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April 30, 1996

[Word(s) deleted]

Dear [Word(s) deleted] :

This is in response to your letter dated January 31, 1996, expressing concern that the limit in section 22(h) of the Federal Reserve Act (12 U.S.C. 375b) on extensions of credit by a bank to its executive officers, directors, and principal shareholders and their related interests (collectively, "insiders") in the aggregate could have a detrimental effect on your bank's continued growth and prosperity.

As noted in your letter, section 22(h), as amended by the Federal Deposit Insurance Corporation Improvement Act of 1991, Pub. L. No. 102-242, 105 Stat. 2355 (1991), imposes a general limit on aggregate insider lending equal to 100 percent of the bank's unimpaired capital and unimpaired surplus. See 12 U.S.C. 375b(5)(A). Section 22(h) authorizes the Board to make exceptions to this limit for banks with less than $100 million in deposits, provided that in no event may a bank's aggregate insider lending exceed 200 percent of its unimpaired capital and unimpaired surplus. See 12 U.S.C. 375b(5)(C). Pursuant to this authorization, the Board published a final rule authorizing qualified banks with less than $100 million in deposits to increase their aggregate insider lending limit to the maximum extent permitted by the statute. See 50 Federal Register 8831 (Feb. 24, 1994). It is our understanding that your bank has acted under the Board's rule and increased its aggregate insider lending limit to 200 percent of the bank's unimpaired capital and unimpaired surplus.

In your letter, you state that you expect your bank soon to exceed $100 million in deposits, and note that this would require your bank to reduce its aggregate insider lending limit to the general limit of 100 percent of the bank's unimpaired capital and unimpaired surplus. You indicate that your bank has relied on a large board of directors of active businesspeople as a source of sound and profitable lending in its community, and express concern that the general aggregate insider lending limit would require your bank to forego making additional loans of this nature. You ask the Board to eliminate the deposit ceiling above which banks are prohibited from increasing their aggregate insider lending limit, or at least raise the deposit ceiling to $200 million.

As noted above, the deposit ceiling of $100 million was established by Congress, and Congress gave the Board no authority to change that ceiling or otherwise permit banks with deposits of $100 million or more to increase their aggregate insider lending limit. Accordingly, the Board is unable to address your concern.

Do not hesitate to contact Gordon L. Miller, Attorney, of my staff, at 202/452-2534, if you have any additional questions concerning this matter.

Sincerely,

(signed) J. Virgil Mattingly

J. Virgil Mattingly

General Counsel

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