The lending function of depositary institutions is highly regulated and this cha

Question

The lending function of depositary institutions is highly regulated and this chapter gives some examples of the structure of these regulations for national banks. In this problem you are asked to apply those regulations to Red Rose National Bank (RRNB). Red Rose has the following sources of funds: $300 million in capital and surplus, $325 million in demand deposits, $680 million in time and savings deposits, and $200 million in subordinated debt. a) what is the maximum dollar amount of real estate loans that RRNB can grant? b) What is the maximum dollar amount RRNB may lend to single customer?

Explanation / Answer

a)

TRNB can grant

= ($680) * 70%

= $476 million in real estate loans

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b)

TRNB may lend up to

= $300 * 15%

= $45 million to a single customer.

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