension
of credit to a borrower will be deemed to be used for the direct
benefit of another person and will be 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.
(c) Common enterprise. A common enterprise will be
deemed to exist and loans to separate borrowers will be aggregated:
(1) 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 employer will not
be treated as a source of repayment under this paragraph because of
wages and salaries paid to an employee, unless the standards of
paragraph (c)(2) of this section are met;
(2) When loans or extensions of credit are made--
(i) To borrowers who are related directly or indirectly through
common control, including where one borrower is directly or indirectly
controlled by another borrower; and
(ii) Substantial financial interdependence exists between or
among the borrowers. Substantial financial interdependence is deemed to
exist when 50 percent 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/expenses, intercompany loans, dividends, capital
contributions, and similar receipts or payments;
(3) When separate persons borrow from a bank to acquire a
business enterprise of which those borrowers will own more than 50
percent of the voting securities or voting interests, in which case a
common enterprise is deemed to exist between the borrowers for purposes
of combining the acquisition loans; or
(4) When the OCC determines, based upon an evaluation of the
facts and circumstances of particular transactions, that a common
enterprise exists.
(d) Special rule for loans to a corporate group.
(1) Loans or extensions of credit by a bank to a corporate group
may not exceed 50 percent of the bank's capital and surplus. This
limitation applies only to loans subject to the combined general limit.
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 50 percent of the voting
securities or voting interests of the corporation or company.
(2) Except as provided in paragraph (d)(1) of this section, 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.
(e) Special rules for loans to partnerships, joint ventures,
and associations.--(1) Partnership loans. Loans or
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 rule 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.
(2) Loans to partners. (i) Loans or extensions of
credit to members of a partnership, joint venture, or association are
not attributed to the partnership, joint venture, or
{{10-31-07 p.9395}}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 such 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.
(f) Loans to foreign governments, their agencies, and
instrumentalities.--(1) Aggregation. Loans and
extensions of credit to foreign governments, their agencies, and
instrumentalities will be 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 will be presumed that the means test has not been
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.
(2) Documentation. In order to show that the means and
purpose tests have been satisfied, a bank must, at a minimum, retain in
its files 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. The assessment shall include 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; and
(v) A loan agreement or other written statement from the borrower
which clearly describes the purpose of the loan or extension of credit.
The written representation will ordinarily constitute sufficient
evidence that the purpose test has been satisfied. However, when, at
the time the funds are disbursed, the 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.
(3) Restructured loans.--(i) Non-combination
rule. Notwithstanding paragraphs (a) through (e) of this section,
when previously outstanding loans and other extensions of credit to a
foreign government, its agencies, and instrumentalities (i.e.,
public-sector obligors) that qualified for a separate lending limit
under paragraph (f)(1) of this section are consolidated under a central
obligor in a qualifying restructuring, such loans will not be
aggregated and attributed to the central obligor. This includes any
substitution in named obligors, solely because of the restructuring.
Such loans (other than loans originally attributed to the central
obligor in their own right) will not be considered obligations of the
central obligor and will continue to be attributed to the original
public-sector obligor for purposes of the lending limit.
(ii) Qualifying restructuring. Loans and other
extensions of credit to a foreign government, its agencies, and
instrumentalities will qualify for the non-combination process under
paragraph (f)(3)(i) of this section only if they are restructured in a
sovereign debt restructuring approved by the OCC, upon request by a
bank for application of the
{{10-31-07 p.9396}}non-combination rule. The
factors that the OCC will use in making this 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;
and
(D) Whether the restructuring includes features of debt or
debt-service reduction.
(iii) 50 percent aggregate limit. With respect to any
case in which the non-combination process under paragraph (f)(3)(i) of
this section applies, a national 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, 50
percent of the bank's capital and surplus.
[Codified to 12 C.F.R. § 32.5]
§ 32.6 Nonconforming loans.
(a) A loan, within a 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 bank's lending limit because--
(1) The 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; or
(2) Collateral securing the loan to satisfy the requirements of a
lending limit exception has declined in value.
(b) A bank must use reasonable efforts to bring a loan that is
nonconforming as a result of paragraph (a)(1) of this section into
conformity with the bank's lending limit unless to do so would be
inconsistent with safe and sound banking practices.
(c) A bank must bring a loan that is nonconforming as a result of
circumstances described in paragraph (a)(2) of this section into
conformity with the bank's lending limit within 30 calendar days,
except when judicial proceedings, regulatory actions or other
extraordinary circumstances beyond the bank's control prevent the bank
from taking action.
