3. Real-estate Loans
Description
This section is from the book "Banking And Business", by H. Parker Willis, George W. Edwards. Also available from Amazon: Banking and Business .
3. Real-estate Loans
The third class of restrictions is based on loans secured by real estate. Such security for a loan was prohibited absolutely under the provisions of the National Bank Act, but the Federal Reserve Act removed this restriction by conferring the right to grant such loans upon all banks located outside of the central reserve cities of New York, Chicago, and St. Louis. Real estate has the defect of possessing only a limited marketability, and to prevent a bank from lending too heavily in this direction the Federal Reserve Act imposes several restrictions on these loans. Their aggregate to all borrowers must not exceed either 25 per cent of the bank's capital and surplus, or 33 1/3 per cent of its time deposits. In every case the loan must not be over 50 per cent of the appraised value of the property. The maturity is limited to five years on farm land, which must be improved and unencumbered, and to one year if based on other real estate, such as improved property. In order to confine these loans to the vicinity of the bank, the property must be situated within a radius of one hundred miles.
These legal restrictions on the loans of national banks may be summarized in the following tables:
Examples of What a National Bank Mat Lend at Any One Time to Any One Customer Under the Amendment to Section 5200, Approved October 22, 1919 Expressed in Terms of Percentage of the Bank's Capital and Surplus
Illustration 1 | Illustration 2 | Illustration 3 | |
Accommodation or straight loans | 10% | 5% | 5% |
Notes secured by warehouse receipts, etc................... | 15% | 20% | 15% |
Notes secured by a like face amount of Government obligations ........................ | 10% | 10% | 15% |
Total | 35% | 35% | 35% |
Bills of exchange drawn against actually existing values........ | No limit imposed by law. | ||
Commercial or business paper .... | No limit imposed by law. | ||
Notes secured by at least 105% of U. S. Government obligations | No limit imposed by law. | ||
Legal Limitations on Loans by National Banks
Character of Loans | Rate Per Cent of Capital and Surplus Loanable to One Interest | Rate Per Cent of Collateral to Amount of Loan | Rate Per Cent of Capital and Surplus Loanable in the Aggregate | Maturity of the Obligation in Terms of Years |
1. Promissory Notes. | ||||
(a) straight - unsecured ..... | 10 | ................. | no limit | ................. |
(b) secured by-warehouse receipts or shipping documents.......... | 15 | 115 | ,, | ................. |
(c) secured by government war obligations....... | 10 no limit | 100 | ,, | .................. |
105 | ,, | ................ | ||
2. Bills of Exchange | ||||
(a) unsecured. .. | 10 | .............. | .............. | .............. |
(b) secured by shipping documents "based on actually existing values" - foreign transactions. | no limit | .............. | 100 | 1/2 |
domestic transactions. | no limit | .............. | 50 | 1/4 |
(c) create dollar exchange.... | 10 | .............. | 50 | 1/4 |
Commercial or Business Paper Owned. | no limit | .............. | no limit | .............. |
3. Real-estate Loans. | ||||
(a) fanning property ........ | 10 | 25, or 33 1/3 of time 'deposits | 5 | |
(b) improved property.... | 10 | 200 | 1 |
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