8526 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

derived by subtracting the estimated

1994–95 marketing year trade demand

of 1,150,000 pounds from the revised

1994–95 marketing year total available

supply of 1,306,733 pounds.

(B) Estimated trade demand (domestic

and export) for the 1995–96 marketing

year—1,050,000 pounds. This number is

an estimate based on the average of total

annual sales made between 1980 and

1993, handler estimates, and

information provided by producers and

buyers.

(C) Salable quantity required from

1995–96 regulated production—893,267

pounds. This number is the difference

between the estimated 1995–96

marketing year trade demand and the

estimated carry-in on June 1, 1995.

(D) Total allotment base for the 1995–

96 marketing year—1,970,542 pounds.

(E) Computed allotment percentage—

45.3 percent. This percentage is

computed by dividing the required

salable quantity by the total allotment

base.

(F) Recommended allotment

percentage—46 percent.

(G) The Committee’s recommended

salable quantity—906,449 pounds.

The salable quantity is the total

quantity of each class of oil which

handlers may purchase from or handle

on behalf of producers during a

marketing year. Each producer is

allotted a share of the salable quantity

by applying the allotment percentage to

the producer’s allotment base for the

applicable class of spearmint oil.

The Committee’s recommended

salable quantities of 908,531 pounds

and 906,449 pounds, and allotment

percentages of 51 percent and 46

percent for Scotch and Native spearmint

oils, respectively, are based on

anticipated 1995–96 marketing year

supply and trade demand.

The recommended salable quantity

and allotment percentage for Native

spearmint oil reflects the Committee’s

expectation that demand during the

1995–96 marketing year will

approximate the demand initially

anticipated for the 1994–95 marketing

year. On the other hand, the relatively

higher recommended salable quantity

and allotment percentage for Scotch

spearmint oil for the 1995–96 marketing

year demonstrates that the Committee is

concerned with the increasing Scotch

spearmint oil production both inside

and outside the marketing order

production area, and the industry’s

desire to maintain a significant share of

the North American market.

These salable quantities are not

expected to cause a shortage of

spearmint oil supplies. Any

unanticipated or additional market

demand for spearmint oil which may

develop during the marketing year can

be satisfied by an increase in the salable

quantity. Both Scotch and Native

spearmint oil producers who produce

more than their annual allotments

during the 1994–95 season may transfer

such excess spearmint oil to a producer

with spearmint oil production less than

his or her annual allotment or put it into

the reserve pool.

This regulation, as adopted, will be

similar to those which have been issued

in prior seasons. Costs to producers and

handlers resulting from this final action

are expected to be offset by the benefits

derived from improved returns.

The establishment of these salable

quantities and allotment percentages

allows for anticipated market needs

based on historical sales, changes and

trends in production and demand, and

information available to the Committee.

Adoption of this final rule also provides

spearmint oil producers with

information on the amount of oil which

should be produced for next season.

The proposed rule concerning this

action was published in the December

15, 1994, Federal Register [59 FR

64624], with a 30-day comment period

ending January 17, 1995. No comments

were received.

Based on available information, the

Administrator of the AMS has

determined that the issuance of this

final rule will not have a significant

economic impact on a substantial

number of small entities.

After consideration of all relevant

matter presented, including the

information and recommendations

submitted by the committee and other

available information, it is hereby found

that this rule, as hereinafter set forth,

will tend to effectuate the declared

policy of the Act.

List of Subjects in 7 CFR Part 985

Marketing agreements, Oils and fats,

Reporting and recordkeeping

requirements, Spearmint oil.

For the reasons set forth in the

preamble, 7 CFR Part 985 is amended as

follows:

PART 985—SPEARMINT OIL

PRODUCED IN THE FAR WEST

1. The authority citation for 7 CFR

Part 985 continues to read as follows:

Authority: 7 U.S.C. 601–674.

2. A new section 985.214 is added to

read as follows:

Note: This section will not appear in the

annual Code of Federal Regulations.

§ 985.214 Salable quantities and allotment

percentages—1995–96 marketing year.

The salable quantity and allotment

percentage for each class of spearmint

oil during the marketing year beginning

on June 1, 1995, shall be as follows:

(a) Class 1 (Scotch) oil—a salable

quantity of 908,531 pounds and an

allotment percentage of 51 percent.

(b) Class 3 (Native) oil—a salable

quantity of 906,449 pounds and an

allotment percentage of 46 percent.

Dated: February 8, 1995.

Sharon Bomer Lauritsen,

Deputy Director, Fruit and Vegetable Division.

[FR Doc. 95–3785 Filed 2–14–95; 8:45 am]

BILLING CODE 3410–02–P

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the

Currency

12 CFR Part 32

[Docket No. 95–03]

RIN 1557–AA72

Lending Limits

AGENCY: Office of the Comptroller of the

Currency, Treasury.

ACTION: Final rule.

SUMMARY: The Office of the Comptroller

of the Currency (OCC) is

comprehensively revising its rules

governing national bank lending limits

as part of its Regulation Review

Program. The final rule amends,

clarifies, and reorganizes the OCC’s

lending limit rules.

The final rule eliminates inefficient

and unduly burdensome regulatory

requirements and refocuses the lending

limit rules on the areas of greatest safety

and soundness concern. The new rule

enhances the ability of national banks to

lend while protecting against situations

where excessive loans to a borrower or

related borrowers present safety and

soundness concerns.

EFFECTIVE DATE: March 17, 1995.

FOR FURTHER INFORMATION CONTACT:

William C. Kerr, National Bank

Examiner, or Frank R. Carbone, National

Bank Examiner, Credit and Management

Policy, (202) 874–5170; P. Moni

SenGupta, Attorney Legislative and

Regulatory Activities Division, (202)

874–5090; Aline J. Henderson, Senior

Attorney, or Laura G. Goldman,

Attorney, Bank Activities and Structure

Division, (202) 874–5300; Office of the

Comptroller of the Currency, 250 E St.

SW, Washington, D.C. 20219.
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8527

1Act of Feb. 25, 1863, 12 Stat. 665 et seq., R.S.

§ 5200.

SUPPLEMENTARY INFORMATION:

Background

Although the limitations on a national

bank lending to one borrower can be

traced to the Currency Act of 1863,1 the

Garn-St Germain Depository Institutions

Act (Act), Pub. L. 97–320 (1982),

represents the most recent major

revision of the statutory lending limits.

Section 401(a) of that Act amended 12

U.S.C. 84 to raise the amount that a

national bank may lend to a single

borrower from 10 to 15 percent of the

bank’s unimpaired capital and

unimpaired surplus. It also added new

exceptions, defined key terms, and

provided express authority for the OCC

to issue regulations to implement the

statute, including regulations to define

or further define terms and to establish

limits or requirements other than those

contained in the statute for particular

classes or categories of loans.

The OCC implemented the amended

12 U.S.C. 84 with a final rule published

on April 12, 1983 (48 FR 15844). The

final rule created a new part 32 in title

12 of the Code of Federal Regulations

which replaced and restructured

existing interpretive rulings previously

found at 12 CFR part 7. The OCC

proposed another major regulatory

revision of the lending limits for

national banks on October 24, 1989 (54

FR 43398). A final rule in response to

this proposal was never adopted,

however.

The Proposal

On February 11, 1994 the OCC

published its proposal to revise the

lending limit regulation found at 12 CFR

part 32 (proposal), 59 FR 6593, as part

of the OCC’s Regulation Review

Program. The proposal sought to

modernize the regulation and

incorporate into the rule significant

interpretive positions of the OCC. The

proposal sought to comprehensively

revise, reorganize, update, and simplify

the regulation, and to reduce

unnecessary regulatory burdens,

without compromising the important

safety and soundness objectives of the

lending limits rule.

Comments Received and Changes Made

The final rule implements most of the

initiatives contained in the proposal.

However, several additional changes are

made in response to the comments

received. Most of these changes clarify

the original intent of the proposal. Other

changes alter the proposed regulation in

a manner that provides additional

flexibility to banks. The final rule also

includes a number of technical changes

to the proposal.

The OCC received 28 comment letters

on the proposal. The comments received

generally were very favorable. Comment

letters included 16 from banks and bank

holding companies, three from law

firms, and eight from trade associations

and the representatives of banks, thrifts,

home builders, and clearing houses. The

commenters welcomed the OCC’s effort

to reorganize part 32 and several stated

that the changes made in the proposal

represented a significant improvement

over the old rule. Commenters generally

praised the new format and the

additional clarity provided by the

revisions. Some predicted that the

simplified regulation would reduce

regulatory burden and compliance costs.

Overview of the Final Rule

The OCC reviewed the lending limit

rule with the goals of reducing

unnecessary regulatory burdens and

providing banks with increased

flexibility in their lending operations,

consistent with safe and sound banking

practices.

As part of this new approach, the final

rule alters the definition of ‘‘capital and

surplus’’ upon which lending limits are

based. The new lending limit

calculation draws upon risk-based

capital components that a bank must

already calculate for Call Report

purposes. By relying on quarterly Call

Report information, most national banks

generally will be required to calculate

their lending limit only once every

quarter, rather than every time they

propose to make a loan.

The final rule also adds a few new

definitions and removes or consolidates

old ones to enhance the regulation’s

clarity. Several modifications provide

banks with greater flexibility in certain

lending situations, subject to safety and

soundness parameters. For example, the

rule includes a new exception to the

lending limits to allow a bank to

advance funds to renew and complete

the funding of a qualifying loan

commitment under circumstances

where the additional advance will

protect the position of the bank. The

final rule also allows a bank to advance

funds to pay for taxes, insurance and

other necessary expenses to protect its

interest in the collateral securing a loan,

and clarifies when a loan is considered

‘‘nonconforming,’’ rather than a

violation, when it exceeds a bank’s

lending limit, but was within the bank’s

lending limit when made.

