Click to return to BOL home page



September 22
FinCEN's Beneficial Owners Proposal: What It Can Mean for You;
Sonja Kriegsmann and John Burnett

September 23
Bankruptcy 101;
Sam Ott

September 30
Revised Escrow Rules - Review and Update;
Jack Holzknecht and Mary Beth Guard

October 7
CRA - Digging for Credit;
Patricia Cashman

October 8
Applicants and Applications: Knowing the Players and the Rules;
David Dickinson

October 15
MasterCard and Reg E: Basic Debit Card Investigations;
Brian Crow



Topic Options
#130865 - 11/14/03 01:36 PM Bank stock as collateral
Anonymous
Unregistered


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?

Top
Lending Compliance
#130866 - 11/17/03 12:58 PM Re: Bank stock as collateral
SoccerMomQueen Offline

Power Poster

Registered: 04/09/01
Posts: 4517
Loc: Between the lines
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.
_________________________
The lower the latitude, the higher my attitude.

Top
#130867 - 11/17/03 02:01 PM Re: Bank stock as collateral
Anonymous
Unregistered


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!

Top
#130868 - 11/17/03 07:15 PM Re: Bank stock as collateral
rlcarey Offline
10K Club

Registered: 07/16/01
Posts: 50028
Loc: Galveston, TX
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.
_________________________
The opinions expressed are my own, take them or leave them.

Top
#130869 - 11/18/03 11:48 AM Re: Bank stock as collateral
Retread Offline
Diamond Poster

Registered: 10/31/03
Posts: 2485
Loc: Southeast
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.
_________________________
Politicians are like diapers. They need to be changed often and for the same reason.

Top
#130870 - 11/18/03 12:17 PM Re: Bank stock as collateral
Kathleen B Online

10K Club

Registered: 12/27/00
Posts: 17475
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.
_________________________
Kathleen Blanchard CRCM "Kaybee"
Lending/CRA/HMDA/Mapping/Consulting
www.kaybeescomplianceinsights.com

Top
#130871 - 11/04/04 09:28 AM Re: Bank stock as collateral
Anonymous
Unregistered


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

Top
#130872 - 11/04/04 09:41 AM Re: Bank stock as collateral
Dan Persfull Offline
10K Club

Registered: 08/28/02
Posts: 40747
Loc: Bloomington, IN
You can do a Google search using that term, or you can go here .
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

Top
#130873 - 11/04/04 09:41 AM Re: Bank stock as collateral
rlcarey Offline
10K Club

Registered: 07/16/01
Posts: 50028
Loc: Galveston, TX
_________________________
The opinions expressed are my own, take them or leave them.

Top
#130874 - 11/04/04 11:31 AM Re: Bank stock as collateral
swiggles Offline
Power Poster

Registered: 08/14/01
Posts: 5764
What is the definition of "its own capital stock?"
_________________________
The more you sweat in training, the less you bleed in battle.......

Top
#130875 - 05/11/05 06:39 PM Re: Bank stock as collateral
GenerousLife Offline
Diamond Poster

Registered: 02/12/02
Posts: 1433
Loc: USA
***BUMP***

Would "its own capital stock" mean the bank's stock itself, not stock of the holding company?
_________________________
"No problem can withstand the assault of sustained thinking." ~ Voltaire
"Sustained thinking gives me a headache." ~Me

Top
#130876 - 05/11/05 09:11 PM Re: Bank stock as collateral
Kathleen B Online

10K Club

Registered: 12/27/00
Posts: 17475
Yes, that is what it means.
_________________________
Kathleen Blanchard CRCM "Kaybee"
Lending/CRA/HMDA/Mapping/Consulting
www.kaybeescomplianceinsights.com

Top


Moderator:  Andy Z