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  • PART I ADMINISTRATION OF THE GOVERNMENT
  • TITLE XXII CORPORATIONS
  • CHAPTER 167E MORTGAGES AND LOANS
  • Section 6 Limitations on obligations

Section 6. (a) The total obligations of 1 borrower to a bank under this chapter and chapter 167F shall not exceed the following limitations.

(1) 20 per cent of the total of the bank’s capital;

(2) 25 per cent of the total of the bank’s capital, if the amount of the obligations in excess of the limitations in clause (1) is fully secured by obligations of the United States of like value;

(3) 100 per cent of the total of the bank’s capital, if the amount of the obligations in excess of the limitations in clause (1) is fully secured by obligations of the United States of like value, due within 3 years of the date of the note of the borrower.

(4) Obligations of a foreign government or a political subdivision thereof shall be limited to 10 per cent of capital; but a well capitalized bank engaged in a global custody business that has no less than $5,000,000,000 of foreign currency denominated deposits shall be limited to 40 per cent of capital.

(5) Obligations of all foreign governments and political subdivisions thereof shall not exceed a total of 50 per cent of capital; but a well capitalized bank engaged in a global custody business that has no less than $5,000,000,000 of foreign currency denominated deposit shall not be subject to that limitation.

(6) The total obligations of 1 borrower for the purposes of this section shall include credit exposures as a counterparty in derivative transactions with a bank. For purposes of this clause, “derivative transaction” shall include any transaction that is a contract, agreement, swap, warrant, note or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, 1 or more commodities, securities, currencies, interest or other rates, indices or other assets; and “credit exposure” to a counterparty in connection with derivative transactions shall be determined based on an amount that the bank reasonably determines under the terms of the derivative or otherwise would be its loss were the counterparty to default on that date, taking into account any netting and collateral arrangements and any guarantees or other credit enhancements; provided, that the bank may elect to determine credit exposure on the basis of such other method of determining credit exposure as may be permitted by the bank’s primary federal regulatory authority.

(b) The limitations of subsection (a) shall not apply to:

(1) Obligations of the United States.

(2) Obligations of the commonwealth and its political subdivisions.

(3) Obligations of a state or a political subdivision thereof in the United States.

(4) Obligations to the extent that they are secured as to principal and interest by the unconditional guarantee, insurance or other like commitment of the United States, an agency of the United States or a federal reserve bank, whether the commitment provides for payment in cash or in obligations of the United States.

(5) Obligations arising out of the discount of:

(i) Drafts or bills of exchange drawn in good faith against actually existing values, and (ii) commercial or business paper actually owned by the person negotiating it.

(6) Obligations to the extent that they are secured as to principal and interest by the guarantee, insurance or other like commitment of the Massachusetts Development Finance Agency pursuant to chapter 23G.

(7) Obligations for funds advanced to facilitate the clearance or settlement of securities transactions in accordance with customary industry practice and applicable rules of a stock exchange or market system; if, (i) the obligations are secured by readily-marketable securities, which may include the securities being purchased, having a market value at the time the advance is made of not less than the principal amount of the advance, and (ii) the obligations so advanced are repaid following the settlement of, and receipt of proceeds from, securities transactions which have been effected for the purpose of repaying the obligations so advanced.

(8) Obligations which are secured by a deposit account in the lending bank which is not subject to withdrawal.

(9) Obligations secured by a mortgage loan secured by a first lien on real estate improved with a dwelling to be occupied by not more than 4 families and occupied or to be occupied in whole or in part by the borrower shall not be calculated against the total obligations of the borrower for the purposes of the limitations under subsection (a).

(10) Obligations to the extent they are secured by securities issued or guaranteed by a United States government-sponsored entity, including the Federal National Mortgage Association and the federal Home Loan Mortgage Corporation.

(11) Obligations to provide securities, incurred in connection with securities loans, which obligations are fully secured by securities convertible at the option of the bank acting as principal or agent into securities of the same issue and class as the securities that are the subject matter of the obligation.

(12) Obligations to the extent they are initially and thereafter secured by collateral consisting of a combination of cash and readily marketable securities with a value of not less than 100 per cent of the obligations.

(c) Notwithstanding subsection (a), liabilities for federal funds and other short-term obligations of any national bank or other bank to a bank may exceed 100 per cent of the capital and no collateral shall be required for the obligations except insofar as the commissioner of banks may by regulation set limits on the obligations and require collateral of any kind.

(d) Obligations to 1 borrower will be attributed to another person and each person will be considered a borrower if the obligation was used for the direct benefit of another person or there was a common enterprise considered to exist between the persons. For the purposes of this section the word “person” shall include an individual, sole proprietorship, partnership, limited liability company, joint venture, association, trust, estate, business trust, corporation, sovereign government or agency, instrumentality or political subdivision thereof and including the liabilities of the members of a firm or any similar entity or organization. The commissioner shall have the authority to determine whether a loan putatively made to 1 person shall for purposes of this section be attributed to another person.

(e) This section shall not apply to mortgages taken in good faith by way of security for debts to the bank previously contracted, or to loans made by the bank to secure the payment of a portion of the purchase price of real estate acquired by the bank by foreclosure, or otherwise.

(f) The commissioner may by directive, guideline or regulation, prescribe additional requirements to administer and carry out this section and to further define the terms used in this section.