Excess Loans

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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.

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