Kentucky Statutes 286.3-280 – Maximum debt of persons to bank or trust company
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(1) Except as provided in subsection (2) of this section:
(a) Subject to paragraph (b) of this subsection, no bank or trust company shall permit any person to become indebted to it or become obligated as guarantor or surety to it in an amount exceeding twenty percent (20%) of the bank’s or trust company‘s capital stock actually paid in and actual amount of surplus, unless the person pledges, for any amount that exceeds the twenty percent (20%) limit, good collateral security or a mortgage upon real or personal property, which at the time is of more than the cash value of the indebtedness or obligation required to be secured under this paragraph above all other encumbrances;
(b) In no event shall the indebtedness or obligation of any person exceed thirty percent (30%) of a bank’s or trust company’s capital stock actually paid in and actual amount of surplus; and
(c) When computing the total of a bank’s or trust company’s capital stock actually paid in and actual amount of surplus, any negative balance of a bank’s or trust company’s undivided profits account shall be deducted.
(2) A bank or trust company may, in lieu of complying with subsection (1) of this section, elect to comply with the legal lending limits applicable to national banks, as set forth in 12 U.S.C. § 84 and 12 C.F.R. § part 32, as amended.
(3) No bank or trust company shall permit any of its directors or executive officers to become indebted to it or become obligated as guarantor or surety to it in an amount that exceeds the amount that any other person is authorized by this section to become indebted or obligated to the bank or trust company.
(4) In computing the indebtedness of any person:
(a) The liability of any partnership in which the person acts as a general partner, and any obligation entered into for the benefit of a person, partnership, or association, shall be included in the total liabilities of the person, partnership, or association; and
(b) 1. Any credit exposure arising from a derivative transaction, repurchase agreement, reverse purchase agreement, securities lending transaction, or securities borrowing transaction shall be included.
2. For the purposes of this paragraph, the term “derivative transaction” includes 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 (1) or more commodities, securities, currencies, interest or other rates, indices, or other assets.
(5) Except as otherwise provided in this section, the same security, both in kind and amount, shall be required from stockholders as from nonstockholders.
(6) The discount of bills of exchange drawn against actually existing value, and the purchase or discounting of commercial or business paper actually owned by the person negotiating the paper, shall not be considered as borrowed money within the meaning of this section in fixing the limit of indebtedness or obligation of any
person selling or negotiating the paper to a bank.
Effective: June 29, 2023
History: Amended 2023 Ky. Acts ch. 101, sec. 1, effective June 29, 2023. — Amended
2012 Ky. Acts ch. 77, sec. 1, effective July 12, 2012. — Amended 2010 Ky. Acts ch
28, sec. 15, effective July 15, 2010. — Amended 2006 Ky. Acts ch. 183, sec. 9, effective July 12, 2006. — Amended 1992 Ky. Acts ch. 77, sec. 3, effective July 14,
1992. — Amended 1986 Ky. Acts ch. 444, sec. 9, effective July 15, 1986; and ch.
472, sec. 1, effective July 15, 1986. — Recodified 1942 Ky. Acts ch. 208, sec. 1, effective October 1, 1942, from Ky. Stat. secs. 581, 583, 609, 610.
Formerly codified as KRS § 287.280.
Legislative Research Commission Note (7/12/2006). This section was amended in
2006 Ky. Acts ch. 183. In that same session, 2006 Ky. Acts ch. 247, sec. 38 required that all sections of KRS Chapters 287, 288, 290, 291, 294, 366, 366A, and 368 be renumbered as sections of a single KRS chapter entitled the “Kentucky Financial Services Code.” Therefore, the Statute Reviser, acting under KRS § 7.136(1), has changed the number of this section and codified it as a section of KRS Chapter 286.
Legislative Research Commission Note. This section was amended by two 1986 Acts which do not appear to be in conflict and have been compiled together. However, in combining the amendments it was necessary to retain the words “in an amount” in subsection (2) of this section which had been deleted by Acts 1986, ch. 472, § 1.
(a) Subject to paragraph (b) of this subsection, no bank or trust company shall permit any person to become indebted to it or become obligated as guarantor or surety to it in an amount exceeding twenty percent (20%) of the bank’s or trust company‘s capital stock actually paid in and actual amount of surplus, unless the person pledges, for any amount that exceeds the twenty percent (20%) limit, good collateral security or a mortgage upon real or personal property, which at the time is of more than the cash value of the indebtedness or obligation required to be secured under this paragraph above all other encumbrances;
Terms Used In Kentucky Statutes 286.3-280
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Capital stock: shall mean , at any particular time, the sum of:
(a) The par value of all shares of the corporation having a par value that have been issued. See Kentucky Statutes 286.3-010 - Company: may extend and be applied to any corporation, company, person, partnership, joint stock company, or association. See Kentucky Statutes 446.010
- Contract: A legal written agreement that becomes binding when signed.
