[Rich]

What determines if a loan is within the legal lending limit? Is it when the loan is closed, or does it go quarter by quarter? In other words, if a loan closed in January is within the legal lending limit, but the limit decreases in July, is there a violation?

[rcooper]

From the FDIC’s Lending Limit Regulation: (https://www.fdic.gov/regulations/laws/rules/8000-7400.html#fdic8000lending32.3)

§ 32.6 Nonconforming loans and extensions of credit.
(a) A loan or extension of credit, within a national bank’s or savings association’s legal lending limit when made, will not be deemed a violation but will be treated as nonconforming if the loan or extension of credit is no longer in conformity with the bank’s or savings association’s lending limit because–
(1) The bank’s or savings association’s capital has declined, borrowers have subsequently merged or formed a common enterprise, lenders have merged, or the lending limit or capital rules have changed;
(2) Collateral securing the loan to satisfy the requirements of a lending limit exception has declined in value; or
(3) In the case of a credit exposure arising from a transaction identified in § 32.9(a) and measured by the Model Method specified in § 32.9(b)(1)(i) or § 32.9 (c)(1)(i) the Current Exposure Method specified in § 32.9(b)(1)(iii), or the Basel Collateral Haircut Method specified in § 32.9(c)(1)(iii) after Model Method specified in § 32.9(b)(1) or § 32.9(c)(1)(i), the credit exposure subject to the lending limits of 12 U.S.C. 84 or 12 U.S.C. 1464(u), as applicable, or this part increases after execution of the transaction.
(b) A national bank or savings association must use reasonable efforts to bring a loan or extension of credit that is nonconforming as a result of paragraph (a)(1) or (a)(3) of this section into conformity with the bank’s or savings association’s lending limit unless to do so would be inconsistent with safe and sound banking practices.
(c) A national bank or savings association must bring a loan that is nonconforming as a result of circumstances described in paragraph (a)(2) of this section into conformity with the bank’s or savings association’s lending limit within 30 calendar days, except whenjudicial proceedings, regulatory actions or other extraordinary circumstances beyond the bank’s or savings association’s control prevent it from taking action.

Here also is a link to the OCC’s regulation: https://www.gpo.gov/fdsys/pkg/CFR-2004-title12-vol1/pdf/CFR-2004-title12-vol1-sec32-6.pdf.

[Author]

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