Section-by-Section Discussion

The commenters focused on

provisions of the proposal needing

modification or further amendment. The

OCC carefully considered each of the

comment letters and has made a number

of changes in response. Those

comments and any changes are

identified and explained in the sectionby-section discussion that follows. A

table summarizing the sections of the

former part 32 that are amended by the

final rule is included at the end of this

preamble.

Authority, Purpose and Scope (§ 32.1)

The proposal amended the ‘‘Purpose’’

paragraph to expressly incorporate the

objectives of safety and soundness, loan

diversification, and equitable access to

banking services. The final rule adds to

the ‘‘Scope’’ paragraph new language

cautioning bank management that the

lending limit rule is not a ‘‘safe harbor’’

for lending.

The ‘‘Scope’’ paragraph emphasizes

that the lending limit rules are only one

component of a prudent lending

program. National banks must always

underwrite loans in accordance with

prudent banking practices, in addition

to adhering to specific quantitative

limitations such as the lending limits.

Several commenters remarked that the

OCC should amend the lending limits

provisions to recognize the existence of

limited liability companies as bank

subsidiaries, comparable to operating

subsidiaries. Treatment of limited

liability companies as operating

subsidiaries is an issue raised in the

OCC’s proposed changes to Part 5 of its

regulations, and the OCC believes the

question is better resolved in that

context. (59 FR 61034, November 29,

1994.) In the interim, however, when a

bank seeks permission to invest in a

limited liability company as a

subsidiary, and the bank’s voting

interest satisfies the operating

subsidiary percentage control

requirements, the bank may also seek

confirmation that loans by the bank to

the limited liability company subsidiary

will be treated in the same way as loans

to an ‘‘operating subsidiary’’ for

purposes of lending limits.

Definitions (§ 32.2)

The proposal consolidated all the

definitions located throughout the

existing rule into a single section.

Commenters raised questions about

some of the revisions and additions

made to the definitions. Of particular

note are the following revisions.
8528 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

Capital and Surplus (§ 32.2(b))

Under the former rule, the statutory

lending limit of 15% of capital was

applied to a definition of capital found

in 12 CFR § 3.100. The § 3.100

definition serves as the capital base for

certain other regulatory limitations,

such as limits on purchasing investment

securities, holding property and OREO,

and investing in community

development corporations. The § 3.100

capital definition is separate and

different from the leverage and riskbased capital formulae used to

determine banks’ capital adequacy.

In order to reduce regulatory burden

associated with calculating lending

limits and to begin the process of

reducing the multiple definitions of

capital currently in use, the proposal

changed the definition of capital and

surplus used for lending limits purposes

by employing a capital calculation that

all banks already make. Under the

proposal, a bank’s basic lending limit

would be an amount equal to 15% of the

sum of its allowed Tier 1 and Tier 2

capital, plus the balance of its allowance

for loan and lease losses (ALLL) not

included in Tier 2 capital for the bank’s

risk-based capital calculation. For

simplicity, the proposal used the

terminology ‘‘capital and surplus’’

rather than the statutory terms

‘‘unimpaired capital and unimpaired

surplus.’’

The commenters generally favored

this approach to the capital definition,

however, some expressed concern that

the approach needed to be clarified. The

new capital base for calculation of the

limit in the proposal appeared to some

commenters to be the sum of all Tier 1

elements and all Tier 2 elements,

whether or not they exceeded the

amounts that could be included in a

bank’s risk-based capital. The final rule

adopts the proposed capital and surplus

definition but with an amendment to

clarify that only the amount of Tier 1

and Tier 2 capital that is actually

included in a bank’s risk-based capital

(plus the excess ALLL) is allowed in the

bank’s lending limit capital base.

Loans and Extensions of Credit

(§ 32.2(j))

The commenters generally favored the

proposed amendments to the definition

of loans and extensions of credit, now

found at § 32.2(j), which incorporates

significant OCC interpretive positions

clarifying the term. Section 32.2(j)(1)(iii)

adds the requirement that in order to

exclude a bank’s purchase of Type I

securities subject to a repurchase

agreement, a bank must have assured

control over or established rights to the

securities.

Some commenters requested

additional clarification of the meaning

of ‘‘assured control.’’ Assured control

means that the bank has recognized and

exercisable authority over the asset. For

example, a bank can assure control of

property subject to a repurchase

agreement by taking physical possession

of the security or by requiring a proper

recordation of ownership of book-entry

securities.

Section 32.2(j)(1)(v) excludes all intraday or daylight overdrafts from the

definition of an extension of credit.

Several commenters questioned whether

the terms ‘‘intra-day’’ or ‘‘daylight’’

were sufficiently adaptable for an

increasingly complex and international

payments system. As the commenters

point out, more and more banks operate

across several time zones. The financial

payments systems are now global

systems spanning many time zones.

With this in mind, several commenters

suggested that the final rule adapt the

meaning of a ‘‘daylight’’ overdraft to

contemporary conventions. The OCC

believes these concerns have merit and

the final rule drops the reference to

‘‘daylight’’ and simplifies the definition.

Intra-day overdrafts excluded from the

final rule are those overdrafts for which

payment is received before the bank

closes its books for the calendar day.

This change recognizes the reality of a

rapidly expanding payments system that

may eventually run 24 hours a day and

looks to each bank’s practice for closing

its books for the calendar day.

Loans Legally Unenforceable

Section 32.2(j)(1)(vii) of the proposal

was intended to incorporate OCC

interpretive letters that elaborated on

former § 32.106, that certain loans that

become legally unenforceable would not

be counted in calculating a bank’s

lending limit. One commenter observed

that in attempting to incorporate the

OCC interpretive letters, the proposal

effectively narrowed the effect of the

interpretive ruling by excluding from

lending limit calculations only loans

that are discharged in bankruptcy, or by

judicial decision or statute, and not

excluding loans that are legally

unenforceable ‘‘for any other reason.’’

The final rule returns to the scope of

the original OCC interpretive ruling.

Under the final rule, a loan (or a portion

thereof) that becomes legally

unenforceable for any reason and has

been charged off on a bank’s books, is

not considered a loan or extension of

credit. As a matter of prudent banking

practice, the OCC expects that banks

will keep sufficient documentation to

show why loans are legally

unenforceable. These records may

include letters, memoranda, or written

agreements that evidence the bank’s

legally enforceable forgiveness of a loan.

The financial records of the bank also

should reflect that the loan has been

charged off.

Advances for the Benefit of the

Borrower

As proposed, § 32.2(j)(2)(i) exempts

from the definition of ‘‘loans and

extensions of credit’’ additional funds

advanced to a borrower by a bank for

taxes or insurance if the advance is

made for the protection of the bank. The

purpose of this exemption was to allow

banks to preserve the value of the

collateral securing a loan. The proposal

requested that commenters address

whether advances made for other

purposes should be similarly exempted

from the definition of loans and

extensions of credit. Commenters

responded that the purpose of the

exemption is served by allowing an

advance for any purpose that protects

the collateral.

The OCC carefully considered the

comments received on this issue. The

OCC recognizes that there may be

situations when an advance on behalf of

a troubled borrower could help the

lending bank avoid greater expenses

after foreclosure. For example, an

advance for the purpose of repairing a

leaking roof is more cost effective than

waiting until after foreclosure which

leads to spending more money to restore

the value of water-damaged OREO.

However, using the exemption to

advance funds for building new

property would not be consistent with

the purpose of the exemption. The OCC

also has concerns that banks reasonably

anticipate a borrower’s need to fund

various expenses in determining the

appropriate size of the loan that a bank

is able to extend and that the exemption

not create incentives for borrowers to

divert or reclassify spending in order to

qualify larger portions of their credit

needs for the exemption.

Nevertheless, the OCC believes that a

moderate extension of the exemption to

allow advances to pay for more than

taxes and insurance is appropriate,

provided that the expenses have not

been structured to avoid a bank’s

lending limits. The final rule therefore

exempts from the lending limit

reasonable advances made on behalf of

the borrower to pay for necessary

maintenance and certain other

expenditures when an advance is

consistent with safe and sound banking

practices and designed to protect the

lending bank’s interest in the collateral.
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8529

As before, these advances will be treated

as an extension of credit and taken into

account in calculating the bank’s

lending limit if the bank seeks to make

an additional loan to the same borrower.

Accrued and Discounted Interest

Section 32.2(j)(2)(ii) of the proposal

clarified the type of accrued and

discounted interest that would qualify

for an exclusion from the definition of

‘‘loans and extensions of credit’’. The

proposal also provided, however, that

accrued and discounted interest would

be treated as an extension of credit if a

bank sought to make another loan to the

borrower.

Several commenters, particularly

large banks with loans to foreign

governments, objected to this provision

of the paragraph. One commenter stated

that this provision would be a major

problem for banks seeking to restructure

loans to foreign governments with

substantial accrued interest. The

proposed provision could severely

impair a bank’s ability to participate in

any new extensions of credit in

connection with that type of sovereign

debt restructuring. Other commenters

pointed to the 1982 Garn-St Germain

amendments, Pub. L. 97–320 (1982),

which changed the language of 12

U.S.C. 84 from ‘‘total obligations’’ of a

borrower to ‘‘loans and extensions of

credit’’. These commenters argued that

the 1982 amendment reflects a shift in

the focus of the statute. They argued

that the 1982 amendment confirms that

§ 84 is not directed to interest that is

contractually due but is intended to

limit only the funds that actually leave

the bank in the form of principal. In

short, these commenters believe that the

lending limits apply to money loaned,

not money owed.

