12 C.F.R. Subpart J—Lending and Leasing Limits
Title 12 - Banks and Banking
Source: 58 FR 40321, July 28, 1993, unless otherwise noted.
For purposes of this subpart, the following definitions shall apply: (a) Borrower means an individual, partnership, joint venture, trust, corporation, or other business entity to which an institution has made a loan or a commitment to make a loan either directly or indirectly. Excluded are a Farm Credit System association or other financing institution that comply with the criteria in section 1.7(b) of the Act and the regulations in subpart P of this part. For the purposes of this subpart, the term “borrower” includes any customer to whom an institution has made a lease or a commitment to make a lease. (b) Commitment means a legally binding obligation to extend credit, enter into lease financing, purchase or participate in loans or leases, or pay the obligation of another, which becomes effective at the time such commitment is made. (c) Loan means any extension of, or commitment to extend, credit authorized under the Act whether it results from direct negotiations between a lender and a borrower or is purchased from or discounted for another lender. This includes participation interests. The term “loan” includes loans and leases outstanding, obligated but undisbursed commitments to lend or lease, contracts of sale, notes receivable, other similar obligations, guarantees, and all types of leases. An institution “makes a loan or lease” when it enters into a commitment to lend or lease, advances new funds, substitutes a different borrower or lessee for a borrower or lessee who is released, or where any other person's liability is added to the outstanding loan, lease or commitment. (d) Primary liability means an obligation to repay that is not conditioned upon an unsuccessful prior demand on another party. (e) Secondary liability means an obligation to repay that only arises after an unsuccessful demand on another party. [58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999] (a) Lending and leasing limit base. An institution's lending and leasing limit base is composed of the permanent capital of the institution, as defined in §615.5201 of this chapter, with adjustments applicable to the institution provided for in §615.5207 of this chapter, and with the following further adjustments: (1) Where one institution invests in another institution in connection with the sale of a loan participation interest, the amount of investment in the institution purchasing this participation interest that is owned by the institution originating the loan shall be counted in the lending and leasing limit base of the originating institution and shall not be counted in the lending and leasing limit base of the purchasing institution. (2) Stock protected under section 4.9A of the Act may be included in the lending and leasing limit base until January 1, 1998. (3) Any amounts of preferred stock not eligible to be included in total surplus as defined in §615.5301(i) of this chapter must be deducted from the lending limit base. (b) Timing of calculation. The lending limit base will be calculated on a monthly basis as of the preceding month end. [58 FR 40321, July 28, 1993, as amended at 59 FR 37403, July 22, 1994; 64 FR 34517, June 28, 1999; 70 FR 35348, June 17, 2005; 70 FR 53907, Sept. 13, 2005] (a) Farm Credit Banks. No Farm Credit Bank may make or discount a loan to a borrower, if the consolidated amount of all loans outstanding and undisbursed commitments to that borrower exceed 25 percent of the bank's lending and leasing limit base. (b) Agricultural credit banks. (1) No agricultural credit bank may make or discount a loan to a borrower under the authority of title I of the Act, if the consolidated amount of all loans outstanding and undisbursed commitments to that borrower exceeds 25 percent of the bank's lending and leasing limit base. (2) No agricultural credit bank may make or discount a loan to a borrower under the authority of title III of the Act, if the consolidated amount of all loans outstanding and undisbursed commitments to that borrower exceeds the lending and leasing limits prescribed in §614.4355 of this subpart. [58 FR 40321, July 28, 1993, as amended at 64 FR 34517, June 28, 1999] No association may make a loan to a borrower, if the consolidated amount of all loans outstanding and undisbursed commitments to that borrower exceeds 25 percent of the association's lending and leasing limit base. [58 FR 40321, July 28, 1999, as amended at 64 FR 34517, June 28, 1999] No Federal land bank association may assume endorsement liability on any loan if the total amount of the association's endorsement liability on loans outstanding and undisbursed commitments to that borrower would exceed 25 percent of the association's lending and leasing limit base. [58 FR 40321, July 28, 1999, as amended at 64 FR 34517, June 28, 1999] No bank for cooperatives may make a loan if the consolidated amount of all loans outstanding and undisbursed commitments to that borrower exceeds the following percentages of the lending and leasing limit base of the bank: (a) Basic limit. (1) Term loans to eligible cooperatives: 25 percent. (2) Term loans to foreign and domestic parties: 10 percent. (3) Lease loans qualifying under §614.4020(a)(3) and applying to the lessee: 25 percent. (4) Standby letters of credit qualifying under §614.4810: 35 percent. (5) Guarantees qualifying under §614.4800: 35 percent. (6) Seasonal loans