Section 306 - Limits on indebtedness of one customer (including purchased paper)(a) General limit--An institution shall not at any time acquire indebtedness of any one customer (which includes an individual or any legal entity) of the types specified in this section, in an amount which together with all other such indebtedness then held would exceed fifteen percent of the capital accounts of the institution. If the department shall determine at any time that the interests of a group of more than one individual, partnership, unincorporated association or corporation are so interrelated that they should be considered as a unit for the purpose of extensions of credit, the total indebtedness of that group acquired at any time shall be combined and deemed indebtedness acquired from one customer in applying the limitation of this section. An institution shall not be deemed to have violated this section solely by reason of the fact that the indebtedness of a group then held exceeds the limitation of this section at the time of a determination by the department that the indebtedness of that group must be combined but the institution shall, if required by the department, dispose of indebtedness of the group in the amount in excess of the limitation of this section within such reasonable time as shall be fixed by the department.(b) Indebtedness included--There shall be included in the indebtedness of one customer to which the fifteen percent limitation of this section applies: (i) the aggregate rentals payable by the customer under leases of personal property by the institution;(ii) to the extent that they exceed fifteen percent of the capital accounts of the institution, the aggregate balances payable on all installment paper acquired by the institution from the customer, irrespective of the legal liability of the customer or absence of such liability;(iii) to the extent that they exceed fifteen percent of the capital accounts of the institution, obligations of the customer as indorser or guarantor of notes (other than those excluded by subsection (c)(ii) of this section) having a maturity of not more than six months and actually owned by the customer transferring the notes;(iv) obligations of the customer by reason of acceptances by the institution of drafts or bills of exchange (other than those excluded by subsection (c)(v) of this section);(v) all other liabilities, not otherwise excluded by this section, of the customer to the institution, whether direct or indirect, primary or secondary, under evidences of indebtedness and agreements for the payment of money; and(vi)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 institution and the person.(c) Indebtedness excluded--There shall be excluded from the indebtedness of one customer to which the fifteen percent limitation of this section applies: (i) obligations in the form of negotiable drafts or bills of exchange which have been drawn in good faith against actually existing values in connection with the sale of goods and which have been accepted or indorsed;(ii) obligations arising out of the discount of commercial or business paper actually owned by the customer transferring it;(iii) obligations drawn in good faith against actually existing values and secured by goods in process of shipment;(iv) obligations in the form of banker's acceptances of other banks of the kind described in section 308;(v) obligations of the customer by reason of acceptances by the institution for the customer's account pursuant to section 308, except to the extent that the institution acquires such acceptances;(vi) obligations secured by documents of title covering:(B) readily marketable nonperishable staples for a period of not more than ten months from the date of the document of title, or(C) readily marketable frozen or refrigerated staples for a period of not more than six months from the date of the document of the title if such property has a market value of not less than one hundred fifteen percent of the amount of the obligation secured thereby and is fully covered by insurance;
(vii) obligations of, and obligations guaranteed by:(B) the Commonwealth of Pennsylvania or a state where the institution lawfully maintains branches, a political subdivision of the Commonwealth or such state, a public body of the Commonwealth or such state or a public body of a political subdivision of the Commonwealth or such state, or(C) any state of the United States or any political subdivision thereof if the obligations or guarantees are general obligations;(viii) obligations to the extent secured by: (A) obligations specified in clause (vii) of this subsection,(B) obligations which the institution would be authorized to acquire without limit as investment securities pursuant to section 307,(C) obligations fully guaranteed by the United States,(D) guaranties or commitments or agreements to take over or purchase made by any department, bureau, board, commission or establishment of the United States or any corporation owned directly or indirectly by the United States, or(E) loan agreements between a local public agency or a public housing agency and an instrumentality of the United States pursuant to national housing legislation under which funds will be provided for payment of the obligations secured by such loan agreements;(ix) obligations secured by: (A) at least a like amount of cash surrender value of life insurance policies, or(B) collateral which has a market value of not less than one hundred and twenty percent of the amount of the obligations secured thereby-- to the extent of fifteen percent of the aggregate of the capital accounts of the institution;
(x) investment securities acquired pursuant to section 307;(xi) obligations of the kind covered by subsection (b)(ii) of this section, as to which there is a certificate of reliance on a primary obligor;(xii) obligations of the customer as to which there is a certificate of reliance on an obligor other than the customer;(xiii) transactions of the institution in connection with the sale of reserve balances to a member or nonmember bank; and(xiv) an assignment of funds on deposit in the lending institution.(d) Regulation--The department may by regulation not inconsistent with the provisions of this section and section 1414(c) prescribe definitions of and requirements for transactions included in or excluded from the indebtedness to which the fifteen percent limitation of this section applies.(e) Definition---As used in this section , the following words and phrases shall have the meanings given to them in this subsection:"Capital accounts"--the aggregate of capital, surplus, undivided profits, capital securities and reserve for loan losses of the institution. Reserve for loan losses shall mean that portion of an institution's earnings set aside as a general reserve to absorb possible future losses on loans as of the last complete calendar or fiscal year, carried in an account captioned "reserve for loan loss" or "reserve for bad debts."
"Derivative transaction"--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, one or more commodities, securities, currencies, interest or other rates, indices or other assets.
Amended by P.L. 1336 2012 No. 170, § 11, eff. 12/23/2012.1965, Nov. 30, P.L. 847, No. 356, § 306. Amended 1968, Nov. 27, P.L. 1104, No. 345, § 1; 1970, July 23, P.L. 597, No. 199, §§ 3, 3.1; 1977, July 25, P.L. 101, No. 37, § 4, imd. effective; 1984, July 6, P.L. 621, No. 128, § 2, imd. effective; 1995, July 6, P.L. 271, No. 39, § 6, imd. effective; 2000, Nov. 22, P.L. 660, No. 89, § 5, imd. effective.