CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2002 No.15 October 1, 2002

Vol 2002 No. 15 October 1, 2002

Lending Limit Bill Creates Parity for State Banks

A new California law, AB 1893, which was sponsored by the California Bankers Association, seeks to create parity between state and federally chartered banks by adding an exception to loan limits where a loan is secured by a segregated deposit account in the lending bank. Existing law imposes limitations on the amount of money that a person, partnership, or association may owe a commercial bank, with several exceptions. Some of the existing exemptions include loans secured by obligations of the United States.

AB 1893 is an enactment of emergency regulations previously adopted to achieve parity with national banks. Regulations adopted pursuant to this process expire on January 1 of the second succeeding year following the end of the calendar year in which the regulation was promulgated. This bill is such enactment of the regulations.AB 1893 provides an exception for loans to the extent secured by a segregated deposit account if a security interest in the deposit has been perfected. Also, the bank must have in place procedures to prevent release of the security without the bank's prior consent. If the deposit is denominated and payable in a currency other than that of the loan, the amounts must be freely convertible to United States dollars. The bill further provides that the bank must establish procedures to revalue foreign currency deposits periodically to ensure that the extension of credit remains fully secured at all times.

For further information, please contact CBA's lead lobbyist on this bill, Maurine Padden, VP/Legislative Counsel at 916-441-7377 x212.