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4000 - Advisory Opinions

New Limits on Extensions of Credit to Senior Executive Officers Imposed by Section 306 of FDICIA Do Not Affect Validity of Any Written Loan Commitment Lawfully Entered Into On or Before Effective Date of Regulations Adopted by the FDIC


May 21, 1992

Pamela E.F. LeCren, Counsel

The following is in response to your letter of April 24, 1992, wherein you reference the new limits on extensions of credit to directors and executive officers imposed on insured nonmember banks by section 306 of the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"). Specifically you requested an opinion from the FDIC as to how written loan commitments entered into prior to the adoption of the statutory amendments imposing the referenced limits are affected by the change in the law as well as the conforming regulatory amendments adopted by the FDIC and the Federal Reserve Board. (See 12 C.F.R. 215, 57 Federal Register 21199, May 19, 1992 and 12 C.F.R. 337.3, 57 Federal Register 17847, April 28, 1992).

In order to dispose of your question I do not need to address the question of whether a written loan commitment constitutes an extension of credit when entered into or when funded. Section 306(n) of FDICIA specifically provides that the amendments made by section 306 do not affect the validity of any extension of credit "or other transaction" lawfully entered into on or before the effective date of those amendments (May 18, 1992). It is therefore our opinion that written loan commitments that were lawfully entered into on or before May 18, 1992 that were, when entered into legally enforceable, may be funded without regard to the new limits imposed by section 306 and any regulations adopted pursuant thereto. Those loans should be taken into consideration, however, in determining whether any additional loans may be made, i.e., if taking the outstanding grandfathered loans into consideration, the additional loan would cause the limit on extensions of credit to be exceeded, no additional loans can be made.1

Furthermore, if the "grandfathered" extension of credit was made to an executive officer or a partnership in which one or more of the bank's executive officers are partners, and the extension of credit matures after May 28, 1983, the extension of credit is to be repaid in accordance with its repayment schedule in existence prior to May 28, 1992. (See 12 C.F.R. 337.3(c)). Any renewal or extension of the extension of credit may only be made on terms that are permissible under the applicable regulations. If the "grandfathered" extension of credit to an executive officer or partnership matures before May 28, 1983 and it is in an amount that exceeds the limit on extensions of credit to executive officers imposed by seciton 337.3(c)(1) and (2) of the FDIC's regulations, any renewal or extension of the extension of credit upon its maturity must be made on terms that will bring the extension of credit within the limit by May 28, 1993. If a bank is unable to bring the extension of credit into compliance by that date, the appropriate FDIC regional director may for good cause grant up to two additional one year periods for the extension of credit to be brought into compliance.

I hope that this is responsive to your request. If you have any questions, please do not hesitate to contact me at (202) 898--3730.

1You should note that 12 C.F.R. 218.3(d) specifically provides that for the purposes of applying the loan limits reflected in 12 C.F.R. 215.4(c) (15% loan limit on directors, executive officers, principal shareholders and their related interests) an extension of credit is considered to be made when the bank enters into a binding commitment to lend. Go back to Text

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