6.1-61 - (Repealed effective October 1, 2010) Limitations on obligations of borrowers.
§ 6.1-61. (Repealed effective October 1, 2010) Limitations on obligations ofborrowers.
Subject to the exceptions hereinafter stated, the total obligations of anyperson, partnership (including, as hereinafter provided, the partners havinga five percent or greater interest in either the income or capital thereofother than limited partners), association, limited liability company orcorporation to any bank shall at no time exceed fifteen percent of the sum ofthe capital, surplus, and loan loss reserve of such bank. For the purposes ofthis section the obligation of partners in the partnership and thepartnership shall not be combined with each other except to the extenthereafter permitted. (1) If the purpose for which the obligation of anypartner was incurred or utilized relates to the partnership or the purposesof the partnership, including acquisition of an interest in the partnership,such obligation shall be combined with the obligation of the partnership. (2)If the primary source of repayment of a partner's individual obligation isthe partnership or funds therefrom, the obligation of the partnership shallbe combined with the obligation of such partner, other than a limited partneror partner with less than five percent interest, and the limitation specifiedherein shall apply to the combined obligations of each such partner and thepartnership. Except in the two instances specified in (1) and (2) of thisparagraph, the individual liability of the partner shall not be treated as anobligation of the individual hereunder, nor shall the obligations of partneras individual guarantor on partnership obligations be treated as anobligation of the individual for purposes of computation hereunder when, ineither case, the bank has a certificate of a responsible officer designatedby the board of directors for this purpose stating that the responsibility ofthe partnership for each obligation has been evaluated and the bank isrelying primarily upon such partnership for the payment of such indebtedness.For the purposes of this section there may be counted as part of the surplus(a) the undivided profits as of the date of the most recent call statement,and (b) capital notes and debentures, the issuance of which has been approvedby the Commission, outstanding as of said date, and consisting of debtobligations subordinate to all other contractual liabilities of the bank.
The term "obligations" shall mean the direct liability of the maker oracceptor of the paper discounted with or sold to such bank and the liabilityof the endorser, drawer or guarantor who obtains a loan from or discountspaper with or sells paper under his guaranty to such bank, and shall includein the case of obligations of a corporation or a limited liability companyall obligations of all subsidiaries thereof in which such corporation orlimited liability company owns or controls a majority interest. The term"obligation" shall include any liability of the bank under a letter ofcredit, other than a letter of credit arising out of transactions involvingthe importation or exportation of goods or the domestic shipment of goods,except to the extent (i) the bank has a binding participation of anotherbank, organized under the laws of this Commonwealth or another state or theUnited States, or a written commitment by another such bank to assume primaryliability therefor, or (ii) such bank issuing the letter of credit has in itspossession money on deposit to the credit of such customer or securities orassets readily convertible into cash with which to honor such letter ofcredit.
A. The following kinds of obligations shall not be subject to any limitation,except as expressly stated in subdivision A (7) of this section:
(1) Obligations in the form of drafts or bills of exchange drawn in goodfaith against actually existing values;
(2) Obligations arising out of the discount of commercial or business paperactually owned by the person, partnership, association, limited liabilitycompany or corporation negotiating the same;
(3) Obligations drawn in good faith against actually existing values andsecured by goods or commodities in process of shipment;
(4) Obligations in the form of banker's acceptances of other banks of thekind described in section thirteen of the Federal Reserve Act;
(5) Obligations of the United States, obligations of the Commonwealth ofVirginia and of its political subdivisions, including sanitary or publicfacilities districts, obligations fully guaranteed or insured by a state orby a state authority for the payment of the obligation of which the faith andcredit of the state is pledged, obligations issued by the Federal Home LoanBanks, first mortgage real estate loans which are insured by the FederalHousing Administrator, obligations guaranteed as to principal and interest bythe United States, loans in which the Small Business Administration or afederal reserve bank has definitely agreed or committed itself toparticipate, to the extent of such participation, obligations guaranteed bythe Small Business Administration or Farmers Home Administration, to theextent of such guaranty, loans which the Federal Commodity Credit Corporationhas definitely agreed to purchase, direct obligations of and obligationsguaranteed by the Export-Import Bank and loans guaranteed by a federalguaranteeing agency, pursuant to the Defense Production Act of 1950, or bondsand notes of the Federal National Mortgage Association or bonds, debenturesand other similar obligations of Federal Land Banks, Federal IntermediateCredit Banks, or Banks for Cooperatives issues pursuant to acts of Congress,obligations of the Federal Financing Bank, the Student Loan MarketingAssociation, the Federal Home Loan Mortgage Corporation, the National CreditUnion Administration, Farm Credit Banks, the Government National MortgageAssociation and the Commodity Credit Corporation, as well as time deposits ina Federal Home Loan Bank and repurchase agreements of obligations authorizedby this subsection;
