Banking Interpretations

NYSBL 103(1)

January 14, 1994

To: Senior Examiner Damitz, Foreign Commercial Banks Division

From: Kathleen A. Scott, Associate Attorney

Re: [ ] -- Credits "Insured" by the

[ ]

This is in response to your request that the Legal Division review a transaction entered into by [ ] ("the Bank") where the [ ] insures 90% of the exposure to a foreign buyer under its Financial Institution Buyer Credit Program. The Bank wishes to know whether the transaction is subject to the loan to one borrower limitations.

As you, know, section 103(1) of the Banking Law generally prohibits banks from lending to one borrower an amount which will exceed fifteen percent of the bank's capital stock, surplus fund and undivided profits, with an additional ten percent permitted for certain secured loans. There are several exceptions to this rule, including one in section 103(1)(a) which states that the limitations do not apply for loans guaranteed by an agency, department or instrumentality of the United States government designated by the Banking Board. Section 28.1(a) of the Banking Regulations designates [ ] as one of the instrumentalities that fall within the statute and thus loans guaranteed by [ ] are not subject to the fifteen percent limitation.

I have reviewed the papers submitted by the Bank and it is clear that this transaction is not guaranteed by [ ] but instead is insured by [ ]. I spoke with an attorney for [ ] who confirmed that the guarantee and insurance programs are different. While she did not have a great amount of detail about the differences, she did point out that under the guarantee program, documents are reviewed and approved in advance and once the guarantee is granted it is unconditional, while under the insurance program there is no upfront review of documentation and any payment under the insurance program is conditioned upon submission of proper documentation. The attorney also added that for capital adequacy purposes, loans guaranteed by [ ] are in the zero percent risk weight category while loans insured by [ ] are in the twenty percent risk weight category.

As a result, the Bank should be notified that this transaction is subject to the fifteen percent limitation of section 103 because it is not considered to be a transaction "guaranteed" by [ ].

If you have any further questions, please advise.