§ 1471 Bank Investment Limits

• •Banks may hold both debt (obligations) and securities from the same borrower.
• •The total amount they can hold can’t be more than 25 % of the bank’s equity, loan loss reserves, capital notes, and debentures.
• •Other sections (1481 and 1510) have extra rules that can limit this rule.

A bank decides to buy $5 million of a local company's bonds and also hold $5 million of that company’s stock.

The bank can do that only if the combined $10 million is no more than 25 % of the bank’s total equity and other capital numbers. If the bank’s equity and related capital add up to $50 million, the $10 million is exactly the limit, so it’s allowed. If the bank’s capital were only $30 million, the $10 million would be too high and the bank would have to cut back.