La. Admin. Code tit. 10 § III-305

Current through Register Vol. 50, No. 12, December 20, 2024

Section III-305 - Loans Secured by Bank or Bank Holding Company Stock

A. Definitions

Bank- Louisiana state-chartered banks and state-chartered savings banks.

Commissioner- the Commissioner of Financial Institutions.

Executive Officer- an employee who participates or has authority to participate in major policy-making functions of the bank but does not include a director who is not also employed as an officer of the bank.

Holding Company- any company that directly or indirectly controls a bank.

B. General Provisions

1. If holding company stock is used as collateral, provisions of Section 23A of the Federal Reserve Act may apply. The bank should review this Section of the law and ensure compliance with its provisions.

2. The total dollar volume of all loans secured by own bank or holding company stock (hereinafter collectively referred to as "stock"), when aggregated with the total dollar amount of stock acquired for debts previously contracted, shall not exceed 10 percent of the bank's Tier 1 leverage capital. For the purposes of this calculation, any stock held as a result of debts previously contracted shall be valued at fair market value. For a loan which is partially secured by such stock, the amount of the loan to be included in this calculation shall be the loan amount less the collateral value of the nonstock collateral.

3. The bank shall maintain a list of all loans which are secured by its stock. The list shall, at a minimum, contain the borrower's name, the account number of the loan, the original amount of the loan and the certificate number(s) of the shares pledged as collateral.

4. Any loan made to a director or executive officer under the provisions of this rule must be fully disclosed to the bank's board of directors and approved by a majority of the directors in advance, with the interested party not present or participating in the discussion or approval process. Loans made to directors and executive officers under provisions of this rule must be made on substantially the same terms, including interest rates and collateral margins, as those prevailing at the time for comparable transactions by the bank with other persons who are not employed by or associated with the bank. Loans made to directors and executive officers for the purpose of disposition of stock acquired for debts previously contracted must have an adequate, well supported assessment of the stock value documented within the file.

5. Loans secured by a bank's stock made prior to the effective date of R.S. 6:416(A), as amended by Act Number 371 of 1991, effective July 6, 1991, shall not be subject to the requirements of this rule provided:

a. there have been no changes in terms of the loan;

b. no additional funds have been advanced;

c. subsequent renewals were made with full board approval and are fully documented in the board's meeting minutes; and

d. the loan is amortized over a reasonable period.

C. Regulation. A bank may have loans secured by its own stock under any of the following circumstances.

1. The stock is taken as additional collateral on an existing credit in order to minimize potential loss exposure to the bank, provided all of the following conditions are met.

a. The original terms of the loan and its initial collateral margin were consistent with the bank's lending policy.

b. The bank can demonstrate that a loss is probable because the borrower no longer has the ability to perform or collateral protection is inadequate or may soon become inadequate.

c. The taking of the stock as collateral is not used as a means of circumventing other provisions of this rule.

2. The loan is made to facilitate the disposition of stock acquired through debts previously contracted, provided there is no significant deviation from the bank's lending policy with regard to amortization and borrower credit worthiness.

3. The stock of the bank or its holding company is publicly traded by a nationally recognized stock exchange.

D. Other

1. Any exception and/or waiver of any provision of this rule requires the written approval of the commissioner.

2. This rule shall be effective upon final publication.

La. Admin. Code tit. 10, § III-305

Promulgated by the Department of Economic Development, Office of Financial Institutions, LR 21:1219 (November 1995).

AUTHORITY NOTE: Promulgated in accordance with R.S. 6:416(A).