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Banking Interpretations

March 19, 2002 

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Re:[      ]Bank Lending Limit

Dear [       ]:

Your letter of January 22, 2002 has been referred to me for reply.  In your letter you posit the case of a customer of [           ] ("Bank") who has borrowed $1 million from the Bank on an unsecured basis and wishes to borrow an additional $1.8 million secured by either marketable securities or cash collateral in the nature of CDs.  You ask if there is an exception in New York Banking Law ("Banking Law") Section 103 to Bank's overall lending limit to one individual on the facts presented.

Banking Law Section 103(1) states the general rule that no bank shall lend to any person an amount which will exceed fifteen percent of the bank's capital stock, surplus fund and undivided profits, with an additional ten percent permitted for certain secured loans.  I believe your question is addressed by Banking Law Section 103(1)(b). This provision provides that the fifteen percent limitation does not apply to loans to the extent such loans are secured by cash collateral which is not subject to withdrawal. 

One would get a different result if the second loan were to be secured by readily marketable securities.  In this case, a bank may, pursuant to Banking Law Section 103(1)(d)(2) make loans that may equal, but not exceed, twenty-five percent of the capital stock, surplus fund and undivided profits of said bank, provided such loans either in whole or in part, but in any event that part thereof in excess of fifteen percent of such capital stock, surplus fund and undivided profits are secured by collateral having an ascertained market value or otherwise having a value as collateral as found in good faith by an officer of such bank, at least equal to the excess of such loans over fifteen percent of such capital stock, surplus fund and undivided profits.  It would not appear that this provision would provide the flexibility you apparently need.

We also point out that the Bank should be aware of the provisions contained in Banking Law Section 103(1)(e) when calculating the total loans to the borrower in question. In brief, that section provides for the aggregation of loans to any partnership or unincorporated association of which the borrower is a member, and all loans made for his benefit of for the benefit of such partnership or association.  In addition, guarantees made by such borrower which relate to loans or extensions of credit to such borrower by the Bank are attributable to said individual.

I trust the foregoing is responsive to your inquiry.  Should you have any additional questions, please feel free to contact me directly at [            ].

Sincerely yours,

Jay Kane
Assistant Counsel 

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