Question: How do you determine a bank's legal lending limit?
Answer: The first step is to determine the applicable law. If the bank is a national bank, the applicable law is 12 USC 84. If the bank is state-chartered, state law will be applicable. Then, you simply follow the formula contained in the statute. For example, the basic lending limit for national banks is described as follows:
The total loans and extensions of credit by a national banking association to a person outstanding at one time and not fully secured, as determined in a manner consistent with paragraph (2) of this subsection, by collateral having a market value at least equal to the amount of the loan or extension of credit shall not exceed 15 per centum of the unimpaired capital and unimpaired surplus of the association.
There are many qualifiers, however. Depending upon the type of collateral, for example, a loan may not need to be counted toward the lending limit, or may yield an increased lending limit.
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