Bank Regulation and Commercial Lending

Posted on 02-09-2017

By: Dwight Smith, Nelson Mullins Riley & Scarborough LLP.

Bank financing can take several forms, including commercial loans, repurchase agreements, and securities borrowing transactions, all of which are subject to regulation at the federal and state levels. This article provides an overview of the regulations and other supervisory policies that restrict and influence commercial lending by banks.

THIS DISCUSSION SHOULD BE OF USE TO PRACTITIONERS who advise on commercial lending, perform due diligence of commercial lending business, draft disclosure documents, or may represent banks in litigation or other adversarial proceedings.

The Framework of Bank Regulation

The scope of a banking organization’s commercial lending authority depends first on two factors: the charter of the lending entity and where in the organization this entity sits. The same loan may be subject to different requirements and limitations depending on these factors. To begin with, a banking organization is such because it includes a bank: an institution with a specific federal or state bank charter (and not a general state corporate charter) and with deposits insured by the Federal Deposit Insurance Corporation (FDIC).

Several federal and state agencies offer charters to insured depository institutions. The term “bank” is used throughout to include all insured depository institutions, regardless of their charters. National bank and federal savings association charters are issued by the Office of the Comptroller of the Currency (OCC) under, respectively, the National Bank Act (NBA), 12 U.S.C.S. § 21, et seq., and the Home Owners’ Loan Act (HOLA), 12 U.S.C.S. § 1461 et seq. State bank charters are granted by a state banking agency. All 50 states, as well as the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands, provide such charters. Several (but not all) states offer other charters for institutions such as state savings associations, savings banks, and industrial banks. All state banks are regulated at the federal level as well as at the state level. Indeed, most state regulators will defer to federal regulators on examination and enforcement issues. A state bank (but not other state-chartered institutions) may choose to become a member of the Federal Reserve System. If it does so, the Federal Reserve Board (the Board) is its primary federal regulator; if not, then the FDIC is. Banks with different charters may be controlled by the same bank holding company, but this circumstance does not change the powers of any bank.

To read the full practice note in Lexis Practice Advisor, follow this link.


Dwight Smith is a partner of Nelson Mullins Riley & Scarborough LLP in Washington, D.C.


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