79-4

San Francisco, California
September 14, 1979

Re: Financial Code Section 1220(e)
Dear Mr. ________:
This is in reference to your letter of August 20, 1979 and subsequent telephone conversations requesting clarification of our current policy regarding Financial Code Section 1220(e).
The obligations of a corporation include the obligations of its subsidiaries as defined in Financial Code Section 1220(e). Accordingly for loan limits, the obligations of subsidiaries are deemed to be obligations of the parent whether or not the parent is obligated. In specific instances and upon special application made by a bank, prior to the extension of credit, we would consider granting an exemption pursuant to Section 1220(e) as long as the following conditions are present.
1. The outstanding direct and indirect obligations of each subsidiary would be subject to the banks loan limit
2. Each subsidiary is financially creditworthy, and there is adequate documentation on hand to support the creditworthiness of the subsidiary.
3. Each credit extension is a bona fide credit transaction, with primary repayment responsibility from the borrowing subsidiary.
4. Proceeds of the credit extension would not be used for benefit of the parent or common owner.
5. Approvals granted under Section 1220(e) are for limited periods of time.

Of course such credit extensions would be subject to evaluation by the examiners during regular examinations and would be expected to stand on their own under these previously listed conditions. If you have further questions, please contact me.
Very truly yours,

M. R. MICHAELS
Superintendent of Banks

By

HAROLD D. DOYLE
Deputy Superintendent