[Codified to 12 C.F.R. § 32.6]
§ 32.7 Residential real estate loans, small business loans, and
small farm loans.
(a) Residential real estate loans, small business loans, and
small farm loans. (1) In addition to the amount that a national
bank may lend to one borrower under § 32.3, an eligible national bank
may make residential real estate loans or extensions of credit to one
borrower in the lesser of the following two amounts: 10 percent of its
capital and surplus; or the percent of its capital and surplus, in
excess of 15 percent, that a State bank is permitted to lend under the
State lending limit that is available for residential real estate loans
or unsecured loans in the State where the main office of the national
bank is located. Any such loan or extension of credit must be secured
by a perfected first-lien security interest in 1--4 family real estate
in an amount that does not exceed 80 percent of the appraised value of
the collateral at the time the loan or extension of credit is made.
(2) In addition to the amount that a national bank may lend to
one borrower under § 32.3, an eligible national bank may make small
business loans or extensions of credit to one borrower in the lesser of
the following two amounts: 10 percent of its capital and surplus; or
the percent of its capital and surplus, in excess of 15 percent, that a
State bank is permitted to lend under the State lending limit that is
available for small business loans or unsecured loans in the State
where the main office of the national bank is located.
(3) In addition to the amount that a national bank may lend to
one borrower under Sec. 32.3, an eligible national bank may make small
farm loans or extensions of credit to
{{6-29-07 p.9397}}one borrower in the lesser of
the following two amounts: 10 percent of its capital and surplus; or
the percent of its capital and surplus, in excess of 15 percent, that a
State bank is permitted to lend under the State lending limit that is
available for small farm loans or unsecured loans in the State where
the main office of the national bank is located.
(4) The total outstanding amount of a national bank's loans and
extensions of credit to one borrower made under §§ 32.3(a) and (b),
together with loans and extensions of credit to the borrower made
pursuant to paragraphs (a)(1), (2), and (3) of this section, shall not
exceed 25 percent of the bank's capital and surplus.
(5) The total outstanding amount of a national bank's loans and
extensions of credit to all of its borrowers made pursuant to the
special lending limits provided in paragraphs (a)(1) and (2) of this
section may not exceed 100 percent of the bank's capital and surplus.
(b) Application process. An eligible bank must submit
an application to, and receive approval from, its supervisory office
before using the special lending limits in paragraphs (a)(1) and (2) of
this section. The supervisory office may approve a completed
application if it finds that approval is consistent with safety and
soundness. To be deemed complete, the application must include:
(1) Certification that the bank is an "eligible bank" as
defined in § 32.2(i);
(2) Citations to relevant State laws or regulations;
(3) A copy of a written resolution by a majority of the bank's
board of directors approving the use of the limits provided in
paragraphs (a)(1), (2), and (3) of this section, and confirming the
terms and conditions for use of this lending authority; and
(4) A description of how the board will exercise its continuing
responsibility to oversee the use of this lending authority.
(c) Duration of approval. Except as provided in
§ 32.7(d), a bank that has received OCC approval may continue to make
loans and extensions of credit under the special lending limits in
paragraphs (a)(1), (2), and (3) of this section, provided the bank
remains an "eligible bank."
(d) Discretionary termination of authority. The OCC may
rescind a bank's authority to use the special lending limits in
paragraphs (a)(1), (2) and (3) of this section based upon concerns
about credit quality, undue concentrations in the bank's portfolio of
residential or small business loans, or concerns about the bank's
overall credit risk management systems and controls. The bank must
cease making new loans or extensions of credit in reliance on the
special limits upon receipt of written notice from the OCC that its
authority has been rescinded.
(e) Existing loans. Any loans or extensions of credit
made by a bank under the special lending limits in paragraphs (a)(1),
(2), and (3) of this section, that were in compliance with this section
when made, will not be deemed a lending limit violation and will not be
treated as nonconforming under § 32.6.
[Codified to 12 C.F.R. § 32.7]
[Section 32.7 added at 66 Fed. Reg. 31120, June 11, 2001, effective
September 10, 2001; amended at 69 Fed. Reg. 32436, June 10, 2004; 69
Fed. Reg. 51357, August 19, 2004; 72 Fed. Reg. 31444, June 7, 2007]
[The page following this is 9401.]
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