exclusive of commodity loans qualifying under §614.4231: 35 percent. (7) Foreign trade receivables qualifying under §614.4700: 50 percent. (8) Bankers' acceptances held qualifying under §614.4710 and commodity loans qualifying under §614.4231: 50 percent. (9) Export and import letters of credit qualifying under §614.4321: 50 percent. (b) Total limit. (1) The sum of term and seasonal loans exclusive of commodity loans qualifying under §614.4231: 35 percent. (2) The sum of paragraphs (a)(1) through (a)(9) of this section: 50 percent. [58 FR 40321, July 28, 1993, as amended at 62 FR 51015, Sept. 30, 1997; 64 FR 34517, June 28, 1999] The Farm Credit Leasing Services Corporation may enter into a lease agreement with a lessee if the consolidated amount of all leases and undisbursed commitments to that lessee or any related entities does not exceed 25 percent of its lending and leasing limit base. [64 FR 34517, June 28, 1999] Where a bank for cooperatives makes a loan to an eligible borrower that is secured by notes of individuals or business entities, the basic lending limits provided in §614.4355 may be applied to each original notemaker rather than to the loan to the eligible borrower, if: (a) Each note is current and carries a full recourse endorsement or unconditional guarantee by the borrower; (b) The bank determines the financial condition, repayment capacity, and other credit factors of the loan to the original maker reasonably justify the credit granted by the endorser; and (c) The loans are fully supported by documented loan files, which include, at a minimum: (1) A credit report supporting the bank's finding that the financial condition, repayment capacity, and other factors of the maker of the notes being pledged justify the credit extended by the bank and/or endorser; (2) A certification by a bank officer designated for that purpose by the loan or executive committee that the financial responsibility of the original notemaker has been evaluated by the loan committee and the bank is relying primarily on each such maker for the payment of the obligation; and (3) Other credit information normally required of a borrower when making and administering a loan. [58 FR 40321, July 28, 1993. Redesignated at 64 FR 34517, June 28, 1999] (a) Inclusions. The computation of total loans to each borrower for the purpose of computing their lending and leasing limit shall include: (1) The total unpaid principal of all loans and lease balances outstanding and the total amount of undisbursed commitments except as excluded by paragraph (b) of this section. This amount shall include loans that have been charged off on the books of the institution in whole or in part but have not been collected, except to the extent that such amounts are not legally collectible; (2) Purchased interests in loans, including participation interests, to the extent of the amount of the purchased interest, including any undisbursed commitment; (3) Loans attributed to a borrower in accordance with §614.4359. (b) Exclusions. The following loans when adequately documented in the loan file, may be excluded from loans to a borrower subject to the lending and leasing limit: (1) Any loan or portion of a loan that carries a full faith and credit performance guaranty or surety of any department, agency, bureau, board, commission, or establishment of the United States government, provided there is no evidence to suggest that the guaranty has become unenforceable and the institution can demonstrate that it is in compliance with the terms and conditions of the guaranty. (2) Any loan or portion of a loan guaranteed by a Farm Credit System institution, pursuant to the provisions of §614.4345 on guaranty agreements. This exclusion does not apply to the institution providing the guaranty. (3) Any loan or portion of a loan that is secured by bonds, notes, certificates of indebtedness, or Treasury bills of the United States or by other obligations guaranteed as to principal and interest by the United States government, provided the loans are fully secured by the current market value of such obligations. If the market value of the collateral declines to below the balance of the loan, and the entire loan, individually, or when combined with other loans and undisbursed commitments to or attributed to the borrower, causes the borrower's total indebtedness to exceed the institution's lending limit, the institution shall have 5 business days to bring the loan into conformance before it shall be deemed to be in violation of the lending limit. (4) Interests in loans sold, including participation interests, when the sale agreement meets the following requirements: (i) The interest must be sold without recourse; and (ii) The agreement under which the interest is sold must provide for the sharing of all payments of principal, collection expenses, collateral proceeds, and risk of loss on a pro rata basis according to the percentage interest in the principal amount of the loan. Agreements that provide for the pro rata sharing to commence at the time of default or similar event, as defined in the agreement under which the interest is sold, shall be considered to be pro rata agreements, notwithstanding the fact that advances are made and payments are distributed on a basis other than pro rata prior to that time. (5) Interests in leases sold when the sale agreement provides that: (i) The interest sold must be: (A) An undivided interest in all the lease payments or the residual value of all the leased