The OCC believes these comments

have merit. In order to provide greater

flexibility to banks seeking to improve

their recoveries through loan work-outs

and restructured loans with troubled

debtors, the final rule modifies the

OCC’s previous approach. Under the

final rule, a bank need not attribute

past-due or accrued interest to a

borrower for purposes of the lending

limit. However, as already noted, all

loans made by a national bank must be

underwritten in accordance with

prudent banking practices, in addition

to adhering to specific quantitative

limitations such as the lending limits.

National banks therefore should

consider the possibility of unscheduled

interest accruals in determining the

amount of the bank’s original extension

of credit, and also must bear the prudent

banking practices standard in mind

when extending additional credit to a

borrower with past-due or accrued

interest.

Renewals

The proposal incorporated an OCC

interpretive position that excludes from

the definition of ‘‘loans and extensions

of credit’’ certain loan renewals or

restructurings if the bank first exercised

‘‘best efforts’’ to bring the loan into

conformity with its lending limit.

Several commenters questioned whether

the use of the term ‘‘best efforts’’ sets a

standard that is too high to provide any

practical application. The OCC agrees

and the final rule uses the term

‘‘reasonable’’ efforts, which better

reflects the OCC expectation and the

original intent of the proposed

amendment.

Items in the Process of Collection

The OCC has generally taken the

interpretive position that giving credit

for uncollected items is a loan or an

extension of credit. However, under the

proposal, the OCC also created an

exception for instances where payment

is required by Regulation CC of the

Federal Reserve Board, 12 CFR part 229.

Regulation CC specifies certain time

frames within which funds must be

made available. Several commenters

correctly pointed out that although the

intent of the proposal was to provide

additional flexibility, the effect of the

change did not achieve that result. In

fact, the proposal may have prevented a

bank from giving credit for an

uncollected item prior to the day stated

in the mandatory availability schedule

in Regulation CC, by requiring the bank

to treat that advance as an extension of

credit.

The final rule amends this paragraph

by providing that amounts paid on

items in the normal process of

collection do not constitute a loan or

extension of credit. However, once an

item is returned or dishonored by the

paying bank, it no longer is in the

normal process of collection. Payment

by a bank against a dishonored item

would be an extension of credit.

Participation Loans

Section 32.2(j)(2)(vi) of the final rule

revises the proposal’s treatment of

participation loans. The proposal

incorporated interpretive positions

previously found at § 32.107 and

included a new provision requiring a

bank that originates a loan to receive

funding from the participants on the

same day. If the bank did not receive

participant funding on the same day, the

proposal required the bank to treat

unfunded portions as a loan from the

originating bank to the borrower. Many

commenters suggested that the OCC

eliminate the same-day funding

requirement because it is impractical.

The OCC disagrees with that contention

and believes the participant funding

provision is an important protection to

the originating bank that will help

ensure prompt funding by participants.

The commenters, however, correctly

point out that delays in the timing and

delivery in funding a participation are

not infrequent. The OCC does not

intend for inadvertent funding delays to

cause lending limit violations. The final

rule therefore extends the funding

period to provide a more realistic

timeframe to address temporary or

inadvertent funding errors. The final

rule provides that a participation loan is

not attributed to the originating bank if

it receives funding from the participants

before the close of business on the day

after it makes funds available to the

borrower. The final rule also sets forth

standards for an originating bank that, if

followed, shield the bank from a lending

limit violation in the event that a

participant fails to fund.

Special Lending Limits (§ 32.3(b))

Section 32.3(b)(3)(ii) of the proposal

required an inspection and valuation of

livestock that is ‘‘current, taking into

account the nature and frequency of

turnover of the livestock’’ in order to

qualify for the special lending limit for

loans secured by documents covering

livestock. Former part 32 required that

an ‘‘inspection and appraisal report’’ be

performed at least every 12 months or

more frequently as deemed prudent.

The proposal recognized the differences

in turnover between different kinds of

livestock that secure a loan. It removed

the presumption that an inspection and

appraisal report performed every 12

months is adequate.

Several commenters questioned this

change. The commenters read the

former rule to require an inspection

report only once every 12 months.

Although some commenters

characterized the proposal as more

burdensome than the old requirement,

the OCC believes it is not. In fact, the

former rule required an inspection and

appraisal report more frequently than

once a year, if it was prudent to do so.

The proposal actually reduced burden

by allowing the use of valuations, rather

than appraisals, when appropriate.

Recognizing the need for clarity,

however, the final rule includes the

requirement that an inspection or

valuation be made no less frequently

than every 12 months.

Section 32.3(b)(5) of the proposal also

provided a new exception to the lending

limits to enable a bank to renew a
8530 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

qualifying commitment to lend in order

to complete the financing of a project in

process. Under the proposal, the

advance had to be to protect the

position of the bank, and the amount of

additional advances could not exceed

the lesser of the unfunded portion of the

original commitment or 5 percent of the

bank’s capital and surplus. Commenters

generally supported this position.

Several suggested, however, that for the

exception to accomplish its intended

purpose, the OCC should allow the bank

to fund the full amount of the

commitment even if it was in excess of

the five percent cap.

The OCC believes that this suggestion

has merit, but is also concerned that full

funding of the original commitment

must not compromise a bank’s safety

and soundness. Accordingly, the final

rule modifies the approach contained in

the proposal to allow funding up to the

amount of the original commitment,

provided the renewal and additional

funding thereunder is consistent with

safe and sound banking practices, is

made to protect the bank’s position, and

will enable the borrower to complete the

project for which the original

commitment was made.

Section 32.3(b)(6) of the proposal was

not included in the final rule. This

paragraph set forth a special lending

limit that expired on January 1, 1995.

Since the section serves no purpose

after that date it is not incorporated into

the final rule.

Loans Exempt From the Lending Limit

(§ 32.3(c))

Section 32.3(c)(3) is revised in the

final rule. This paragraph provides that

loans collateralized by U.S. government

obligations are exempt from the lending

limits to the extent of the current market

value of the collateral. This exemption

includes loans that are secured by

bonds, notes, Treasury bills, or similar

obligations fully guaranteed as to

principal and interest by the full faith

and credit of the United States

Government. This exemption was the

subject of several commenter

suggestions that it be expanded to

include loans that are secured by

instruments with comparable

government backing. The OCC agrees

with these comments that certain other

forms of collateral that carry the full

faith and credit of the U.S. government

pose no greater risk of loss. Accordingly,

the final rule relies on the OCC’s

authority under 12 U.S.C. 84(d)(1) to

establish limits or requirements other

than those specified in the statute, for

particular classes or categories of loans,

to include an additional class of loans

in the exempt category—loans

guaranteed as to repayment of principal

by the full faith and credit of the U.S.

Government. This exemption includes

qualifying Small Business

Administration, Federal Housing

Administration, and Veterans

Administration guaranteed loans, but

only to the extent of the government

guarantee.

Some commenters suggested that the

final rule also extend this exemption to

loans that are secured by other types of

instruments. The OCC has carefully

considered these suggestions, but does

not agree that, as a general matter, the

principal and liquidity risks presented

by the suggested types of instruments

are sufficiently comparable to the risks

of directly holding the U.S. Government

securities, or government-backed loans.

Accordingly, the OCC declines to add

an additional category of collateral that

could qualify a loan for an exemption

from lending limits.

The final rule also modifies

§ 32.3(c)(10) of the proposal. As

proposed, this paragraph was intended

to incorporate OCC interpretive

positions on loans to leasing companies.

This paragraph allows banks to attribute

loans made to leasing companies to the

lessees when certain conditions are met.

The final rule includes minor changes to

ensure that the conditions for this

treatment are no more burdensome than

if the bank were to act as a lessor itself

subject to 12 CFR part 23. These

changes better convey the current OCC

interpretive position.

Frequency of the Lending Limit

Calculation (§ 32.4)

The former rule required a bank to

determine its lending limit for each loan

on the date that it made a loan. The

proposal simplified this requirement by

allowing a bank to rely on its quarterly

calculation of capital found in its Call

Report. Rather than calculate daily,

under the proposal the bank generally

could calculate the lending limit once

for the entire quarter. However, the OCC

was concerned that a significant decline

in capital between quarterly

calculations could result in a bank

lending at a level above its actual limit

for the duration of the quarter.

To prevent a bank from lending in

excess of a shrinking capital base, the

proposal required a bank to recalculate

its lending limit between quarters if

there were a change in its capital

category for purposes of prompt

corrective action, or if a ‘‘material

event’’ occurred that caused its capital

to increase or decrease by 10 percent or

more. However, it was recognized that

what constitutes a ‘‘material event’’ for

this trigger may not be readily defined.

Anticipating criticism of the material

event component, the proposal

suggested an alternative: a simple

increase or decrease of 10 percent in a

bank’s capital between quarters would

trigger the recalculation obligation.

Comment was mixed on both

approaches to the recalculation trigger.

Generally, commenters characterized

the ‘‘material event’’ element as too

vague to be useful. Many suggested that

a simple percentage test would be more

reliable and useful. Others questioned

whether a percentage test was needed

given the OCC’s general ability to

require more frequent calculations in

individual cases. The OCC finds these

arguments persuasive. The OCC has

concluded that the material event

element is too vague to give a reliable

indication of the need to recalculate. As

a result, the OCC has not included this

requirement in the final rule.

Imposing the requirement that a bank

recalculate whenever its capital

declined by 10 percent between quarters

is also problematic. Several commenters

observed that the obligation to monitor

the changes in capital between quarters

would give a bank little comfort that its

quarterly lending limit is valid for the

entire quarter. In effect the obligation to

monitor 10 percent swings in capital

could force a bank to make a daily

calculation of capital, not quarterly as

proposed. This result would be contrary

to the purpose of the proposed quarterly

calculation.

