National Bank Legal Lending Limit

(d) Special credit ceilings for savings banks. (1) an exemption of $500,000 for savings associations. Notwithstanding that restriction in clause (a) of this section, if the total credit restriction of a savings association calculated in accordance with clause (a) of this section is less than $500,000, the savings association may have a total of loans and loan extensions to a borrower not exceeding $500,000 for any purpose. Some commentators have called for clarification or modification of the application of the provisions of section 610 of the provisional final rule to certain types of transactions. In particular, three financial associations requested that the rule clarify that sold and fully paid options are not covered by the rule because these types of exposures do not carry ongoing credit risk beyond settlement, i.e.: When an option is paid, there is no longer a performance obligation on the part of the counterparty or additional credit risk. The OCC agrees that these transactions do not create credit risk for the purposes of the line of credit. If a bank sells an option and that option is paid in full, there is no counterparty credit risk because the bank is not entitled to further claims from the counterparty. This fact arises from the nature of the transaction and there is no need to change the final arrangement. (iv) Where paper is purchased in large quantities, records, assessment and certification shall be established in a form appropriate to the class and quantity of the paper concerned. The bank or savings bank may use sampling or other appropriate methods to independently verify the reliability of the credit information provided by the seller.

(ii) an obligation on a manufacturer or endorser arising from the discounting of commercial paper by a national bank or savings association; The FDIC prides itself on being an outstanding source of research on the U.S. banking industry, including quarterly banking profiles, working papers, and data on state banking performance. Browse our research tools and detailed reports. The Office of the Comptroller of the Currency (OCC) is finalizing its interim final loan agreement with revisions. The interim final rule consolidated credit cap rules for domestic banks and savings associations, removed the OCC`s separate credit limits regulation for savings associations, and implemented Section 610 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amends the legal definition of « credit extensions and loan extensions » to include certain credit risks arising from derivative transactions. Repurchase agreements, reverse repurchase agreements, securities borrowings and securities borrowing transactions. (c) Scope. (1) Except as otherwise provided in paragraphs (c) and (d) of this section, this Part applies to all loans and loan extensions made by domestic banks and their domestic operating subsidiaries and to all loans and extensions of credit made by savings associations, their operating subsidiaries and service companies, consolidated in accordance with generally accepted accounting principles (GAAP). For purposes of this Part, the term « savings association » includes federal savings associations and state savings associations, as those terms are defined in 12 U.S.C. 1813(b). On June 21, 2012, the OCC published in the Federal Register a Final Preliminary Rule Start Printed Page 37931 [2], which amended the OCC Credit Limit Regulation for National Banks, 12 CFR Part 32, by consolidating the credit limit rules applicable to domestic banks and savings associations [3] and implementing Section 610 of the Dodd-Frank Act. The final draft rule also removed the separate OCC rule in 12 CFR 160.93, which regulated credit limits for savings banks.

[4] Credit limit refers to the highest amount a single bank can lend to a borrower at any given time. In the United States, credit limit information for domestic banks is contained in Part 32 of Title 12 of the United States. The Federal Deposit Insurance Corporation (FDIC) and the Controller of the Currency (OCC) are the offices that regulate the legal credit limit in U.S. bank charters, and their processes are overseen by the FDIC and OCC. Some commentators have noted that non-modelled methods for derivatives transactions do not distinguish between the credit risks of amortized and non-amortized interest rate swaps. These commentators suggest that the final rule should take into account amortization each time the PFE of these swaps is calculated, as the risk associated with a depreciated swap is reduced if the notional amount decreases over the life of the swap. While acknowledging the concerns of commentators, we do not believe that a change in the text of the rules is necessary to reflect this observation. The conversion factor matrix method and the CEM provide institutions with a simple, yet more conservative, approach to measuring credit risk. Maintaining the simplicity of these unmodelled methods outweighs the additional accuracy that can be achieved by distinguishing between damped and undamped instruments. In addition, the CEM included in the current regulatory capital requirements does not distinguish between a depreciable and a non-depreciable swap; Therefore, we believe it makes sense to maintain this treatment for the purposes of statutory credit limits.

In addition, we note that institutions may, if they wish, use the standard methodology to account for credit risks arising from derivatives transactions, including amortizable interest rate swaps. (4) Mandatory or alternative method. The competent agency of the Bundesbank may, at its sole discretion, require or permit a national bank or savings bank to use one or more particular methods in accordance with paragraph (b)(1) of this Section to calculate the credit risk arising from all derivatives transactions or from a certain or class of derivatives transactions if it determines, at its sole discretion, that this method is compatible with the security and soundness of the bank or savings association. A bank`s capital is defined as the difference between its assets and liabilities. In comparison, the surplus includes things like profit and loss reserves. Unless expressly stated as a general rule, all provisions of Part 32 apply to credit risks arising from a derivative or securities financing transaction, including the credit limit calculation rules in section 32.4 and the combination rules in section 32.5. Some commentators have objected to the application of the direct benefit test in Article 32.5, which provides for the allocation and combination of loans and extensions of loans in certain circumstances to derivatives and securities financing transactions. They explained that direct utility testing in these transactions would be difficult to monitor due to the complexity of these transactions and would likely require significant changes in market practices or revisions to standard documentation. Rather, they recommend that, for these transactions, the assessment of direct benefit be limited by their terms to situations of tax evasion.

The OCC has carefully considered this comment. The assessment of direct benefit depends on the facts of each case, and the OCC recognizes that the nature of derivatives and SFTs may raise factual issues not found in traditional lending transactions. However, the OCC decided not to make any changes to the long-established text of the direct benefit test at this stage. The CCB will continue to apply the test reasonably to these transactions, taking into account their facts and circumstances, and will review the direct benefit test as soon as it has experience with its application to exposures arising from derivative and securities financing transactions. (iv) A description of how the Board of Directors will exercise its ongoing responsibility to oversee the use of this lending authority.