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#24782 - 07/22/02 07:48 PM Bank Stock as Security
Loan Ops Offline
Member
Loan Ops
Joined: Jul 2001
Posts: 62
Sandusky, OH USA
We recently acquired another bank. We have found that they secured loans with their own bank stock. We have never made a practice of this, thinking its prohibited somewhere. I can't find anything specific that prohibits it. Can anyone help?

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General Discussion
#24783 - 07/22/02 09:31 PM Re: Bank Stock as Security
redsfan Offline
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redsfan
Joined: Dec 2000
Posts: 3,455
The Pennant Race
OCC banks are permitted to make loans secured by own bank stock. From 12 CFR 7.2019:

(a) Permitted agreements, relating to bank shares. A national bank may require a borrower holding shares of the bank to execute agreements:
(1) Not to pledge, give away, transfer, or otherwise assign such shares;
(2) To pledge such shares at the request of the bank when necessary to prevent loss; and
(3) To leave such shares in the bank's custody.

(b) Use of capital notes and debentures. A national bank may not make loans secured by a pledge of the bank's own capital notes and debentures. Such notes and debentures must be subordinated to the claims of depositors and other creditors of the issuing bank, and are, therefore, capital instruments within the purview of 12 U.S.C. 83

There may be state law that prohibits taking your own stock as collateral. In general, the regulators have always frowned on this practice, legal or not.




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#24784 - 07/23/02 02:38 PM Re: Bank Stock as Security
Anonymous
Unregistered

If you are a National Bank,check 12 USC, Chapter 2, Section 83. "No association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith;...."

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#24785 - 07/23/02 03:07 PM Re: Bank Stock as Security
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
PeterT, I agree with you. Loaning against capital stock is different than the agreements that you are allowed to require a borrower from the bank to execute under 12 CFR 7.2019.
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#24786 - 07/23/02 03:39 PM Re: Bank Stock as Security
Anonymous
Unregistered

We are a state-member bank. Is anyone aware of any limitations here?

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#24787 - 07/23/02 04:01 PM Re: Bank Stock as Security
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Refer to 12 USC 324:

All banks admitted to membership under authority of this section shall be required to comply with the reserve and capital requirements of this chapter, to conform to those provisions of law imposed on national banks which prohibit such banks from lending on or purchasing their own stock and which relate to the withdrawal or impairment of their capital stock, .....................
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#24788 - 07/23/02 07:59 PM Re: Bank Stock as Security
Lestie G Offline

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Joined: May 2002
Posts: 3,608
Near the Land of Enchantment
If your bank is owned by a holding company - the stock is in the holding company - not the bank. I've seen loans in OCC banks secured by the holding company stock. I still think they're risky, especially for a smaller company, but the OCC examiners let them go on by...
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