On the other hand, the OCC also

considered whether a quarterly

calculation would be inappropriate for

any identifiable subset of national

banks, such as banks that are

undercapitalized. The OCC determined

not to include a different lending limit

calculation frequency requirement for

undercapitalized banks as a class,

however, because the OCC anticipates

that such banks will be subject to

enhanced supervisory oversight and

directives that will address the

frequency of the bank’s lending limit

calculations in those cases where

lending limit excesses are a potential

problem. (For example, a bank could be

undercapitalized for reasons unrelated

to its lending activities, or could have

poor underwriting practices and losses

on loans and raise no lending limits

issues). The OCC closely monitors

undercapitalized banks, however, and

will make appropriate adjustments to

the frequency of required lending limit

calculations for such banks if

experience indicates that a general

standard for undercapitalized banks is

needed.

The final rule, therefore, deletes the

10 percent recalculation requirement
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8531

but retains the explicit authority for the

OCC to require a national bank to

calculate its lending limits more

frequently than every quarter when the

OCC believes it is necessary. The OCC

therefore may address unsafe or

unsound lending practices or other

supervisory concerns by directing any

bank to calculate its lending limit more

frequently than quarterly. This authority

is set forth in § 32.4(b).

Direct Benefit Test (§ 32.5(b))

Section 32.5(b) requires a loan to be

attributed to a third party if the third

party gains the direct benefit of the loan

proceeds. The proposal narrowed the

direct benefits tests to clarify that loans

are not attributable to a third party

when the loan proceeds are transferred

to the third party to acquire property,

goods, or services in a bona-fide armslength transaction.

The proposal requested comment on

the question of whether the direct

benefits test was necessary. Several

commenters argued that it was not.

Some commenters suggested that the

common enterprise test addresses most,

and possibly all, circumstances that

involve the less than a bona fide armslength transactions that is the focus of

the direct benefits test. The OCC has

carefully considered these comments

but has concluded that the direct

benefits test uniquely addresses an area

of concern in the lending limits area.

The final rule therefore retains the test

but with one change, designed to

improve certainty regarding the

application of the test. The ‘‘facts and

circumstances’’ provision of the direct

benefits test is removed. The OCC

believes this part of the test was

redundant and potentially confusing.

Common Enterprise Test (§ 32.5(c))

The final rule adopts the common

enterprise test largely as stated in the

proposal. The common enterprise test

requires the aggregation of loans made

to persons who are related through

common control and financial

interdependence or share a common

source of income for repayment of the

loan, or whenever the OCC determines

the ‘‘facts and circumstances’’ requires

aggregation. Most commenters

characterized the proposed language as

a much improved restatement of the test

that was easier to understand. Some

commenters requested further

amendments, alterations, and extension

of the rule.

The OCC has not adopted most of the

suggestions. Many of the commenters’

suggestions for change would have

undermined the effectiveness of this

combination rule. Most of the suggested

changes would not have provided much

additional clarity. Others risked

diminishing the effectiveness of the

rule. Although the common enterprise

test may be somewhat complex to apply

to certain corporate structures, the OCC

has concluded that, on balance, it is an

effective description of the varied

circumstances when loans to separate

borrowers should be combined because

they present a common source of credit

exposure for a bank.

The final rule makes changes to

§ 32.5(c)(3), to clarify that the rule

requires combination of only those

loans that the borrowers use for the

acquisition of a controlling interest in a

business. The final rule also specifically

clarifies that limited liability companies

will be treated in the same manner as

corporations, rather than as

partnerships, in applying the common

enterprise test.

Nonconforming Loans (§ 32.6)

The proposal incorporated OCC

policy that a bank will not be deemed

to violate the lending limits when a loan

that was legal when made becomes

nonconforming as a result of several

specifically defined events, provided

the bank exercises ‘‘best efforts’’ to bring

the loan into conformity with the

lending limit. A number of commenters

objected that the ‘‘best efforts’’ standard

was too high. Some commenters pointed

out that using best efforts to reduce a

nonconforming loan could pose certain

safety and soundness risks to a bank.

For example, if a bank holds a loan that

was legal when made and subsequently

the bank’s capital declines, the best

efforts standard might require that the

bank sell the loan off at any price. This

forced sale only causes the bank to lose

an asset during a period that its capital

is in decline. The OCC did not intend

this result of the proposed

nonconforming loan provisions.

In response to commenter concerns,

the final rule replaces the term ‘‘best

efforts’’ with the term ‘‘reasonable

efforts’’. The OCC believes this standard

more accurately reflects the level of

effort appropriate to bring a loan into

conformance with a bank’s current

lending limits. The final rule also makes

clear that the section does not require a

bank to make efforts to bring the loan

into conformity if to do so would be

inconsistent with safe and sound

banking practices. In addition, the final

rule adds that loans that exceed a bank’s

lending limit as a result of changes in

the capital rules or because borrowers

subsequently become a common

enterprise will be treated as

nonconforming.

Finally, in response to commenters,

the final rule changes the treatment of

loans that qualify for a lending limit

exemption because they are secured by

certain collateral, such as U.S.

government obligations. Under the

former rule, as well as the proposal, a

national bank was required to bring a

loan into conformity through restoration

of the market value of the collateral or

by reducing the amount of the bank’s

loan by the amount that exceeds the

lending limit within five business days.

Several commenters characterized the

five day correction period as arbitrary

and unrealistic.

The OCC recognizes that there are

circumstances beyond the bank’s

control which might cause a loan of this

type to violate the lending limit,

because of a decline in collateral value.

Instead of the five day period, the final

rule requires that a bank bring these

loans into conformity within 30

calendar days. During that 30 day

period, the loan will be treated as nonconforming. The OCC believes this

change will provide a more realistic

period to enable a bank to address

restoration of proper collateral for a loan

without forcing a precipitous divestiture

of all or part of the loan that would not

be in the best interests of the bank.

Effective Date

Section 302 of the Riegle Community

Development and Regulatory

Improvement Act of 1994, 12 U.S.C.

4802, requires that a regulation that

imposes new requirements take effect

on the first day of the quarter following

publication of the final rule. That

section provides, however, that an

agency may determine that the rule

should take effect earlier.

The OCC believes that this regulation

relieves burden by eliminating

inefficient and unduly costly regulatory

requirements and better focusing the

lending limit rules on areas of greatest

safety and soundness concern. These

revisions to part 32 should not be

further delayed. Accordingly, the final

rule is effective 30 days after

publication.

Derivation Table

Only substantive modifications,

additions and changes are indicated.
8532 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

Revised provision Existing provision Comments

§ 32.1 ....................................................................................................................................... § 32.1, § 32.111 ................ Modified.

§ 32.2(a) ................................................................................................................................... § 32.101 ............................ Added and modified.

(b) ...................................................................................................................................... § 32.2(c) ............................ Significant change.

(c) ...................................................................................................................................... ........................................... Added.

(d) ...................................................................................................................................... § 32.6(h)(3) ........................

(e) ...................................................................................................................................... § 32.6(h)(4) ........................

(f) ....................................................................................................................................... § 32.2(d) ............................

(g) ...................................................................................................................................... § 32.5(a)(2)(v) ................... Modified.

(h) ...................................................................................................................................... § 32.4(b) ............................

(i) ....................................................................................................................................... § 32.4(c) and (e) ...............

(j)(1)(i) ............................................................................................................................... § 32.2(a) ............................

(j)(1)(ii) .............................................................................................................................. § 32.2(a) ............................

(j)(1)(iii) .............................................................................................................................. § 32.103 ............................ Modified.

(j)(1)(iv) ............................................................................................................................. § 32.104 ............................ Modified.

(j)(1)(v) .............................................................................................................................. § 32.105 ............................

(j)(1)(vi) ............................................................................................................................. § 32.102(b) ........................

(j)(1)(vii) ............................................................................................................................. § 32.106 ............................ Modified.

(j)(2)(i) ............................................................................................................................... ........................................... Added.

(j)(2)(ii) .............................................................................................................................. § 32.108 ............................ Modified.

(j)(2)(iii) .............................................................................................................................. ........................................... Added.

(j)(2)(iv) ............................................................................................................................. ........................................... Added.

(j)(2)(v) .............................................................................................................................. ........................................... Added.

(j)(2)(vi) ............................................................................................................................. § 32.107 ............................ Significant change.

(k) ...................................................................................................................................... § 32.2(b) ............................ Modified.

(l) ....................................................................................................................................... § 32.2(f) .............................

(m) ..................................................................................................................................... § 32.4(c) ............................

(n) ...................................................................................................................................... § 32.6(c)(3) ........................

(o) ...................................................................................................................................... § 32.102(a) ........................

(p) ...................................................................................................................................... § 32.2(e) ............................

§ 32.3(a) ................................................................................................................................... § 32.3, § 32.4 .................... Modified.

(b)(1) ................................................................................................................................. § 32.6(c) ............................

(b)(2) ................................................................................................................................. § 32.6(h) ............................ Modified.

(b)(3) ................................................................................................................................. § 32.6(i)(1) ......................... Modified.

(b)(4) ................................................................................................................................. § 32.6(i)(2) .........................

(b)(5) ................................................................................................................................. ........................................... Significant addition.

(c)(1) ................................................................................................................................. § 32.6(a) ............................

(c)(2) ................................................................................................................................. § 32.6(b) ............................

(c)(3) ................................................................................................................................. § 32.6(d) ............................ Significant change.

(c)(4) ................................................................................................................................. § 32.6(e) ............................

