What Is a Legal Lending Limit?

A legal lending limit is the maximum amount a bank or thrift may lend to a single borrower (or to a group of related borrowers). It is expressed as a percentage of the institution’s capital and surplus and is intended to prevent excessive credit concentration that could threaten a bank’s solvency.

How It Works

• Federal rules for nationally chartered banks and savings associations set a baseline lending limit of 15% of capital and surplus for loans to a single borrower.
• If a loan is secured by readily marketable securities, the limit increases by 10 percentage points (up to 25% of capital and surplus).
• The Office of the Comptroller of the Currency (OCC) oversees these limits for national banks; similar limits generally apply to state‑chartered banks under state regulators.

What Counts as Capital and Surplus

• Capital and surplus are the measures against which limits are calculated. They include components such as paid‑in capital, retained earnings, and certain reserves.
• Capital is often divided into tiers:
• Tier 1: core, most liquid capital (e.g., paid‑in capital, retained earnings).
• Tier 2: supplementary capital (e.g., some reserves, convertible debt).
• Regulators require minimum capital ratios (national banks typically must meet an overall capital-to-assets threshold), which is why lending limits most often affect large institutional loans rather than retail borrowers.

Exemptions and Special Treatments

Some instruments and borrowers are excluded from or treated differently under lending‑limit rules, including:

• Loans secured by U.S. government obligations.
• Bankers’ acceptances.
• Certain commercial paper or business paper discount loans.
• Loans to or guaranteed by federal agencies and some state or local government entities.
• Loans to other financial institutions with regulatory approval.
• Specific transaction types such as intraday credit, financing for government securities transactions, and certain project‑financing advances.
• Loans secured by segregated deposit accounts, bills of lading, warehouse receipts, or livestock in some circumstances.

Special Considerations

• State‑chartered banks may have their own lending‑limit rules, but many states mirror the federal standard (for example, 15% base and 25% with eligible collateral).
• Lending limits are generally most relevant for large corporate, municipal, or institutional borrowers. Typical retail and small business loans rarely approach these thresholds because banks hold substantial capital relative to individual consumer credit exposures.

Practical Takeaway

Legal lending limits cap how much a bank can extend to one borrower as a share of its capital and surplus—commonly 15%, or up to 25% when secured by marketable securities. The rule reduces concentration risk and applies mainly to sizable institutional loans; most individual borrowers and small businesses will not be affected.