Table of Contents

Understanding Bank Legal Lending Limits: Key Rules and Guidelines

By

Julia Kagan

Updated November 02, 2025

Reviewed by Charles Potters

Fact checked by

Jane Meacham

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What Is the Legal Lending Limit?

A bank's legal lending limit is the maximum amount it can lend to a single borrower, calculated as a percentage of its capital and surplus. Regulated by the Office of the Comptroller of the Currency (OCC), the standard cap is 15%, which may rise to 25% if the excess portion is fully secured by approved collateral.

Certain loans, such as those backed by U.S. government obligations or bankers' acceptances, are exempt from these limits. Because the restriction is tied to a bank's capital base, it most often applies to large institutional borrowers rather than routine consumer lending.

Key Takeaways

A bank's legal lending limit is based on a percentage of its capital and surplus, typically capped at 15% for unsecured loans.
Loans backed by marketable securities can extend a bank's lending limit to 25% of its capital and surplus.
Exemptions from lending limits include loans secured by U.S. obligations and certain types of commercial paper.
State-chartered banks often follow lending limit standards similar to those set by the Office of the Comptroller of the Currency (OCC).
Large institutional borrowers are more likely to be affected by lending limits due to banks' significant capital holdings.

Understanding the Mechanics of Legal Lending Limits

The legal lending limit for national banks was established under the United States Code (U.S.C.), reported in U.S.C. Title 12, Part 32.3.

The Office of the Comptroller of the Currency (OCC) oversees legal lending limits, while the Federal Deposit Insurance Corp. (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.

The lending limit legal code applies to national banks and savings associations nationwide. The federal code on lending limits states that a national bank or savings association may not issue a loan to a single borrower for more than 15% of the institution’s capital and surplus.

The base standard of 15% requires an institution to closely follow capital and surplus levels regulated under federal law. Banks are allowed an additional 10 percentage points for the lending limit for collateralized loans. Thus, they can lend up to 25% of capital and surplus if readily marketable securities secure the loan.

Fast Fact

State-chartered banks may have their own lending limits, but they are often similar to the OCC standard.

For example, New York-chartered banks have a lending limit of 15% of their capital stock, surplus fund, and undivided profits (CUPS), but 25% for loans secured by appropriate collateral.

Factors Affecting Legal Lending Limits

Loans secured by bills of lading, warehouse receipts, installment consumer paper, or livestock may qualify for special lending limitsAdditionally, some loans may not be subject to lending limits at all, including:

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 (Sallie Mae)
Loans to industrial development authorities,
Loans to leasing companies
Credit from transactions financing certain government securities
Intraday credit

Important

Banks are required to hold significant amounts of capital, which typically causes lending limits to apply only 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 consist of undisclosed reserves and general loss reserves. National banks must 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 be profits, loss reserves, and convertible debt, among others.

How Is a Bank's Legal Lending Limit Expressed?

A bank's legal lending limit is given as a percentage of an institution’s capital and surplus. The legal limit for national banks is 15% of the bank’s capital. These limits prevent excessive loans to one person, or to related persons who are financially dependent, according to the OCC.

Which Banks Must Comply with the Legal Lending Limit?

The U.S. lending limit legal code applies to national banks and savings associations nationwide. The federal code on lending limits says that a national bank or savings association may not issue a loan to a single borrower for more than 15% of the institution’s capital and surplus. Most state-regulated banks follow similar guidelines for maximum lending limits.

Will I Be Faced with Applying for a Loan That Exceeds Banks' Legal Limits?

It's highly unlikely. Banks must hold significant amounts of capital, which typically causes lending limits to apply only to large, institutional borrowers.

The Bottom Line

The legal lending limit caps how much a bank can lend to one borrower, usually at 15% of capital and surplus, or up to 25% with strong collateral. Regulated by the OCC, it's designed to curb excessive risk.

Because banks hold large capital reserves, retail and most small-business borrowers rarely hit this limit; it mainly applies to large institutional lending.

Article Sources

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Cornell Law School - Legal Information Institute. "12 CFR § 32.3 - Lending Limits."
New York Department of Financial Services. "Banking Interpretations – Lending Limit."
Cornell Law School, Legal Information Institute. "12 CFR § 3.10 - Minimum Capital Requirements."
Office of the Comptroller of the Currency. "The History of Supervisory Expectations for Capital Adequacy: Part II (1984–2021)." Page 3.
Office of the Controller of the Currency. "Lending Limits."

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