In the cite, calculation of the bank's LLL is based on Tier 1 and Tier 2 capital reported in the bank's most recent call report. Since call reports are only generated quarterly, can one calculate the LLL monthly let's say and base the indivdual lending limits to directors on the monthly calculations. This would make sense to me because let's say that director wants a loan in June. We could go back to the month end May calculation and base the amount of the credit extended on the LLL at that point in time instead of going back to the March call report numbers, which would reduce the amount of credit available to extend.

The way the law is written in my state, it specifically references the most recent call report as the source for the calculation. I take that to mean that your LLL only changes quarterly.

Jokerman, that is the way the law is written in my state also; however, from a practical standpoint lets say if you have a LLL of 1M on 6-27-05 but 800,000 on 3-31-05, wouldn't you want to be able to lend on your current LLL? What's the purpose of going back to the previous call report if we can calculate based on current day?

Sorry, the above figure should read 1MM

Anon, practical and regs are like oil and water. They don't mix.

I don't disagree with you, but it's my understanding you have to base your LLL on the most recent call report. That is what is submitted to the regulators and that is what they go by.

Dan is right in saying that practical and regs are like oil and water. However, you can bet the examiner will use the most current data, and the data at the time the loan was made when calculating a LLL violation. Let's say you have 15% capital ratio in December, and in January paid out a substaintial dividend to reduce capital to 8%. No examiner is going to let you slide by saying "Well our LLL at the last call was X." My advise would be to use the most current data at the time the loan was made and monitor your portfolio for potential violations in the future.

I would recommend that you follow the law. It is the only true safe harbor you have - no matter the opinion of a single examiner. If you follow the law, there is nothing they can do to you.