I recently read that under Reg O, the bank Controller can assign a credit limit for Insider lending. Are there any general rules to determining the credit limit? Is it merely a percentage of Capital and Surplus for that quarter, or can it be a random or otherwise justified number than % of C & S?

It can be whatever up to the regulatory maximums (loans to one borrower rule)for directors and principal shareholders. Reg O dictates the limits for EOs, but a bank could be even more restrictive if it wanted..

An internal control in credit decisions would better be set by lenders, not the controller or other accountants. What the heck do they understand about credit underwriting ?

However, the controller will be an excellent source for the basic numbers to be used in the calculation of the legal lending limit, which is constrained by the capital accounts of the bank.

John,

That's the route I took. The controller can give me our quarterly C & S number and we can determine the lending limt to our insiders based on a percentage of Capital and Surplus.

Based upon the capital calculations management and the board should determine what their risk appetite for insider loans is. If you want to push the limit, you need to ensure that you have good controls to track it and that you leave room should numbers change. You don't want to suddenly be over the limit because a situation changed.