Limits on Obligations of One Person or Corporation

  1. Law
  2. Georgia Code
  3. Banking and Finance
  4. Financial Institutions
  5. Banks and Trust Companies
  6. Powers of Banks
  7. Limits on Obligations of One Person or Corporation

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  1. As used in this Code section, the term:
    1. "Credit exposure as a counterparty in derivative transactions" means an amount that the bank reasonably determines, pursuant to a methodology acceptable to the department under the terms of the derivative or otherwise, would be its loss if a counterparty were to default on the date of determination, taking into account any netting and collateral arrangements and any guarantees or other credit enhancements; provided, however, that the bank may elect to determine credit exposure on the basis of such other method of determining credit exposure as may be permitted by the department and the bank's primary federal regulator.
    2. "Derivative transaction" includes any transaction that is an agreement, contract, note, option, swap, or warrant that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.
    3. "Person or corporation" includes, but is not limited to, an individual, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, or unincorporated organization. The term "person or corporation" shall not include the affiliates of a bank or a clearing organization registered or exempt from registration with the Commodity Futures Trading Commission, the Securities and Exchange Commission, any other federal agency, or any successor agencies.

      where the aggregate of such loans, obligations, and credit exposure together exceeds 15 percent of the statutory capital base of the bank at the time of issuance of a binding commitment unless each loan, discount, purchase, or derivative transaction in excess of such 15 percent limit is approved in advance by the board of directors or a committee authorized to act for it subject to the provisions set forth in subsections (b) and (c) of this Code section. Approval by the board of directors or authorized committee shall be recorded in the formal minutes of the actions of the board or its committee by name of borrower, amount of loan, maturity of loan, general type of collateral, and such other information as required pursuant to the rules and regulations of the department. Any action required by this subsection may be taken pursuant to Code Section 7-1-483, provided that the minutes of the proceedings of the board or of the committee reflect such action and each director taking such action signs the minutes reflecting such action by no later than the next regular meeting of the board or committee attended by such director.

  2. Except as provided in subsection (c) of this Code section, a bank shall not directly or indirectly make loans, have obligations, or have credit exposure as a counterparty in derivative transactions to any one person or corporation which in aggregate exceed 15 percent of the statutory capital base of the bank at the time of issuance of a binding commitment unless the entire amount of such loans, obligations, and credit exposure in derivative transactions is secured by good collateral or other ample security and does not exceed 25 percent of the statutory capital base at the time of issuance of a binding commitment. Except as otherwise indicated in subsection (c) of this Code section, the purchase or discount of agreements for the payment of money or evidences of indebtedness shall be regarded as indirect loans to the person or corporation receiving the proceeds of such transactions. In estimating the legal lending limit for any one person or corporation, loans to related corporations, partnerships, and other entities shall be combined subject to regulations established by the department.
  3. The limitations of subsection (b) of this Code section shall not apply to:
    1. Obligations of and obligations guaranteed by:
      1. The United States;
      2. The State of Georgia or a public body thereof authorized to levy taxes;
      3. Any state of the United States or any public body thereof if the obligations or guarantees are general obligations; or
      4. Any agency of this state as defined in subparagraph (a)(1)(A) of Code Section 50-14-1;
    2. Obligations to the extent secured by:
      1. Obligations specified in paragraph (3) of this subsection;
      2. Obligations which the bank would be authorized to acquire without limit as investment securities pursuant to Code Section 7-1-287;
      3. Obligations fully guaranteed by the United States;
      4. Guaranties or commitments or agreements to take over or purchase made by any public body of the United States or any corporation owned directly or indirectly by the United States; or
      5. Loan agreements between a local public agency or a public housing agency and an instrumentality of the United States pursuant to national housing legislation under which funds will be provided for payment of the obligations secured by such loan agreements;
    3. Obligations in the form of investment securities acquired pursuant to Code Section 7-1-287 and related regulations;
    4. Obligations with respect to the sale of federal or correspondent funds to financial institutions having their deposits insured to the same extent as that required of similar institutions chartered in this state; and
    5. A renewal or restructuring of a loan as a new loan or extension of credit following the exercise by the bank of reasonable efforts, consistent with safe and sound banking practices, to bring the loan into conformance with the lending limits of this Code section, unless:
      1. New funds are advanced by the bank to the borrower, except as permitted under this Code section;
      2. A new borrower replaces the original borrower; or
      3. The department determines that a renewal or restructuring was undertaken as a means to evade the bank's lending limit.
  4. In lieu of following the limitations contained in subsections (a) through (c) of this Code section and the related regulations of the department, a bank may petition the department for approval to utilize all of the limitations applicable to national banks regarding obligations of a single person or corporation.
  5. The department may, by regulation not inconsistent with this Code section, prescribe definitions of and requirements for transactions included in or excluded from the indebtedness to which this Code section applies. The department may also by regulation prescribe less restrictive limitations than those listed in subsections (a) through (c) of this Code section for banks meeting certain financial and management criteria. In addition, the department may, by regulation or otherwise, specify that the liabilities of a group of one or more persons or corporations or both shall be considered as owed by one person or corporation for the purposes of this Code section because the borrowers within the group are related through common control or the group meets other criteria established by the department for the combination of indebtedness for legal lending limitation purposes.

