Which of the following is an exception from the lending limit regulations for national banks and savings associations?

A. A standby letter of credit

B. A commercial letter of credit

C. A loan made to a foreign government

D. A loan made to a dairy farmer

B. A commercial letter of credit

12 CFR 32.2(f)

Commercial letters of credit are not included in the definition of contractual commitment to advance funds.

First National Bank has a general lending limit of $150,000 and an additional limit of $100,000 for loans that are fully secured by readily marketable collateral.  The bank has outstanding to Peter Phillip an unsecured loan for $150,000.  Which of the following is legal?

A. The payment of an overdraft on Mr. Phillip’s account

B. An additional unsecured loan to Mr. Phillip where the entire loan is sold as a participation to a correspondent bank without recourse to First National

C. The issuance of a standby letter of credit for the account of Mr. Phillip

D. The extension of credit to a general partnership in which Mr. Phillip is a partner

B. An additional unsecured loan to Mr. Phillip where the entire loan is sold as a participation to a correspondent bank without recourse to First National

12 CFR 32.2(e)

Options A, C, and D will not work for the following reasons: Overdrafts, standby letters of credit, and loans to a partnership (which are considered loans to the partners) would all be considered extensions of credit and this count in the lending limit to the borrower.  Option B involves a participation sold without recourse to the selling bank or association, which would not be counted in the lending limit to the borrower.

Friendly Savings Association has made loans to ABC Co., Inc., and several of its subsidiaries.  The association does not believe that the loans have to be combined under the common enterprise test.  To what lending limit, if any, does the association have to adhere in its lending to ABC Co., Inc., and its subsidiaries?

A. None.  If the loans can be combined, there is no limit on the group as a whole, only separately

B. 15% of the association’s capital and unimpaired surplus

C. 10% of the association’s capital and unimpaired surplus

D. 50% of the association’s unimpaired capital and unimpaired surplus

D. 50% of the association’s unimpaired capital and unimpaired surplus

12 CFR 32.5(b)(3)

Venture Ltd. is a limited partnership.  ABC Corp. is a general partner of Venture Ltd.  In addition, Venture Ltd. has several limited partners, including XYZ, Inc., a subsidiary of ABC Corp.  ABC Corp. is owned by Holding Company, Inc., and both ABC Corp. and XYZ, Inc., were chartered for and are principally engaged in providing services to Holding Company, Inc., an equipment manufacturing company.  ABC Corp., XYZ, Inc., and Venture Ltd. all have loans with Sanderson Savings Association.  Which, if an, of the loans must be combined?

A. ABC Corp. and XYZ, Inc. only

B. ABC Corp., XYZ, Inc., and Venture Ltd.

C. ABC Corp. and Venture Ltd. only

D. None of the loans must be combined

B. ABC Corp., XYZ, Inc., and Venture Ltd.

12 CFR 32.5 and 12 CFR 560.93(c)

Because ABC Corp. is a general partner of Venture Ltd., loans to Venture and ABC must be combined under the partnership rules.  XYZ and ABC must be combined under the common enterprise test.  Each receives revenue from the same source (Holding Company) and therefore the source of repayment is probably the same.  Also, each exists simply to provide services to the same company, and they are therefore financially interdependent.

First National Bank had a legal lending limit of $150,000.  On March 1 it had outstanding to ABC Company loans equaling $100,000.  On that same day, it made a contractual commitment to lend to ABC Company another $50,000.  The bank’s capital base deteriorated during the next three months, and by the time the bank was called on to fund its commitment to ABC Company, its lending limit had dropped to $125,000.  Can the bank fulfill its commitment to ABC Company by lending the additional $50,000?

A. Yes, but only if it immediately sells a participation for $25,000 without recourse.

B. No.  The bank’s lending limit has dropped, and the loan cannot be funded.

C. Yes.  Because the commitment was legal when it was made, it is still legal.

D. No, not unless ABC Company secures the additional $50,000 with readily marketable collateral.

C. Yes.  Because the commitment was legal when it was made, it is still legal.

12 CFR 32.6

What is the purpose of the lending limit regulation?

A. To ensure that banks and savings associations do not lend out more money than they receive from depositors.

B. To promote safety and soundness by preventing an excessive amount of loans to one person or related persons

C. To promote competition between lending institutions

D. To require banks and savings associations to prohibit lending to certain identified industries

B. To promote safety and soundness by preventing an excessive amount of loans to one person or related persons

12 CFR 32.1(b)

How often must a national bank or savings association calculate its lending limit?

A. Every day

B. At the end of each quarter or when its capital changes

C. Every time it files its Consolidated Report of Condition and Income (call report)

D. At the end of each month

B. At the end of each quarter or when its capital changes

12 CFR 32.4

Which of the following is exempt from the lending limit rules?

A. Residential housing loans

B. Derivative transactions

C. Securities borrowing

D. An eligible bankers acceptance

D. An eligible bankers acceptance

12 CFR 32.3(c)

As a general rule, how is the lending limit for a national bank or savings association BEST described?

A. 15% of capital and surplus for unsecured loans, up to an additional 10% of capital and surplus for loans fully secured by marketable collateral, and no limit on loans permitted by exception

B. 15% of capital and surplus for unsecured loans or 25% of capital and surplus for a combination of unsecured loans, loans fully secured by marketable collateral, and loans permitted by exception

C. 15% of net surplus for unsecured loans, 10% of net surplus for loans fully secured by marketable collateral, and no limit on loans permitted by exception

D. 25% of total capital and surplus for all loans

A. 15% of capital and surplus for unsecured loans, up to an additional 10% of capital and surplus for loans fully secured by marketable collateral, and no limit on loans permitted by exception

12 CFR 32.3(a) and 32.2(n)

To which of the following do national bank and savings association lending limit rules apply?

A. Loans secured by savings bonds

B. Loans secured by Treasury bills

C. Loans secured by third-party guarantees

D. Loans secured by customer deposits

C. Loans secured by third-party guarantees

12 CFR 32.3(k)(2), 32.3(c)(6)(i), and 12 CFR 32.3(c)

The loans mentioned in the other alternatives are specifically exempted from coverage of the lending limit rules.