(6) Obligations of any person, partnership, association, limited liabilitycompany, or corporation secured by not less than a like amount of bonds ornotes or other evidences of indebtedness of the United States or of theCommonwealth of Virginia;
(7) Obligations as endorser or guarantor of installment consumer paper whichcarries a full or limited endorsement or guarantee of the person,partnership, association, limited liability company, or corporationtransferring the same when the bank has a certificate of a responsibleofficer designated by its board of directors for that purpose stating thatthe responsibility of the maker of such obligation has been evaluated and thebank is relying primarily upon such maker for the payment of such obligation,in which case the limitations of this section as to the obligations of themaker shall be the sole applicable loan limitation. As used in thissubdivision, the term "installment consumer paper" shall be deemed toinclude installment notes of up to ten years' duration for the purchase ofunimproved real property;
(8) Obligations secured by the pledge or assignment of certificates ofdeposit or saving certificates of the lending bank, to the extent of theprincipal amount of such certificates so pledged or assigned.
B. The following kinds of obligations shall be subject to a limitation ofthirty percent of such capital and surplus:
(1) Obligations as endorser or guarantor of notes, other than commercial orbusiness paper excepted under subdivision A (2) of this section having amaturity of not more than six months, and owned by the person, partnership,limited liability company, or corporation endorsing and negotiating the same.
(2) Obligations of any person, partnership, limited liability company, orcorporation in the form of notes or drafts secured by shipping documents orinstruments transferring or securing title covering livestock or giving alien on livestock when the market value of the livestock securing theobligations is not at any time less than 115 percent of the amount by whichthe obligations exceed fifteen percent of such capital and surplus.
(3) Obligations secured by bonds or notes of the United States, or bonds ofthe Commonwealth of Virginia or any of its political subdivisions, if theface value thereof is at least equal to the excess of the obligations overfifteen percent of such capital and surplus.
C. Nonrenewable obligations having not more than ten months to run consistingof notes or drafts secured by shipping documents, warehouse receipts orsimilar documents creating a security interest in readily marketable,nonperishable, staple commodities, insured to the extent that insurance iscustomarily required, shall be subject to a sliding scale limitation up tofifty percent of such capital, surplus and undivided profits. The slidingscale limitation shall be as follows: when the face amount of the obligationexceeds fifteen percent of such capital and surplus by any number ofpercentage points up to thirty-five, the market value of the security for theobligation must exceed the face amount of the obligation by at least the samenumber of percentage points.
D. The Commission shall promulgate necessary rules and regulations to requireentities, which would otherwise be treated as separate entities, to betreated as related for the purposes of compelling reporting not morefrequently than quarterly, to the Commission of the aggregate obligations ofsuch parties to the bank. For the purposes of this subdivision, theCommission may treat as related parties, persons in the same household orwhich are the parents, grandparents, children or grandchild or grandchildrenof each other whether or not in the same household. Any person owning as muchas thirty-four percent of stock of a corporation or being an officer ordirector of such corporation may be treated as related to such corporation.Any person entitled to a share of the profits and losses of or distributionsfrom a limited liability company, or who is a manager of a manager-managedlimited liability company or a member of a member-managed limited liabilitycompany, may be treated as related to the limited liability company. Anyperson having an interest in income or capital of a partnership may betreated as a related party.
All loans made by a bank in excess of fifteen percent of its capital andsurplus shall be approved by the board of directors or the executivecommittee of the bank by resolution recorded in the minute book.
E. Notwithstanding the limitations in this section, the Commission may byrule or regulation authorize state banks to make loans to one borrower insuch amounts as may be authorized under any lending limit laws applicable tonational banks.
(Code 1950, § 6-76; 1952, c. 23; 1958, c. 74; 1960, c. 27; 1966, c. 584;1970, c. 42; 1974, c. 557; 1977, cc. 110, 466; 1978, c. 683; 1984, c. 134;1987, c. 494; 1994, c. 290; 2002, c. 186; 2006, c. 912.)