What is 'Legal Lending Limit'
The aggregate maximum dollar amount that a single bank can lend to a given borrower. The legal limits differ for different types of banks. The Financial Institutions Act of 1989 mandated that all savings and loan institutions must adhere to the same limits set forth for national banks.
BREAKING DOWN 'Legal Lending Limit'
The legal lending limit for national banks is 15% of combined capital and reserves on an unsecured loan and 25% for a loan that is fully collateralized. Bank holding companies can lend a bank affiliate either 10% of the capital plus the surplus of the affiliate, or else 20% of the capital of all affiliates, provided that they are all owned by the same holding company. Of course, most loans that would approach these limits are made to institutional borrowers only.