Bank stock as collateral

I really need some information on lending using the bank's stock. Where are regulatory cites regarding any prohibitons on lending using your bank's stock as collateral for a FDIC bank? Or is it just state laws that conrol this? I cannot find any information on this in the FDIC regulations. Your help would be greatly appreciated. Also, is there any difference if it's the holding company stock?

This doesn't really answer your questions, but since no one else has taken a stab at it; I will give you the best I have. As a national bank, we are prohibited from taking our own stock (which is publicly traded) as collateral. You are on the right track in my opinion. It just doesn't make good sense to use the bank's own capital to secure a customer's loan.

Well, I can't cite anything for you, but we are a State, Non-member, FDIC regulated bank and we do this all of the time. We have loans funds to purchase our stock, secured by the same stock, as well as funds for other purposes secured by our stock. We have never been criticized by our State or FDIC examiners for this practice. Hope that helps!

It's a state law issue. Most state laws prohibit it. Many do allow loans against a holding company stock, but keep in mind that such a transaction would also constitute a 23A transaction.

Take a look at 12 U.S.C. 1828(v)

12 U.S.C. 1828(v) Loans by insured institutions on their own stock

(1) General prohibition
No insured depository institution may make any loan or discount on the security of the shares of its own capital stock.

(2) Exclusion
For purposes of this subsection, an insured depository institution shall not be deemed to be making a loan or discount on the security of the shares of its own capital stock if it acquires the stock to prevent loss upon a debt previously contracted for in good faith.

For a national bank, you can take holding company stock subject to 23A restrictions as a transaction with an affiliate. The total of loans secured by bank stock are subject to the 10% limit for transactions with one affiliate. There are other concerns that some banks address through their credit policy. One large bank I once worked at considered this undesirable due to the potential conflict of interest. You mismanage the company, stock price goes down, now you have to demand additional collateral from your customer. Other banks allow it and are not (yet) concerned about the above conflict.

Where can I find 12 U.S.C. 1828(v)

You can do a Google search using that term, or you can go here .

12 USC 1828

What is the definition of "its own capital stock?"

***BUMP***

Would "its own capital stock" mean the bank's stock itself, not stock of the holding company?

Yes, that is what it means.

We have a lender taking bank stock as collateral for a loan. But, is the statement below meaning that the lender can only take the stock if he/she feels there will be a loss on a loan that is currently on our books?

(v) LOANS BY INSURED INSTITUTIONS ON THEIR OWN STOCK.--

(1) GENERAL PROHIBITION.--No insured depository institution may make any loan or discount on the security of the shares of its own capital stock.

(2) EXCLUSION.--For purposes of this subsection, an insured depository institution shall not be deemed to be making a loan or discount on the security of the shares of its own capital stock if it acquires the stock to prevent loss upon a debt previously contracted for in good faith.

Yes.

Is there any State ruling that would override this or would that be for margin stock?

State law cannot trump Federal law. Federal law allows you to loan against Holding Company stock. Some State laws prohibit even that.