property; or (B) A fractional undivided interest in the total lease transaction; (ii) The interest must be sold without recourse; and (iii) Sharing of all lease payments must be on a pro rata basis according to the percentage interest in the lease payments. (6) Loans sold in their entirety to a pooler certified by the Federal Agricultural Mortgage Corporation, if an interest in a pool of subordinated participation interests is purchased to satisfy the requirements of title VIII of the Act. [58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, June 28, 1999; 67 FR 1285, Jan. 10, 2002] (a) For the purpose of applying the lending and leasing limit to the indebtedness of a borrower, loans to a related borrower shall be combined with loans outstanding to the borrower and attributed to the borrower when any one of the following three conditions exist: (1) Liability. (i) The borrower has primary or secondary liability on a loan made to the related borrower. The amount of such loan attributable to the borrower is limited to the amount of the borrower's liability. (ii) This section does not require attribution of a guarantee taken out of an abundance of caution. To qualify for the abundance of caution exception to the requirements of this subpart, the institution must document in the loan file that the loan, when evaluated under the loan underwriting standards adopted pursuant to §614.4150 of this part without considering the guarantee, would support the credit decision under the same basic terms and conditions. (iii) For the banks for cooperatives and agricultural credit banks operating under title III authorities of the Act, look-through notes are exempt from the lending limit provisions provided they meet the criteria of §614.4357. (2) Financial interdependence. The operations of a borrower and related borrower are financially interdependent. Financial interdependence exists if the borrower is the primary source of repayment for a related borrower's loan, or if the operations of the borrower and the related borrower are commingled. (i) The borrower shall be considered the primary source of repayment on the loan to the related borrower if the borrower is obligated to supply 50 percent or more of the related borrower's annual gross receipts, and reliance on the income from one another is such that, regardless of the solvency and liquidity of the borrower's operations, the debt service obligation of the related borrower could not be met if income flow from the borrower is interrupted or terminated. For the purpose of this paragraph, gross receipts include, but are not limited to, revenues, intercompany loans, dividends and capital contributions. (ii) The assets or operations of the borrower and related borrower are considered to be commingled if they cannot be separated without materially impacting the economic survival of the individual operations and their ability to repay their loans. (3) Control. The borrower directly or indirectly controls the related borrower. A borrower is deemed to control a related borrower if either paragraph (a)(3)(i) or (a)(3)(ii) of this section exist: (i) The borrower, directly or acting through one or more other persons, owns 50 percent or more of the stock of the related borrower; or (ii) The borrower, directly or acting through one or more other persons, owns or has the power to vote 25 percent or more of the voting stock of a related borrower, and meets at least one of the following three conditions: (A) The borrower shares a common directorate or management with a related borrower. A common directorate is deemed to exist when a majority of the directors, trustees, or other persons performing similar functions of one borrower also serves the other borrower in a like capacity. A common management is deemed to exist if any employee of the borrower holds the position of chief executive officer, chief operating officer, chief financial officer, or an equivalent position in the related borrower's organization. (B) The borrower controls in any manner the election of a majority of directors of a related borrower. (C) The borrower exercises or has the power to exercise a controlling influence over management of a related borrower's operations through the provisions of management placement or marketing agreements, or providing services such as insurance carrier or bookkeeping. (b) Each institution shall make provisions for appropriately designating loans to a related borrower that are combined with the borrower's loan and attributed to the borrower to ensure that loans to the borrower are within the lending and leasing limits. (c) Attribution rules table. For the purposes of applying the lending and leasing limit to the indebtedness of a borrower, loans to a related borrower shall be combined with loans outstanding to the borrower and attributed to the borrower when any one of three attribution rules are met as outlined in Table 1. [58 FR 40321, July 28, 1993, as amended at 62 FR 51015, Sept. 30, 1997. Redesignated and amended at 64 FR 34517, June 28, 1999] (a) Each loan, except loans that are grandfathered under the provisions of §614.4361, shall be in compliance with the lending and leasing limit on the date the loan is made, and at all times thereafter. Except as provided for in paragraph (b) of this section, loans which are in violation of the lending and leasing limit shall comply with the provisions of §615.5090 of this chapter. (b) Under the following conditions a loan that violates the lending