OCC Modifies Bank Lending Limits to Include Derivatives and Securities Financing Transactions | Practical Law

OCC Modifies Bank Lending Limits to Include Derivatives and Securities Financing Transactions | Practical Law

The Office of the Comptroller of the Currency issued an interim final rule under the Dodd-Frank Act that incorporates derivatives and securities financing agreements into single-counterparty lending limits.

OCC Modifies Bank Lending Limits to Include Derivatives and Securities Financing Transactions

by PLC Finance
Published on 21 Jun 2012 • USA (National/Federal)
The Office of the Comptroller of the Currency issued an interim final rule under the Dodd-Frank Act that incorporates derivatives and securities financing agreements into single-counterparty lending limits.
On June 20, 2012, the Office of the Comptroller of the Currency (OCC) issued an interim final rule amending its single-counterparty lending limit rule to include any credit exposure arising as a result of:
  • Derivative transactions.
  • Repurchase or reverse repurchase agreements.
  • Securities lending or borrowing transactions.
The rule, which is mandated by Section 610 of the Dodd-Frank Act, applies to all national banks and state and federal thrifts. Covered banks have until January 1, 2013 to comply with the new requirements.
Currently the national bank loans-to-one-borrower limits are:
  • For unsecured loans and extension of credit, 15% of the banks' unimpaired capital and surplus.
  • For loans and extensions of credit fully secured by readily marketable collateral, an additional 10% of the banks' unimpaired capital and surplus. This is separate and in addition to the 15% limitation on unsecured loans.
(12 U.S.C. § 84.)
Thrifts are generally subject to the same lending limits although certain additional rules apply.
State banks are not subject to the rule and are covered by the lending limits of their respective states. However, under another Section 610 amendment effective January 21, 2012, insured state banks may engage in derivative transactions only if the lending limit law of its chartering state takes into account credit exposures in connection with derivative transactions.
The OCC is accepting comments on its interim final rule until August 6, 2012.
For more on the interim final rule, see the OCC's press release.
For more information on state and national bank lending limits, see Practice Notes, US Banking Law: Overview: US Banking Organizations, Their Regulators and Scope of Permissible Activities and Insider Loan Restrictions for Banks: Dodd-Frank Act Changes to Insider Loan Requirements.