What is 'Legal Lending Limit'

The legal lending limit is the maximum dollar amount that a single bank can lend to a given borrower. This limit is expressed as a percentage of an institution’s capital and surplus. The limits are overseen by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

BREAKING DOWN 'Legal Lending Limit'

The legal lending limit for national banks was established under the United States Code (U.S.C) and is overseen by the FDIC and the OCC. Details on national bank lending limits are reported in U.S.C. Title 12, Part 32.

The FDIC provides insurance for U.S. depositors. Both the FDIC and the OCC are involved in the national bank chartering process. Both entities also work to ensure that national banks follow established rules defined in the United States Code which details federal statutes.

Calculating Lending Limits

Lending limit legal code applies to banks and savings associations across the nation. The code on lending limits states that a financial institution may not issue a loan to a single borrower for more than 15% of the institution’s capital and surplus. This is the base standard and requires an institution to closely follow capital and surplus levels which are also regulated under federal law. Banks are allowed another 10% for collateralized loans. Thus, they can lend up to 25% of capital and surplus if a loan is secured.


Some loans may be allowed special lending limits. Loans that may qualify for special lending limits include the following: loans secured by bills of lading or warehouse receipts, installment consumer paper, loans secured by livestock and project financing advances pertaining to a pre-qualifying lending commitment.

Additionally some loans may not be subject to lending limits at all. These loans may include: certain commercial paper or business paper discounted loans, bankers' acceptances, loans secured by U.S. obligations, loans affiliated with a federal agency, loans associated with a state or political subdivision, loans secured by segregated deposit accounts, loans to financial institutions with the approval of a specified Federal banking agency, loans to the Student Loan Marketing Association, loans to industrial development authorities, loans to leasing companies, credit from transactions financing certain government securities and intraday credit.

Capital and Surplus

Banks are required to hold significant amounts of capital which typically causes lending limits to only apply to institutional borrowers. Generally capital is divided into tiers based on liquidity. Tier 1 capital includes its most liquid capital such as statutory reserves. Tier 2 capital may include undisclosed reserves and general loss reserves. National banks are required to have a total capital to assets ratio of 8%.

Surplus may refer to a number of components at a bank. Categories included as surplus may include profits, loss reserves and convertible debt.

  1. Loan Officer

    A loan officer is a representative of a bank, credit union or ...
  2. Bank Lending Survey

    Bank Lending Survey is a questionnaire circulated by a country's ...
  3. Loan Loss Provision

    A loan loss provision is an expense set aside as an allowance ...
  4. Commercial Loan

    A commercial loan is a debt-based funding arrangement that a ...
  5. Lending Freeze

    Lending freezes are protective measures taken by banks to reduce ...
  6. Unlawful Loan

    An unlawful loan is a loan that fails to comply with lending ...
Related Articles
  1. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  2. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  3. Personal Finance

    Different needs, different loans

    When it comes to loans, there are many different types according to your needs. Find out what options are available when it comes to borrowing money.
  4. Personal Finance

    States That Allow Car Title Loans

    Only some states permit car title loans – and those that do may have restrictions. Check this list to see what to expect.
  5. Investing

    Will Energy Exposure Tank Wells Fargo? (WFC)

    Discover the reasons Wells Fargo's portfolio of loans to speculative shale oil and gas exploration and production companies will not tank the bank.
  6. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  7. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  8. Managing Wealth

    Unsecured Personal Loans: 8 Sneaky Traps

    If you are seeking a personal loan, be aware of these pitfalls before you proceed.
  9. Financial Advisor

    Disadvantages of Federal Direct Loans

    Federal Direct Loans are popular ways to get federal help with college costs. However, they do have some drawbacks, especially for graduate students.
  10. Personal Finance

    Have Bad Credit? 6 Ways to a Personal Loan Anyway

    It'll cost you more, but borrowing is definitely doable. Here's how to proceed.
  1. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to determine if this loan type is the right financial ... Read Answer >>
Trading Center