(c)(5) ................................................................................................................................. § 32.109 ............................

(c)(6) ................................................................................................................................. § 32.6(f) ............................. Modified.

(c)(7) ................................................................................................................................. § 32.6(g) ............................

(c)(8) ................................................................................................................................. § 32.6(j) .............................

(c)(9) ................................................................................................................................. § 32.110 ............................

(c)(10) ............................................................................................................................... ........................................... Added.

§ 32.4 ....................................................................................................................................... ........................................... Significant addition.

§ 32.5(a) ................................................................................................................................... § 32.5(a)(1) ........................

(b) ...................................................................................................................................... ........................................... Significant change.

(c) ...................................................................................................................................... § 32.5(a)(2) ........................ Modified.

(d) ...................................................................................................................................... § 32.5(b) ............................ Modified.

(e) ...................................................................................................................................... § 32.5(c) ............................

(f) ....................................................................................................................................... § 32.5(d) ............................

§ 32.6 ....................................................................................................................................... § 32.7 ................................ Modified.

Regulatory Flexibility Act

Pursuant to section 605(b) of the

Regulatory Flexibility Act, the

Comptroller of the Currency certifies

that the final rule will not have a

significant economic impact on a

substantial number of small entities.

Accordingly, a regulatory flexibility

analysis is not required. This regulation

will reduce the regulatory burden on

national banks, regardless of size, by

simplifying and clarifying existing

regulatory requirements.

Executive Order 12866

The OCC has determined that this

document is not a significant regulatory

action as defined in Executive Order

12866.

List of Subjects in 12 CFR Part 32

National banks, Reporting and

recordkeeping requirements.

Authority and Issuance

For the reasons set out in the

preamble, part 32 of chapter I of title 12

of the Code of Federal Regulations is

revised to read as follows:

PART 32—LENDING LIMITS

Sec.

32.1 Authority, purpose and scope.

32.2 Definitions.

32.3 Lending limits.

32.4 Calculation of lending limits.

32.5 Combination rules.

32.6 Nonconforming loans.

Authority: 12 U.S.C. 1 et seq., 84, and 93a.

§ 32.1 Authority, purpose and scope.

(a) Authority. This part is issued

pursuant to 12 U.S.C. 1 et seq., 12 U.S.C.

84, and 12 U.S.C. 93a.

(b) Purpose. The purpose of this part

is to protect the safety and soundness of
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8533

national banks by preventing excessive

loans to one person, or to related

persons that are financially dependent,

and to promote diversification of loans

and equitable access to banking

services.

(c) Scope. (1) This part applies to all

loans and extensions of credit made by

national banks and their domestic

operating subsidiaries. This part does

not apply to loans made by a national

bank and its domestic operating

subsidiaries to the bank’s ‘‘affiliates,’’ as

that term is defined in 12 U.S.C.

371c(b)(1), to the bank’s operating

subsidiaries, or to Edge Act or

Agreement Corporation subsidiaries.

(2) The lending limits in this part are

separate and independent from the

investment limits prescribed by 12

U.S.C. 24 (Seventh), and a national bank

may make loans or extensions of credit

to one borrower up to the full amount

permitted by this part and also hold

eligible securities of the same obligor up

to the full amount permitted under 12

U.S.C. 24 (Seventh) and 12 CFR part 1.

(3) Extensions of credit to executive

officers, directors and principal

shareholders of national banks, and

their related interests are subject to

limits prescribed by 12 U.S.C. 375a and

375b in addition to the lending limits

established by 12 U.S.C. 84 and this

part.

(4) In addition to the foregoing, loans

and extensions of credit made by

national banks and their domestic

operating subsidiaries must be

consistent with safe and sound banking

practices.

§ 32.2 Definitions.

(a) Borrower means a person who is

named as a borrower or debtor in a loan

or extension of credit, or any other

person, including a drawer, endorser, or

guarantor, who is deemed to be a

borrower under the ‘‘direct benefit’’ or

the ‘‘common enterprise’’ tests set forth

in § 32.5.

(b) Capital and surplus means—

(1) A bank’s Tier 1 and Tier 2 capital

included in the bank’s risk-based capital

under the OCC’s Minimum Capital

Ratios in Appendix A of part 3 of this

chapter; plus

(2) The balance of a bank’s allowance

for loan and lease losses not included in

the bank’s Tier 2 capital, for purposes of

the calculation of risk-based capital

under part 3 of this chapter.

(c) Close of business means the time

at which a bank closes its accounting

records for the business day.

(d) Consumer means the user of any

products, commodities, goods, or

services, whether leased or purchased,

but does not include any person who

purchases products or commodities for

resale or fabrication into goods for sale.

(e) Consumer paper means paper

relating to automobiles, mobile homes,

residences, office equipment, household

items, tuition fees, insurance premium

fees, and similar consumer items.

Consumer paper also includes paper

covering the lease (where the bank is

not the owner or lessor) or purchase of

equipment for use in manufacturing,

farming, construction, or excavation.

(f) Contractual commitment to

advance funds. (1) The term includes a

bank’s obligation to—

(i) Make payment (directly or

indirectly) to a third person contingent

upon default by a customer of the bank

in performing an obligation and to make

such payment in keeping with the

agreed upon terms of the customer’s

contract with the third person, or to

make payments upon some other stated

condition;

(ii) Guarantee or act as surety for the

benefit of a person;

(iii) Advance funds under a qualifying

commitment to lend, as defined in

paragraph (l) of this section; and

(iv) Advance funds under a standby

letter of credit as defined in paragraph

(p) of this section, a put, or other similar

arrangement.

(2) The term does not include

commercial letters of credit and similar

instruments where the issuing bank

expects the beneficiary to draw on the

issuer, that do not guarantee payment,

and that do not provide for payment in

the event of a default by a third party.

(g) Control is presumed to exist when

a person directly or indirectly, or acting

through or together with one or more

persons—

(1) Owns, controls, or has the power

to vote 25 percent or more of any class

of voting securities of another person;

(2) Controls, in any manner, the

election of a majority of the directors,

trustees, or other persons exercising

similar functions of another person; or

(3) Has the power to exercise a

controlling influence over the

management or policies of another

person.

(h) Current market value means the

bid or closing price listed for an item in

a regularly published listing or an

electronic reporting service.

(i) Financial instrument means stocks,

notes, bonds, and debentures traded on

a national securities exchange, OTC

margin stocks as defined in Regulation

U, 12 CFR part 221, commercial paper,

negotiable certificates of deposit,

bankers’ acceptances, and shares in

money market and mutual funds of the

type that issue shares in which banks

may perfect a security interest.

Financial instruments may be

denominated in foreign currencies that

are freely convertible to U.S. dollars.

The term ‘‘financial instrument’’ does

not include mortgages.

(j) Loans and extensions of credit

means a bank’s direct or indirect

advance of funds to or on behalf of a

borrower based on an obligation of the

borrower to repay the funds or

repayable from specific property

pledged by or on behalf of the borrower.

(1) Loans or extensions of credit for

purposes of 12 U.S.C. 84 and this part

include—

(i) A contractual commitment to

advance funds, as defined in paragraph

(f) of this section;

(ii) A maker or endorser’s obligation

arising from a bank’s discount of

commercial paper;

(iii) A bank’s purchase of securities

subject to an agreement that the seller

will repurchase the securities at the end

of a stated period, but not including a

bank’s purchase of Type I securities, as

defined in part 1 of this chapter, subject

to a repurchase agreement, where the

purchasing bank has assured control

over or has established its rights to the

Type I securities as collateral;

(iv) A bank’s purchase of third-party

paper subject to an agreement that the

seller will repurchase the paper upon

default or at the end of a stated period.

The amount of the bank’s loan is the

total unpaid balance of the paper owned

by the bank less any applicable dealer

reserves retained by the bank and held

by the bank as collateral security. Where

the seller’s obligation to repurchase is

limited, the bank’s loan is measured by

the total amount of the paper the seller

may ultimately be obligated to

repurchase. A bank’s purchase of third

party paper without direct or indirect

recourse to the seller is not a loan or

extension of credit to the seller;

(v) An overdraft, whether or not

prearranged, but not an intra-day

overdraft for which payment is received

before the close of business of the bank

that makes the funds available;

(vi) The sale of Federal funds with a

maturity of more than one business day,

but not Federal funds with a maturity of

one day or less or Federal funds sold

under a continuing contract; and

(vii) Loans or extensions of credit that

have been charged off on the books of

the bank in whole or in part, unless the

loan or extension of credit—

(A) Is unenforceable by reason of

discharge in bankruptcy;

(B) Is no longer legally enforceable

because of expiration of the statute of

limitations or a judicial decision; or

(C) Is no longer legally enforceable for

other reasons, provided that the bank
8534 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

maintains sufficient records to

demonstrate that the loan is

unenforceable.

(2) The following items do not

constitute loans or extensions of credit

for purposes of 12 U.S.C. 84 and this

part—

(i) Additional funds advanced for the

benefit of a borrower by a bank for

payment of taxes, insurance, utilities,

security, and maintenance and

operating expenses necessary to

preserve the value of real property

securing the loan, consistent with safe

and sound banking practices, but only if

the advance is for the protection of the

bank’s interest in the collateral, and

provided that such amounts must be

treated as an extension of credit if a new

loan or extension of credit is made to

the borrower;

(ii) Accrued and discounted interest

on an existing loan or extension of

credit, including interest that has been

capitalized from prior notes and interest

that has been advanced under terms and

conditions of a loan agreement;

(iii) Financed sales of a bank’s own

assets, including Other Real Estate

Owned, if the financing does not put the

bank in a worse position than when the

bank held title to the assets;

(iv) A renewal or restructuring of a

loan as a new ‘‘loan or extension of

credit,’’ following the exercise by a bank

of reasonable efforts, consistent with

safe and sound banking practices, to

bring the loan into conformance with

the lending limit, unless new funds are

advanced by the bank to the borrower

(except as permitted by § 32.3(b)(5)), or

a new borrower replaces the original

borrower, or unless the OCC determines

that a renewal or restructuring was

undertaken as a means to evade the

bank’s lending limit;

(v) Amounts paid against uncollected

funds in the normal process of

collection; and

(vi)(A) That portion of a loan or

extension of credit sold as a

participation by a bank on a

nonrecourse basis, provided that the

participation results in a pro rata

sharing of credit risk proportionate to

the respective interests of the

originating and participating lenders.

