84-10

November 15, 1984

Dear Mr. ________ :
In response to your letter of October 11, 1984, please be advised that the following would not be considered eligible collateral as security for loans under the provisions of Section 1223 of the Financial Code:
(1) Creation of a performance bond through an insurance company, guaranteeing funding of general partners in a partnership borrowing.
(2) Letter of credit, properly margined, from a commercial bank supporting the requested credit.
A performance bond as described in your letter would merely be guaranteeing funds to the general partners and would have no direct relationship to the bank’s loan. Moreover, even if the insurance company directly guaranteed the loan, without eligible collateral, such a guarantee would be considered an unsecured obligation and therefore subject to unsecured lending limits of Section 1221(a).
With regard to the standby letter of credit, such an instrument is viewed as an unsecured obligation of the issuing bank. Therefore, it could not be considered eligible collateral for purposes of Section 1223.
If you have any further questions, please do not hesitate to call.
Very truly yours,
LOUIS CARTER
Superintendent of Banks
By
JAMES E. BRODIE
Assistant Deputy Superintendent
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