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Adopted Regulations

Explanatory All Institutions Letter

April 14, 2005

TO THE INDIVIDUAL OR INSTITUTION ADDRESSED:

RE: Final Adoption of Amendments to Part 96.6 of the General Regulations of the Banking Board  (Lending Limits for Credit Unions)

On April 7, 2005, the Banking Board adopted as final the attached amendments to Part 96.6 of the General Regulations of the Banking Board.  The amendments will become effective upon their publication in the State Register, which is expected to occur on April 27, 2005.

The amendments to Section 96.6(a) will permit a credit union, with the prior written approval of the Superintendent, to make loans to a single member exceeding $1,000,000.   This amendment will help to ensure that the State charter remains attractive.

Present subsection (a) of Section 96.6 of the General Regulations of the Banking Board prohibits a credit union from making a secured or unsecured loan to a member (other than a loan fully secured by shares in the credit union) if, upon making that loan, the member would be indebted to the credit union upon loans directly or indirectly made to such member in an aggregate amount exceeding $1,000,000. 

Subsection (b) of Section 96.6 prohibits a credit union from making any such a loan if the member would thereupon be indebted to the credit union in an aggregate amount exceeding 25% of its net worth.  Sections 96.4 and 96.5 of the General Regulations of the Banking Board prohibit a credit union from making loans to a member that are unsecured or that are secured by collateral other than shares in the credit union, in amounts which exceed 15% (or $5,000, if greater) and 25% (or $15,000, if greater), respectively, of the net worth of the credit union.

The amendments will permit a credit union, with the prior written approval of the Superintendent, to make loans exceeding the $1,000,000 cap.  However, any such loans will still be subject to the limitations based on a percentage of net worth in Sections 96.4, 96.5 and 96.6(b).  In the case of smaller credit unions, it is these latter provisions that provide the operative limit.  For larger credit unions, however, the $1,000,000 cap can prevent the institution from making sound loans that would be within the permitted percentage thresholds. 

While other types of financial institution are also subject to lending limits, these limits are typically based on a percentage of the institution’s net worth rather than a fixed dollar amount.  In addition to retaining the other existing lending limits for credit unions, which are based on net worth, the amendment will require a credit union seeking to make loans to a single member aggregating more than $1,000,000 to obtain the prior written approval of the Superintendent.  In contrast, federal credit unions are not subject to a dollar limit on aggregate loans to a single member.  (Both federal and state credit unions are, however, limited to the lesser of 2.5% of net worth or $100,000 in exercising their recently obtained authority to make unsecured member business loans.)  In addition, of course, the $1,000,000 cap in Section 96.6(a) has become more restrictive since its inception in 1997.

Very truly yours,

Sam L. Abram
Secretary of the Banking Board