Where a participation agreement

provides that repayment must be

applied first to the portions sold, a pro

rata sharing will be deemed to exist only

if the agreement also provides that, in

the event of a default or comparable

event defined in the agreement,

participants must share in all

subsequent repayments and collections

in proportion to their percentage

participation at the time of the

occurrence of the event.

(B) When an originating bank funds

the entire loan, it must receive funding

from the participants before the close of

business of its next business day. If the

participating portions are not received

within that period, then the portions

funded will be treated as a loan by the

originating bank to the borrower. If the

portions so attributed to the borrower

exceed the originating bank’s lending

limit, the loan may be treated as

nonconforming subject to § 32.6, rather

than a violation, if:

(1) The originating bank had a valid

and unconditional participation

agreement with a participating bank or

banks that was sufficient to reduce the

loan to within the originating bank’s

lending limit;

(2) The participating bank

reconfirmed its participation and the

originating bank had no knowledge of

any information that would permit the

participant to withhold its participation;

and

(3) The participation was to be funded

by close of business of the originating

bank’s next business day.

(k) Person means an individual; sole

proprietorship; partnership; joint

venture; association; trust; estate;

business trust; corporation; limited

liability company; not-for-profit

corporation; sovereign government or

agency, instrumentality, or political

subdivision thereof; or any similar

entity or organization.

(l) Qualifying commitment to lend

means a legally binding written

commitment to lend that, when

combined with all other outstanding

loans and qualifying commitments to a

borrower, was within the bank’s lending

limit when entered into, and has not

been disqualified.

(1) In determining whether a

commitment is within the bank’s

lending limit when made, the bank may

deduct from the amount of the

commitment the amount of any legally

binding loan participation commitments

that are issued concurrent with the

bank’s commitment and that would be

excluded from the definition of ‘‘loan or

extension of credit’’ under paragraph

(j)(2)(vi) of this section.

(2) If the bank subsequently chooses

to make an additional loan and that

subsequent loan, together with all

outstanding loans and qualifying

commitments to a borrower, exceeds the

bank’s applicable lending limit at that

time, the bank’s qualifying

commitments to the borrower that

exceed the bank’s lending limit at that

time are deemed to be permanently

disqualified, beginning with the most

recent qualifying commitment and

proceeding in reverse chronological

order. When a commitment is

disqualified, the entire commitment is

disqualified and the disqualified

commitment is no longer considered a

‘‘loan or extension of credit.’’ Advances

of funds under a disqualified or nonqualifying commitment may only be

made to the extent that the advance,

together with all other outstanding loans

to the borrower, do not exceed the

bank’s lending limit at the time of the

advance, calculated pursuant to § 32.4.

(m) Readily marketable collateral

means financial instruments and bullion

that are salable under ordinary market

conditions with reasonable promptness

at a fair market value determined by

quotations based upon actual

transactions on an auction or similarly

available daily bid and ask price market.

(n) Readily marketable staple means

an article of commerce, agriculture, or

industry, such as wheat and other

grains, cotton, wool, and basic metals

such as tin, copper and lead, in the form

of standardized interchangeable units,

that is easy to sell in a market with

sufficiently frequent price quotations.

(1) An article comes within this

definition if—

(i) The exact price is easy to

determine; and

(ii) The staple itself is easy to sell at

any time at a price that would not be

considerably less than the amount at

which it is valued as collateral.

(2) Whether an article qualifies as a

readily marketable staple is determined

on the basis of the conditions existing

at the time the loan or extension of

credit that is secured by the staples is

made.

(o) Sale of Federal funds means any

transaction between depository

institutions involving the transfer of

immediately available funds resulting

from credits to deposit balances at

Federal Reserve Banks, or from credits

to new or existing deposit balances due

from a correspondent depository

institution.

(p) Standby letter of credit means any

letter of credit, or similar arrangement,

that represents an obligation to the

beneficiary on the part of the issuer:

(1) To repay money borrowed by or

advanced to or for the account of the

account party;

(2) To make payment on account of

any indebtedness undertaken by the

account party; or

(3) To make payment on account of

any default by the account party in the

performance of an obligation.

§ 32.3 Lending limits.

(a) Combined general limit. A national

bank’s total outstanding loans and

extensions of credit to one borrower
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8535

may not exceed 15 percent of the bank’s

capital and surplus, plus an additional

10 percent of the bank’s capital and

surplus, if the amount that exceeds the

bank’s 15 percent general limit is fully

secured by readily marketable collateral,

as defined in § 32.2(m). To qualify for

the additional 10 percent limit, the bank

must perfect a security interest in the

collateral under applicable law and the

collateral must have a current market

value at all times of at least 100 percent

of the amount of the loan or extension

of credit that exceeds the bank’s 15

percent general limit.

(b) Loans subject to special lending

limits. The following loans or

extensions of credit are subject to the

lending limits set forth below. When

loans and extensions of credit qualify

for more than one special lending limit,

the special limits are cumulative.

(1) Loans secured by bills of lading or

warehouse receipts covering readily

marketable staples. (i) A national bank’s

loans or extensions of credit to one

borrower secured by bills of lading,

warehouse receipts, or similar

documents transferring or securing title

to readily marketable staples, as defined

in § 32.2(n), may not exceed 35 percent

of the bank’s capital and surplus in

addition to the amount allowed under

the bank’s combined general limit. The

market value of the staples securing the

loan must at all times equal at least 115

percent of the amount of the

outstanding loan that exceeds the bank’s

combined general limit.

(ii) Staples that qualify for this special

limit must be nonperishable, may be

refrigerated or frozen, and must be fully

covered by insurance if such insurance

is customary. Whether a staple is nonperishable must be determined on a

case-by-case basis because of differences

in handling and storing commodities.

(iii) This special limit applies to a

loan or extension of credit arising from

a single transaction or secured by the

same staples, provided that the duration

of the loan or extension of credit is:

(A) Not more than ten months if

secured by nonperishable staples; or

(B) Not more than six months if

secured by refrigerated or frozen staples.

(iv) The holder of the warehouse

receipts, order bills of lading,

documents qualifying as documents of

title under the Uniform Commercial

Code, or other similar documents, must

have control and be able to obtain

immediate possession of the staple so

that the bank is able to sell the

underlying staples and promptly

transfer title and possession to a

purchaser if default should occur on a

loan secured by such documents. The

existence of a brief notice period, or

similar procedural requirements under

applicable law, for the disposal of the

collateral will not affect the eligibility of

the instruments for this special limit.

(A) Field warehouse receipts are an

acceptable form of collateral when

issued by a duly bonded and licensed

grain elevator or warehouse having

exclusive possession and control of the

staples even though the grain elevator or

warehouse is maintained on the

premises of the owner of the staples.

(B) Warehouse receipts issued by the

borrower-owner that is a grain elevator

or warehouse company, duly-bonded

and licensed and regularly inspected by

state or Federal authorities, may be

considered eligible collateral under this

provision only when the receipts are

registered with an independent registrar

whose consent is required before the

staples may be withdrawn from the

warehouse.

(2) Discount of installment consumer

paper. (i) A national bank’s loans and

extensions of credit to one borrower that

arise from the discount of negotiable or

nonnegotiable installment consumer

paper, as defined at § 32.2(e), that

carries a full recourse endorsement or

unconditional guarantee by the person

selling the paper, may not exceed 10

percent of the bank’s capital and surplus

in addition to the amount allowed

under the bank’s combined general

limit. An unconditional guarantee may

be in the form of a repurchase

agreement or separate guarantee

agreement. A condition reasonably

within the power of the bank to

perform, such as the repossession of

collateral, will not make conditional an

otherwise unconditional guarantee.

(ii) Where the seller of the paper

offers only partial recourse to the bank,

the lending limits of this section apply

to the obligation of the seller to the

bank, which is measured by the total

amount of paper the seller may be

obligated to repurchase or has

guaranteed.

(iii) Where the bank is relying

primarily upon the maker of the paper

for payment of the loans or extensions

of credit and not upon any full or partial

recourse endorsement or guarantee by

the seller of the paper, the lending

limits of this section apply only to the

maker. The bank must substantiate its

reliance on the maker with—

(A) Records supporting the bank’s

independent credit analysis of the

maker’s ability to repay the loan or

extension of credit, maintained by the

bank or by a third party that is

contractually obligated to make those

records available for examination

purposes; and

(B) A written certification by an

officer of the bank authorized by the

bank’s board of directors or any

designee of that officer, that the bank is

relying primarily upon the maker to

repay the loan or extension of credit.

(iv) Where paper is purchased in

substantial quantities, the records,

evaluation, and certification must be in

a form appropriate for the class and

quantity of paper involved. The bank

may use sampling techniques, or other

appropriate methods, to independently

verify the reliability of the credit

information supplied by the seller.