(a.1)A bank shall not at any time:

Make loans to any one person or corporation;

Have obligations owing to it from any one person or corporation as a result of purchasing or discounting evidences of indebtedness or agreements for the payment of money; or

Have credit exposure as a counterparty in derivative transactions with any one person or corporation,

(Ga. L. 1919, p. 135, art. 19, § 13; Ga. L. 1922, p. 63, § 1; Ga. L. 1927, p. 195, § 9; Code 1933, § 13-2013; Ga. L. 1943, p. 254, § 1; Ga. L. 1951, p. 201, § 1; Ga. L. 1955, p. 414, § 1; Ga. L. 1966, p. 590, § 7; Ga. L. 1969, p. 603, § 1; Ga. L. 1973, p. 526, § 4; Code 1933, § 41A-1306, enacted by Ga. L. 1974, p. 705, § 1; Ga. L. 1981, p. 1366, § 8; Ga. L. 1982, p. 3, § 7; Ga. L. 1983, p. 602, § 6; Ga. L. 1992, p. 6, § 7; Ga. L. 2000, p. 174, § 6; Ga. L. 2009, p. 86, § 5/HB 141; Ga. L. 2010, p. 1, § 1/HB 926; Ga. L. 2012, p. 349, § 1/HB 886; Ga. L. 2017, p. 193, § 6/HB 143; Ga. L. 2018, p. 214, § 5/HB 780.)

The 2018 amendment, effective May 3, 2018, deleted "or" at the end of subparagraph (c)(1)(B), added "or" at the end of subparagraph (c)(1)(C), and added subparagraph (c)(1)(D). See Editor's notes for applicability.

Editor's notes.

- Ga. L. 2018, p. 214, § 26(b)/HB 780, not codified by the General Assembly, provides that: "It is not the intent of the General Assembly to affect the law applicable to litigation pending as of March 9, 2018."

Administrative Rules and Regulations.

- Loans and discounts, Official Compilation of the Rules and Regulations of the State of Georgia, Department of Banking and Finance, Banks, Chapter 80-1-5.

Law reviews.

- For annual survey on business corporations, see 64 Mercer L. Rev. 61 (2012).

JUDICIAL DECISIONS

Editor's notes.

- In light of the similarity of the statutory provisions, decisions under former Civil Code 1910, § 2280(m) have been included in the annotations for this Code section.

Reasonable control and supervision as to loans of less than certain percentage.

- As to loans of less than ten percent (now 15 percent), directors are not justified in absolutely relinquishing to any officer or agent unlimited discretion; but they must retain and exercise reasonable control and supervision over such officers, amounting to exercise on their part of ordinary care and diligence. Mobley v. Faulk, 42 Ga. App. 314, 156 S.E. 40 (1930) (decided under former Civil Code 1910, § 2280(m)).

OPINIONS OF THE ATTORNEY GENERAL

Loans not rendered illegal by reduction of lending limit.

- No loans in excess of a bank's lending limit can be made, but loans which were legal when made are not rendered illegal by reduction of bank's lending limit. 1977 Op. Att'y Gen. No. 77-58.

Purpose of ten percent (now fifteen percent) lending limit imposed is to protect depositors, other creditors, and shareholders from loss in the event that one or two large loans become uncollectible; relaxation of 10 percent (now 15 percent) ceiling is tied to factors such as collateral security and government guarantees, which reduce the risk of uncollectibility. 1977 Op. Att'y Gen. No. 77-58.

RESEARCH REFERENCES

Am. Jur. 2d.

- 11 Am. Jur. 2d, Banks and Financial Institutions, § 998.


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