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| Our institution sets a precedent that we will only lend up to 110% of deposits. Even there examiners get a little bucky. Most banks in the area are well under 100%.
Regulations are set so a bank cannot be too levereaged to any one individual. Thus, a legal lending limit is set telling how much they can lend to an individual. To determine this, they look at the bank's capital, which is a great measure of the strength of the bank. We are able to lend an amount equal to 15% of the bank's capital to any one individual. For example, if the bank's total capital is $40,000,000, they can legally have up to $6,000,000 in loans on their books to that one individual. A bank can exceed this limit with purchase price livestock, but that livestock must have a more favorable loan to value. In the example the bank could loan up to an additional 10% of capital to that individual on purchase price livestock, so an additional $4mm. | |
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Bankers and cattle prices
