02-7

02-7

November 20, 2002

Re: Loan Commitments by State Licensed Banks

Dear Ms. ________:

This follows your telephone conversation with Rosemarie Oda, General Counsel, Department of Financial Institutions (the “Department”). As I understand the issue, you were wondering what is the Department’s position regarding loan commitments made in excess of the lending limits set forth in California law (Financial Code section 1220, et seq.).

Please be advised that a loan commitment made in excess of the lending limits does not involve a violation of law, but the making of such a commitment without a prearranged disposition of the amount of the loan in excess of the lending limit (the “excess loan amount”) may be considered to be an unsafe and unsound banking practice. Further, if a loan commitment was made in compliance with the lending limits but subsequent events reduced the lending limits below the amount of the commitment, the commitment does not violate the law. However, the funding of the loan without a prearranged disposition of the excess loan amount may be considered to be an unsafe and unsound banking practice.

I trust this has been responsive to your request. If you have any further questions regarding this matter, please feel free to contact me.

Very truly yours,
DONALD R. MEYER
Commissioner of Financial Institutions
By
KENNETH SAYRE-PETERSON
Senior Counsel
KSP43:pjp
cc: Rosemarie Oda, General Counsel, Department of Financial Institutions