(3) Loans secured by documents

covering livestock. (i) A national bank’s

loans or extensions of credit to one

borrower secured by shipping

documents or instruments that transfer

or secure title to or give a first lien on

livestock may not exceed 10 percent of

the bank’s capital and surplus in

addition to the amount allowed under

the bank’s combined general limit. The

market value of the livestock securing

the loan must at all times equal at least

115 percent of the amount of the

outstanding loan that exceeds the bank’s

combined general limit. For purposes of

this subsection, the term ‘‘livestock’’

includes dairy and beef cattle, hogs,

sheep, goats, horses, mules, poultry and

fish, whether or not held for resale.

(ii) The bank must maintain in its files

an inspection and valuation for the

livestock pledged that is reasonably

current, taking into account the nature

and frequency of turnover of the

livestock to which the documents relate,

but in any case not more than 12

months old.

(iii) Under the laws of certain states,

persons furnishing pasturage under a

grazing contract may have a lien on the

livestock for the amount due for

pasturage. If a lien that is based on

pasturage furnished by the lienor prior

to the bank’s loan or extension of credit

is assigned to the bank by a recordable

instrument and protected against being

defeated by some other lien or claim, by

payment to a person other than the

bank, or otherwise, it will qualify under

this exception provided the amount of

the perfected lien is at least equal to the

amount of the loan and the value of the

livestock is at no time less than 115

percent of the portion of the loan or

extension of credit that exceeds the

bank’s combined general limit. When

the amount due under the grazing

contract is dependent upon future

performance, the resulting lien does not

meet the requirements of the exception.

(4) Loans secured by dairy cattle. A

national bank’s loans and extensions of

credit to one borrower that arise from

the discount by dealers in dairy cattle of
8536 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

paper given in payment for the cattle

may not exceed 10 percent of the bank’s

capital and surplus in addition to the

amount allowed under the bank’s

combined general limit. To qualify, the

paper—

(i) Must carry the full recourse

endorsement or unconditional guarantee

of the seller; and

(ii) Must be secured by the cattle

being sold, pursuant to liens that allow

the bank to maintain a perfected

security interest in the cattle under

applicable law.

(5) Additional advances to complete

project financing pursuant to renewal of

a qualifying commitment to lend. A

national bank may renew a qualifying

commitment to lend, as defined by

§ 32.2(l), and complete funding under

that commitment if all of the following

criteria are met—

(i) The completion of funding is

consistent with safe and sound banking

practices and is made to protect the

position of the bank;

(ii) The completion of funding will

enable the borrower to complete the

project for which the qualifying

commitment to lend was made; and

(iii) The amount of the additional

funding does not exceed the unfunded

portion of the bank’s qualifying

commitment to lend.

(c) Loans not subject to the lending

limits. The following loans or

extensions of credit are not subject to

the lending limits of 12 U.S.C. 84 or this

part.

(1) Loans arising from the discount of

commercial or business paper. (i) Loans

or extensions of credit arising from the

discount of negotiable commercial or

business paper that evidences an

obligation to the person negotiating the

paper. The paper—

(A) Must be given in payment of the

purchase price of commodities

purchased for resale, fabrication of a

product, or any other business purpose

that may reasonably be expected to

provide funds for payment of the paper;

and

(B) Must bear the full recourse

endorsement of the owner of the paper,

except that paper discounted in

connection with export transactions,

that is transferred without recourse, or

with limited recourse, must be

supported by an assignment of

appropriate insurance covering the

political, credit, and transfer risks

applicable to the paper, such as

insurance provided by the ExportImport Bank.

(ii) A failure to pay principal or

interest on commercial or business

paper when due does not result in a

loan or extension of credit to the maker

or endorser of the paper; however, the

amount of such paper thereafter must be

counted in determining whether

additional loans or extensions of credit

to the same borrower may be made

within the limits of 12 U.S.C. 84 and

this part.

(2) Bankers’ acceptances. A bank’s

acceptance of drafts eligible for

rediscount under 12 U.S.C. 372 and 373,

or a bank’s purchase of acceptances

created by other banks that are eligible

for rediscount under those sections; but

not including—

(i) A bank’s acceptance of drafts

ineligible for rediscount (which

constitutes a loan by the bank to the

customer for whom the acceptance was

made, in the amount of the draft);

(ii) A bank’s purchase of ineligible

acceptances created by other banks

(which constitutes a loan from the

purchasing bank to the accepting bank,

in the amount of the purchase price);

and

(iii) A bank’s purchase of its own

acceptances (which constitutes a loan to

the bank’s customer for whom the

acceptance was made, in the amount of

the purchase price).

(3)(i) Loans secured by U.S.

obligations. Loans or extensions of

credit, or portions thereof, to the extent

fully secured by the current market

value of:

(A) Bonds, notes, certificates of

indebtedness, or Treasury bills of the

United States or by similar obligations

fully guaranteed as to principal and

interest by the United States;

(B) Loans to the extent guaranteed as

to repayment of principal by the full

faith and credit of the U.S. government,

as set forth in paragraph (c)(4)(ii) of this

section.

(ii) To qualify under this paragraph,

the bank must perfect a security interest

in the collateral under applicable law.

(4) Loans to or guaranteed by a

Federal agency. (i) Loans or extensions

of credit to any department, agency,

bureau, board, commission, or

establishment of the United States or

any corporation wholly owned directly

or indirectly by the United States.

(ii) Loans or extensions of credit,

including portions thereof, to the extent

secured by unconditional takeout

commitments or guarantees of any of the

foregoing governmental entities. The

commitment or guarantee—

(A) Must be payable in cash or its

equivalent within 60 days after demand

for payment is made;

(B) Is considered unconditional if the

protection afforded the bank is not

substantially diminished or impaired if

loss should result from factors beyond

the bank’s control. Protection against

loss is not materially diminished or

impaired by procedural requirements,

such as an agreement to take over only

in the event of default, including default

over a specific period of time, a

requirement that notification of default

be given within a specific period after

its occurrence, or a requirement of good

faith on the part of the bank.

(5) Loans to or guaranteed by general

obligations of a State or political

subdivision. Loans or extensions of

credit to a State or political subdivision

that constitutes a general obligation of

the State or political subdivision, as

defined in Part 1 of this chapter, and for

which the lending bank has obtained

the opinion of counsel that the loan or

extension of credit is a valid and

enforceable general obligation of the

borrower, and loans or extensions of

credit, including portions thereof, to the

extent guaranteed or secured by a

general obligation of a State or political

subdivision and for which the lending

bank has obtained the opinion of

counsel that the guarantee or collateral

is a valid and enforceable general

obligation of that public body.

(6) Loans secured by segregated

deposit accounts. Loans or extensions of

credit, including portions thereof, to the

extent secured by a segregated deposit

account in the lending bank, provided a

security interest in the deposit has been

perfected under applicable law.

(i) Where the deposit is eligible for

withdrawal before the secured loan

matures, the bank must establish

internal procedures to prevent release of

the security without the lending bank’s

prior consent.

(ii) A deposit that is denominated and

payable in a currency other than that of

the loan or extension of credit that it

secures may be eligible for this

exception if the currency is freely

convertible to U.S. dollars.

(A) This exception applies to only

that portion of the loan or extension of

credit that is covered by the U.S. dollar

value of the deposit.

(B) The lending bank must establish

procedures to revalue foreign currency

deposits to ensure that the loan or

extension of credit remains fully

secured at all times.

(7) Loans to financial institutions with

the approval of the Comptroller. Loans

or extensions of credit to any financial

institution or to any receiver,

conservator, superintendent of banks, or

other agent in charge of the business

and property of a financial institution

when an emergency situation exists and

a national bank is asked to provide

assistance to another financial

institution, and the loan is approved by

the Comptroller. For purposes of this
Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations 8537

paragraph, financial institution means a

commercial bank, savings bank, trust

company, savings association, or credit

union.

(8) Loans to the Student Loan

Marketing Association. Loans or

extensions of credit to the Student Loan

Marketing Association.

(9) Loans to industrial development

authorities. A loan or extension of credit

to an industrial development authority

or similar public entity created to

construct and lease a plant facility,

including a health care facility, to an

industrial occupant will be deemed a

loan to the lessee, provided that—

(i) The bank evaluates the

creditworthiness of the industrial

occupant before the loan is extended to

the authority;

(ii) The authority’s liability on the

loan is limited solely to whatever

interest it has in the particular facility;

(iii) The authority’s interest is

assigned to the bank as security for the

loan or the industrial occupant issues a

promissory note to the bank that

provides a higher order of security than

the assignment of a lease; and

(iv) The industrial occupant’s lease

rentals are assigned and paid directly to

the bank.

(10) Loans to leasing companies. A

loan or extension of credit to a leasing

company for the purpose of purchasing

equipment for lease will be deemed a

loan to the lessee, provided that—

(i) The bank evaluates the

creditworthiness of the lessee before the

loan is extended to the leasing

corporation;

(ii) The loan is without recourse to the

leasing corporation;

(iii) The bank is given a security

interest in the equipment and in the

event of default, may proceed directly

against the equipment and the lessee for

any deficiency resulting from the sale of

the equipment;

(iv) The leasing corporation assigns

all of its rights under the lease to the

bank;

(v) The lessee’s lease payments are

assigned and paid to the bank; and

(vi) The lease terms are subject to the

same limitations that would apply to a

national bank acting as a lessor.

§ 32.4 Calculation of lending limits.

(a) Calculation date. For purposes of

determining compliance with 12 U.S.C.

84 and this part, a bank’s lending limit

shall be calculated as of the most recent

of the following dates—

(1) When the bank’s Consolidated

Report of Condition and Income is

required to be filed; or

(2) When there is a change in the

bank’s capital category for purposes of

12 U.S.C. 1831o and part 6 of this

chapter.