- Directors: when applied to corporations, includes managers or trustees. See Kentucky Statutes 446.010
- Guarantor: A party who agrees to be responsible for the payment of another party's debts should that party default. Source: OCC
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Mortgage: The written agreement pledging property to a creditor as collateral for a loan.
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Partnership: A voluntary contract between two or more persons to pool some or all of their assets into a business, with the agreement that there will be a proportional sharing of profits and losses.
- Partnership: includes both general and limited partnerships. See Kentucky Statutes 446.010
- Person: means a natural person, or any type or form of corporation, company, partnership, proprietorship, association, or other legal entity. See Kentucky Statutes 286.1-010
- Personal property: All property that is not real property.
- Statute: A law passed by a legislature.
- Stock: means the corporation's shares. See Kentucky Statutes 286.3-010
- Surplus: means the amount of consideration received by the corporation for all shares issued without par value that has not been allocated to capital stock or the amount of consideration received by the corporation in excess of par value for all shares with a par value, or both. See Kentucky Statutes 286.3-010
- Trust company: includes every corporation authorized by this subtitle to do a trust business. See Kentucky Statutes 286.3-010
- Undivided profits: means the composite of the bank's net retained earnings from current and prior years' operations. See Kentucky Statutes 286.3-010
(b) In no event shall the indebtedness or obligation of any person exceed thirty percent (30%) of a bank’s or trust company’s capital stock actually paid in and actual amount of surplus; and
(c) When computing the total of a bank’s or trust company’s capital stock actually paid in and actual amount of surplus, any negative balance of a bank’s or trust company’s undivided profits account shall be deducted.
(2) A bank or trust company may, in lieu of complying with subsection (1) of this section, elect to comply with the legal lending limits applicable to national banks, as set forth in 12 U.S.C. § 84 and 12 C.F.R. § part 32, as amended.
(3) No bank or trust company shall permit any of its directors or executive officers to become indebted to it or become obligated as guarantor or surety to it in an amount that exceeds the amount that any other person is authorized by this section to become indebted or obligated to the bank or trust company.
(4) In computing the indebtedness of any person:
(a) The liability of any partnership in which the person acts as a general partner, and any obligation entered into for the benefit of a person, partnership, or association, shall be included in the total liabilities of the person, partnership, or association; and
(b) 1. Any credit exposure arising from a derivative transaction, repurchase agreement, reverse purchase agreement, securities lending transaction, or securities borrowing transaction shall be included.
2. For the purposes of this paragraph, the term “derivative transaction” includes 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 (1) or more commodities, securities, currencies, interest or other rates, indices, or other assets.
(5) Except as otherwise provided in this section, the same security, both in kind and amount, shall be required from stockholders as from nonstockholders.
(6) The discount of bills of exchange drawn against actually existing value, and the purchase or discounting of commercial or business paper actually owned by the person negotiating the paper, shall not be considered as borrowed money within the meaning of this section in fixing the limit of indebtedness or obligation of any
person selling or negotiating the paper to a bank.
Effective: June 29, 2023
History: Amended 2023 Ky. Acts ch. 101, sec. 1, effective June 29, 2023. — Amended
2012 Ky. Acts ch. 77, sec. 1, effective July 12, 2012. — Amended 2010 Ky. Acts ch
28, sec. 15, effective July 15, 2010. — Amended 2006 Ky. Acts ch. 183, sec. 9, effective July 12, 2006. — Amended 1992 Ky. Acts ch. 77, sec. 3, effective July 14,
1992. — Amended 1986 Ky. Acts ch. 444, sec. 9, effective July 15, 1986; and ch.
472, sec. 1, effective July 15, 1986. — Recodified 1942 Ky. Acts ch. 208, sec. 1, effective October 1, 1942, from Ky. Stat. secs. 581, 583, 609, 610.
Formerly codified as KRS § 287.280.
Legislative Research Commission Note (7/12/2006). This section was amended in
2006 Ky. Acts ch. 183. In that same session, 2006 Ky. Acts ch. 247, sec. 38 required that all sections of KRS Chapters 287, 288, 290, 291, 294, 366, 366A, and 368 be renumbered as sections of a single KRS chapter entitled the “Kentucky Financial Services Code.” Therefore, the Statute Reviser, acting under KRS § 7.136(1), has changed the number of this section and codified it as a section of KRS Chapter 286.
Legislative Research Commission Note. This section was amended by two 1986 Acts which do not appear to be in conflict and have been compiled together. However, in combining the amendments it was necessary to retain the words “in an amount” in subsection (2) of this section which had been deleted by Acts 1986, ch. 472, § 1.