Arizona § 6-352 - Limitations of obligations to a bank; exceptions; definitions

§ 6-352. Limitations of obligations to a bank; exceptions; definitions

A. A bank may lend to a single borrower an amount equal to not more than twenty percent of its capital, plus an amount equal to an additional ten percent of its capital if the additional amounts are fully secured by readily marketable collateral that has a market value, as determined by reliable and continuously available price quotations, at least equal to the amount of the loan.  The calculation of the total amount of all loans to a person pursuant to this subsection must include any credit exposure to a person arising from a derivative transaction, repurchase agreement, reverse repurchase agreement, securities lending transaction or securities borrowing transaction between the bank and the person.

B. A bank shall notify the department the first time it makes a loan in an amount in excess of fifteen percent of its capital. The notification to the department shall be made in writing and submitted to the department within a reasonable period of time.

C. Each bank shall institute adequate procedures to ensure compliance with subsection A of this section.

D. The limitations of subsection A of this section do not apply to:

1. Obligations incurred by the assignment, endorsement or guarantee of the obligation of a third person, including an agreement to purchase the third person's obligation or the collateral therefor, if the bank has evaluated the financial condition and responsibility of the third person and as a result of such evaluation accepts the obligation in reliance primarily on the third person for payment. In such case the obligations of the third person to the bank shall be the sole applicable limitation.

2. Obligations, whether general obligations or payable from revenues or special assessment, of the United States or any agency or instrumentality of the United States, a federal reserve bank, a state of the United States or a subdivision, instrumentality or public authority organized under the laws of such state.

3. Obligations to the extent they are secured by the guarantee, insurance or other like commitment of the United States, an agency or instrumentality of the United States, a federal reserve bank, a state of the United States or a subdivision, instrumentality or public authority organized under the laws of such state, whether the commitment provides for payment in cash or in obligations described in paragraph 2 of this subsection.

4. Obligations to the extent they are secured by any obligation described in paragraphs 2 and 3 of this subsection at the value thereof, not exceeding face value, at the time the obligation to the bank is created.

5. Obligations to the extent they are secured by deposits in the bank.

6. Obligations that are outstanding in the regular process of bank collection or clearing transactions.

7. Obligations of a qualified reserve depository of the bank, unless the deputy director has by specific order excluded or limited the obligations of such depository from the exemption of this paragraph.

8. Any obligation created in the sale by the bank of any of its property where the bank retains title, lien or security interest in the property sold to secure the obligation.

9. Any obligation under the lease by the bank of any personal property acquired by the bank in collecting an obligation to it or the lease of any of its real property or banking equipment.

10. That portion of the obligations of a person to the bank that exceeds the aggregate funds paid and the value of property delivered by the bank in creating the obligation.

11. Any obligation exempt by rule of the deputy director or arising from the sale of any assets of the bank in a transaction that has been approved by the deputy director.

E. If the bank participates in an obligation with another obligee, the limitations of this section shall be applicable only to the extent of the bank's participation.

F. If the value of collateral for a loan that is required to be fully secured under subsection A of this section falls below one hundred percent of the outstanding loan, the loan must be brought into conformance within five business days, except if judicial proceedings, regulatory actions or other extraordinary occurrences prevent the bank from taking action.

G. A renewal of a loan or a modification and extension of original repayment terms are not deemed to be a new loan or an extension of credit except in instances in which interest on the renewed loan or extension of credit is capitalized or additional money is advanced.

H. Financial instruments may be denominated in foreign currencies that are freely convertible to United States dollars. If denominated and payable in a currency other than that of the loan or extension of credit that it secures, the bank's procedures adopted pursuant to subsection C of this section shall require that the collateral be revalued at least monthly using appropriate foreign exchange rates in addition to being valued at current market value.

I. For the purposes of this section:

1. "Derivative transaction" includes a transaction that is a contract, agreement, swap, warrant, note or option that is based on, in whole or in part, the value of, any interest in or any quantitative measure or the occurrence of any event relating to one or more commodities, securities, currencies, interest or other rates, indices or other assets.

2. "Financial instruments" includes stocks, bonds and debentures traded on a national securities exchange, over-the-counter margin stocks as defined in regulation U of the federal reserve board, commercial paper, notes, negotiable certificates of deposit, banker's acceptance and shares in money market and mutual funds of the type in which banks may perfect a security interest.

3. "Readily marketable collateral" means financial instruments or bullion that are saleable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions of an auction or a similarly available daily bid and asked price market.