(b) Authority of OCC to require more

frequent calculations. If the OCC

determines for safety and soundness

reasons that a bank should calculate its

lending limit more frequently than

required by paragraph (a) of this section,

the OCC may provide written notice to

the bank directing the bank to calculate

its lending limit at a more frequent

interval, and the bank shall thereafter

calculate its lending limit at that

interval until further notice.

§ 32.5 Combination rules.

(a) General rule. Loans or extensions

of credit to one borrower will be

attributed to another person and each

person will be deemed a borrower—

(1) When proceeds of a loan or

extension of credit are to be used for the

direct benefit of the other person, to the

extent of the proceeds so used; or

(2) When a common enterprise is

deemed to exist between the persons.

(b) Direct benefit. The proceeds of a

loan or extension of credit to a borrower

will be deemed to be used for the direct

benefit of another person and will be

attributed to the other person when the

proceeds, or assets purchased with the

proceeds, are transferred to another

person, other than in a bona fide arm’s

length transaction where the proceeds

are used to acquire property, goods, or

services.

(c) Common enterprise. A common

enterprise will be deemed to exist and

loans to separate borrowers will be

aggregated:

(1) When the expected source of

repayment for each loan or extension of

credit is the same for each borrower and

neither borrower has another source of

income from which the loan (together

with the borrower’s other obligations)

may be fully repaid. An employer will

not be treated as a source of repayment

under this paragraph because of wages

and salaries paid to an employee, unless

the standards of paragraph (c)(2) of this

section are met;

(2) When loans or extensions of credit

are made—

(i) To borrowers who are related

directly or indirectly through common

control, including where one borrower

is directly or indirectly controlled by

another borrower; and

(ii) Substantial financial

interdependence exists between or

among the borrowers. Substantial

financial interdependence is deemed to

exist when 50 percent or more of one

borrower’s gross receipts or gross

expenditures (on an annual basis) are

derived from transactions with the other

borrower. Gross receipts and

expenditures include gross revenues/

expenses, intercompany loans,

dividends, capital contributions, and

similar receipts or payments;

(3) When separate persons borrow

from a bank to acquire a business

enterprise of which those borrowers will

own more than 50 percent of the voting

securities or voting interests, in which

case a common enterprise is deemed to

exist between the borrowers for

purposes of combining the acquisition

loans; or

(4) When the OCC determines, based

upon an evaluation of the facts and

circumstances of particular transactions,

that a common enterprise exists.

(d) Special rule for loans to a

corporate group. (1) Loans or extensions

of credit by a bank to a corporate group

may not exceed 50 percent of the bank’s

capital and surplus. This limitation

applies only to loans subject to the

combined general limit. A corporate

group includes a person and all of its

subsidiaries. For purposes of this

paragraph, a corporation or a limited

liability company is a subsidiary of a

person if the person owns or

beneficially owns directly or indirectly

more than 50 percent of the voting

securities or voting interests of the

corporation or company.

(2) Except as provided in paragraph

(d)(1) of this section, loans or extensions

of credit to a person and its subsidiary,

or to different subsidiaries of a person,

are not combined unless either the

direct benefit or the common enterprise

test is met.

(e) Special rules for loans to

partnerships, joint ventures, and

associations.—(1) Partnership loans.

Loans or extensions of credit to a

partnership, joint venture, or association

are deemed to be loans or extensions of

credit to each member of the

partnership, joint venture, or

association. This rule does not apply to

limited partners in limited partnerships

or to members of joint ventures or

associations if the partners or members,

by the terms of the partnership or

membership agreement, are not held

generally liable for the debts or actions

of the partnership, joint venture, or

association, and those provisions are

valid under applicable law.

(2) Loans to partners. (i) Loans or

extensions of credit to members of a

partnership, joint venture, or association

are not attributed to the partnership,

joint venture, or association unless

either the direct benefit or the common

enterprise tests are met. Both the direct

benefit and common enterprise tests are

met between a member of a partnership,

joint venture or association and such

partnership, joint venture or association,
8538 Federal Register / Vol. 60, No. 31 / Wednesday, February 15, 1995 / Rules and Regulations

when loans or extensions of credit are

made to the member to purchase an

interest in the partnership, joint venture

or association.

(ii) Loans or extensions of credit to

members of a partnership, joint venture,

or association are not attributed to other

members of the partnership, joint

venture, or association unless either the

direct benefit or common enterprise test

is met.

(f) Loans to foreign governments, their

agencies, and instrumentalities.—(1)

Aggregation. Loans and extensions of

credit to foreign governments, their

agencies, and instrumentalities will be

aggregated with one another only if the

loans or extensions of credit fail to meet

either the means test or the purpose test

at the time the loan or extension of

credit is made.

(i) The means test is satisfied if the

borrower has resources or revenue of its

own sufficient to service its debt

obligations. If the government’s support

(excluding guarantees by a central

government of the borrower’s debt)

exceeds the borrower’s annual revenues

from other sources, it will be presumed

that the means test has not been

satisfied.

(ii) The purpose test is satisfied if the

purpose of the loan or extension of

credit is consistent with the purposes of

the borrower’s general business.

(2) Documentation. In order to show

that the means and purpose tests have

been satisfied, a bank must, at a

minimum, retain in its files the

following items:

(i) A statement (accompanied by

supporting documentation) describing

the legal status and the degree of

financial and operational autonomy of

the borrowing entity;

(ii) Financial statements for the

borrowing entity for a minimum of three

years prior to the date the loan or

extension of credit was made or for each

year that the borrowing entity has been

in existence, if less than three;

(iii) Financial statements for each year

the loan or extension of credit is

outstanding;

(iv) The bank’s assessment of the

borrower’s means of servicing the loan

or extension of credit, including specific

reasons in support of that assessment.

The assessment shall include an

analysis of the borrower’s financial

history, its present and projected

economic and financial performance,

and the significance of any financial

support provided to the borrower by

third parties, including the borrower’s

central government; and

(v) A loan agreement or other written

statement from the borrower which

clearly describes the purpose of the loan

or extension of credit. The written

representation will ordinarily constitute

sufficient evidence that the purpose test

has been satisfied. However, when, at

the time the funds are disbursed, the

bank knows or has reason to know of

other information suggesting that the

borrower will use the proceeds in a

manner inconsistent with the written

representation, it may not, without

further inquiry, accept the

representation.

(3) Restructured loans.—(i) Noncombination rule. Notwithstanding

paragraphs (a) through (e) of this

section, when previously outstanding

loans and other extensions of credit to

a foreign government, its agencies, and

instrumentalities (i.e., public-sector

obligors) that qualified for a separate

lending limit under paragraph (f)(1) of

this section are consolidated under a

central obligor in a qualifying

restructuring, such loans will not be

aggregated and attributed to the central

obligor. This includes any substitution

in named obligors, solely because of the

restructuring. Such loans (other than

loans originally attributed to the central

obligor in their own right) will not be

considered obligations of the central

obligor and will continue to be

attributed to the original public-sector

obligor for purposes of the lending limit.

(ii) Qualifying restructuring. Loans

and other extensions of credit to a

foreign government, its agencies, and

instrumentalities will qualify for the

non-combination process under

paragraph (f)(3)(i) of this section only if

they are restructured in a sovereign debt

restructuring approved by the OCC,

upon request by a bank for application

of the non combination rule. The factors

that the OCC will use in making this

determination include, but are not

limited to, the following:

(A) Whether the restructuring

involves a substantial portion of the

total commercial bank loans outstanding

to the foreign government, its agencies,

and instrumentalities;

(B) Whether the restructuring involves

a substantial number of the foreign

country’s external commercial bank

creditors;

(C) Whether the restructuring and

consolidation under a central obligor is

being done primarily to facilitate

external debt management; and

(D) Whether the restructuring

includes features of debt or debt-service

reduction.

(iii) 50 percent aggregate limit. With

respect to any case in which the noncombination process under paragraph

(f)(3)(i) of this section applies, a national

bank’s loans and other extensions of

credit to a foreign government, its

agencies and instrumentalities,

(including restructured debt) shall not

exceed, in the aggregate, 50 percent of

the bank’s capital and surplus.

§ 32.6 Nonconforming loans.

(a) A loan, within a bank’s legal

lending limit when made, will not be

deemed a violation but will be treated

as nonconforming if the loan is no

longer in conformity with the bank’s

lending limit because—

(1) The bank’s capital has declined,

borrowers have subsequently merged or

formed a common enterprise, lenders

have merged, the lending limit or

capital rules have changed; or

(2) Collateral securing the loan to

satisfy the requirements of a lending

limit exception has declined in value.

(b) A bank must use reasonable efforts

to bring a loan that is nonconforming as

a result of paragraph (a)(1) of this

section into conformity with the bank’s

lending limit unless to do so would be

inconsistent with safe and sound

banking practices.

(c) A bank 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 lending limit within 30

calendar days, except when judicial

proceedings, regulatory actions or other

extraordinary circumstances beyond the

bank’s control prevent the bank from

taking action.

Dated: February 6, 1995.

Eugene A. Ludwig,

Comptroller of the Currency.

[FR Doc. 95–3363 Filed 2–14–95; 8:45 am]

BILLING CODE 4810–33–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 94–NM–119–AD; Amendment

39–9132; AD 95–02–13]

Airworthiness Directives; Boeing

Model 747 Series Airplanes Equipped

With General Electric CF6–80C2

Engines

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a

new airworthiness directive (AD),

applicable to certain Boeing Model 747

series airplanes, that requires

modification of the fire extinguishing

system in the number two engine strut.

This amendment is prompted by reports

of chafing of the fire extinguishing tubes