Excess Loans

AAA

DEFINITION of 'Excess Loans'

A loan made by a state chartered or national bank to an individual that is over the loan lending limit as established by law. The legal lending limit establishes the rule that state-chartered banks cannot loan more than 10% of their capital to any one borrower; national banks cannot lend more than 15% of their capital.

INVESTOPEDIA EXPLAINS 'Excess Loans'

Regulators want banks to lower their risk of loan default by not making large loans to individual borrowers in this way. If a bank chooses to make an excess loan the bank's Board of Directors could become liable in the event that the borrower goes into default.

RELATED TERMS
  1. Loan Committee

    The lending or management committee of a bank or other lending ...
  2. High Ratio Loan

    A loan of any type for which a relatively small down payment ...
  3. Excess Cash Flow

    A term used to describe the income derived from mortgages or ...
  4. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  5. Default Risk

    The event in which companies or individuals will be unable to ...
  6. Chartered Bank

    A financial institution whose primary roles are to accept and ...
RELATED FAQS
  1. When is it a good idea to take out a loan to invest?

    The only time it makes sense to invest a loan is when the return on investment of the loan is high and the risk level of ... Read Full Answer >>
  2. Who bears the risk of bad debts in securitization?

    Bad debts arise when borrowers default on their loans. This is one of the primary risks associated with securitized assets, ... Read Full Answer >>
  3. What are some of the well-known no-load funds?

    The capital adequacy ratio promotes stability and efficiency of worldwide financial systems and banks. The capital to risk-weighted ... Read Full Answer >>
  4. How do you calculate payback period using Excel?

    Each financial institution offers similar products for its banking customers, including savings accounts, certificates of ... Read Full Answer >>
  5. What formula can I use to calculate interest on interest?

    Use the compound interest formula to determine the amount of accumulated interest on the principal amount invested or borrowed. ... Read Full Answer >>
  6. What are the pros and cons of online checking accounts?

    Online banking offers a convenient alternative to keeping your checking account with a brick-and-mortar bank. With an online ... Read Full Answer >>
Related Articles
  1. Insurance

    The Rise Of The Modern Investment Bank

    Get to know a little bit about the institutions whose actions help to guide free markets.
  2. Credit & Loans

    The Evolution Of Banking

    Banks are a part of ancient history. Find out how this system of money management developed into what we know today.
  3. Credit & Loans

    How To Read Loan And Credit Card Agreements

    The devil is always in the details! Find out what you're signing yourself up for.
  4. Credit & Loans

    Digging Out Of Personal Debt

    Find out why good intentions can put consumers in an even bigger hole than before.
  5. Options & Futures

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  6. Options & Futures

    Bank Failure: Will Your Assets Be Protected?

    The SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up.
  7. Savings

    Is A Premium Checking Account Worth It?

    Premium checking accounts give you free checking and other perks in return for keeping a certain balance in the bank. Is that the best use of your money?
  8. Savings

    Top Premium Checking Accounts of 2015

    Which banks offer the best deals for premium checking accounts – and what do you have to do to qualify for one?
  9. Economics

    Explaining Risk-Weighted Assets

    Risk-weighted assets is a banking term that refers to a method of measuring the risk inherent in a bank’s assets, which is typically its loan portfolio.
  10. Savings

    Understanding Savings Accounts

    A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

You May Also Like

Hot Definitions
  1. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  2. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  3. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  4. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  5. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center