What is the statutory loan limit?
The statutory loan limit is the maximum dollar amount a single bank can lend to a given borrower. The limit is expressed as a percentage of institutional capital and surplus. These restrictions are overseen by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).
- The statutory loan limit is the maximum amount a bank can lend to a single borrower.
- The statutory limit is 15% of the bank’s capital as set by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
- If the loan is secured, the limit is an additional 10%, bringing the total to 25%.
- Some loans are not subject to loan restrictions, such as loans secured by U.S. debt, bank acceptances, or certain types of commercial paper.
How the statutory loan limit works
Statutory lending limits for national banks are established under the United States Code (USC) and are overseen by the FDIC and the OCC. Details of state bank loan limits are reported in USC Title 12, Section 32.3.
The FDIC provides insurance for U.S. depositors. Both the FDIC and the OCC are involved in the national bank’s franchise process. The two entities also work to ensure that national banks adhere to established rules as defined in the U.S. Code, which details federal regulations.
Loan limit laws and regulations apply to banks and savings associations across the country. The Lending Limit Code states that financial institutions may not lend to a single borrower more than 15% of the institution’s capital and surplus. This is the basic standard that requires institutions to closely follow the capital and surplus levels set by federal law. Banks are allowed another 10% mortgage. So if they get a loan, they can lend up to 25% of their capital and surplus.
special attention items
Some loans may be allowed special loan limits. Loans that may qualify for special loan restrictions include: loans secured by bills of lading or warehouse receipts, installment bills, loans secured by livestock, and project financing advances related to prequalified loan commitments.
Additionally, some loans may not be subject to loan restrictions at all. These loans may include certain commercial paper or commercial paper discount loans, bank acceptances, loans secured by U.S. debt, loans affiliated with federal agencies, loans related to state or political departments, loans secured by segregated deposit accounts, loans to Loans from financial institutions approved by a designated federal banking agency, loans to the Student Loan Marketing Association, loans to the Department of Industrial Development, loans to leasing companies, credits obtained from transactions that finance certain government securities, and same-day credits.
Banks are required to hold large amounts of capital, which often results in lending restrictions that only apply to institutional borrowers. Generally, capital is divided according to liquidity. Tier 1 capital includes its most liquid capital, such as statutory reserves. Tier 2 capital may include undisclosed provisions and general loss provisions. The National Bank’s total capital assets ratio must be 8%.
Surplus may refer to many components of the bank. Categories that are surplus may include profit, loss reserves and convertible debt.