and leasing limit shall be exempt from the provisions of §615.5090 of this chapter: (1) A loan in which the total amount of principal outstanding and undisbursed commitments exceed the lending and leasing limit because of a decline in permanent capital after the loan was made. (2) Loans on which funds are advanced pursuant to a commitment that was within the lending and leasing limit at the time the commitment was made, even if the lending and leasing limit subsequently declines. (3) A loan that exceeds the lending and leasing limit as a result of the consolidation of the debt of two or more borrowers as a consequence of a merger or the acquisition of one borrower's operations by another borrower. Such a loan may be extended or renewed, for a period not to exceed 1 year from the date of such merger or acquisition, during which period the institution may advance and/or readvance funds not to exceed the greater of: (i) 110 percent of the advances to the borrower in the prior calendar year; or (ii) 110 percent of the average of the advances to the borrower in the past 3 calendar years. (c) For all lending and leasing limit violations except those exempted under §614.4360(b)(3), within 90 days of the identification of the violation, the institution must develop a written plan prescribing the specific actions that will be taken by the institution to bring the total amount of loans and commitments outstanding or attributed to that borrower within the new lending and leasing limit, and must document the plan in the loan file. (d) All leases, except those permitted under §614.4361, reading “effective date of this subpart” in §614.4361(a) and “effective date of these regulations” in §614.4361(b) as “effective date of this amendment,” must comply with the lending and leasing limit on the date the lease is made, and at all times after that. (e) Nothing in this section limits the authority of the FCA to take administrative action, including, but not limited to, monetary penalties, as a result of lending and leasing limit violations. [58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, June 28, 1999] (a) A loan (not including a commitment) made or attributed to a borrower prior to the effective date of this subpart, which does not comply with the limits contained in this subpart, will not be considered a violation of the lending and leasing limits during the existing contract terms of such loans. A new loan must conform with the rules set forth in this subpart. A new loan includes but is not limited to: (1) Funds advanced in excess of existing commitment; (2) A different borrower is substituted for a borrower who is subsequently released; or (3) An additional person becomes an obligor on the loan. (b) A commitment made prior to the effective date of these regulations which exceeds the lending and leasing limit may be funded to the full extent of the legal commitment. Any advances that exceed the lending and leasing limit are subject to the provisions prescribed in §614.4360. [58 FR 40321, July 28, 1993. Redesignated and amended at 64 FR 34517, 34518, June 28, 1999]
Title 12: Banks and Banking
PART 614—LOAN POLICIES AND OPERATIONS
Subpart J—Lending and Leasing Limits
§ 614.4350 Definitions.
§ 614.4351 Computation of lending and leasing limit base.
§ 614.4352 Farm Credit Banks and agricultural credit banks.
§ 614.4353 Direct lender associations.
§ 614.4354 Federal land bank associations.
§ 614.4355 Banks for cooperatives.
§ 614.4356 Farm Credit Leasing Services Corporation.
§ 614.4357 Banks for cooperatives look-through notes.
§ 614.4358 Computation of obligations.
§ 614.4359 Attribution rules.
Table 1------------------------------------------------------------------------ Criteria per § Attribution rule 614.4359 Attribute------------------------------------------------------------------------(A) Liability.................. Borrower has primary Yes.* or secondary liability.*to the extent of the Borrower's liability No.* borrower's liability. is taken out of an abundance of caution. Look-through notes (BC No. only).(B) Financial Interdependence.. Source of Repayment:(Economic survival of the Borrower is obligated Yes. borrower's operation will to supply 50 percent materially impact economic or more of related survival of the related borrower's annual borrowers operation). gross receipts, and reliance on the income from one another is such that the debt service of the related borrower could not be met if income flow from the borrower is interrupted or terminated. Commingled Operations: Assets or operations Yes. of the borrowers are commingled and cannot be separated without materially impacting the borrowers' repayment capacity(C) Control.................... The borrower owns 50 Yes. percent or more of the stock of the related borrower.(The borrower, directly or The borrower owns or Yes. indirectly, controls the has the power to vote related borrower). 25 percent or more of the voting stock of a related borrower, and (1) Shares a common directorate or management with a related borrower, or. (2) Controls the election of a majority of directors of a related borrower, or. (3) Exercises a controlling influence over management of a related borrower's operations through the provisions of management placement or marketing agreements, or providing services such as insurance carrier or bookkeeping.------------------------------------------------------------------------
§ 614.4360 Lending and leasing limit violations.
§ 614.4361 Transition.
