I am flumoxed. My chief lender thinks there is a regulatory minimum spread required between the CD/savings rate used as collateral and the loan rate. Can anyone point me to the reg? I thought this was a matter of bank policy. Could it be a state issue?

Years ago, there was a minimum spread, possibly in Reg D or Q. CA has a minumum spread after that went away, but that has now been repealed. Check state law.

Thanks. You saved me from going through the FDIC regs page by page.

John Burnett could confirm this, but I think it may have gone out with the DIDC and the Garn-St. Germain era around the mid-80s.

In any case, if you have a state law, look to that. As Al noted, it isn't Federal.

Oooo. Also look at your loan policy. That may be cited there and you don't want to violate your own policy.

The 2% rate spread was in Reg. Q as a means to prevent evasion of the early withdrawal penalty requirement. Some states also adopted spreads like this as an early effort to prevent predatory lending--of course that term wasn't coined for a few more decades.