§ 1510 Bank Securities Investment Limit

This law says a bank can't invest more than 15% of its total money in one person's or company's securities, except for certain safe investments like U.S. government bonds or California state bonds.

Key Takeaways

•Banks can’t put more than 15% of their total money into one person’s or company’s stocks or bonds.
•This rule doesn’t apply to safe investments like U.S. government bonds or California state bonds.
•The bank’s total money includes shareholders’ equity, capital notes, and other reserves.

Example

A bank has $100 million in total money (shareholders’ equity, capital notes, etc.).

The bank can invest up to $15 million in one company's stocks or bonds, but it can invest more in U.S. government bonds or California state bonds because those are considered safe.

How to Calculate

Maximum Investment = 15% × (Shareholders’ Equity + Allowance for Loan and Lease Losses + Capital Notes + Debentures)

Add up the bank’s shareholders’ equity, allowance for loan and lease losses, capital notes, and debentures.
Multiply the total by 15% (or 0.15) to find the maximum amount the bank can invest in one person’s or company’s securities.
This limit does not apply to safe investments like U.S. government bonds or California state bonds.

A bank has $50 million in shareholders’ equity, $5 million in allowance for loan and lease losses, $10 million in capital notes, and $5 million in debentures.

Result: Maximum Investment = 15% × ($50M + $5M + $10M + $5M) = 15% × $70M = $10.5 million

The total amount invested by a bank in the securities issued by a person shall not exceed 15 percent of the sum of the shareholders’ equity, allowance for loan and lease losses, capital notes and debentures of the bank, except: (a) Obligations of the United States and those for which the faith and credit of the United States are pledged for the payment of principal and interest. (b) Bonds, consolidated bonds, collateral trust debentures, or other obligations issued by the Federal Financing Bank, the United States Postal Service, federal land banks, or federal intermediate credit banks established under the Federal Farm Loan Act; in debentures and consolidated debentures issued by the Central Bank for Cooperatives and banks for cooperatives established under the Farm Credit Act of 1933; in consolidated notes, bonds, debentures, and other obligations issued by federal land banks, federal intermediate credit banks, and banks for cooperatives under the Farm Credit Act of 1971; in the bonds of any federal home loan bank established under the Federal Home Loan Bank Act; and in stock, bonds, debentures, participations, and other obligations of or issued by the Student Loan Marketing Association, the Federal National Mortgage Association, the Government National Mortgage Association, and the Federal Home Loan Mortgage Corporation. (c) Obligations of the State of California and those for which the credit of the State of California is pledged for the payment of principal and interest. (d) Obligations of a local agency or district of the State of California having the power, without limit as to rate or amount, to levy taxes to pay the principal and interest of the bonds upon all property within its boundaries subject to taxation by the local agency or district. (e) Capital stock of the Federal Reserve bank serving the district in which the bank is located. (f) Capital stock of a federal home loan bank in the manner provided in the Federal Home Loan Bank Act. (g) Capital stock of the Federal Deposit Insurance Corporation. (Added by Stats. 2011, Ch. 243, Sec. 3. (SB 664) Effective January 1, 2012.)

This law says a bank can't invest more than 15% of its total money in one person's or company's securities, except for certain safe investments like U.S. government bonds or California state bonds.

Key Takeaways

•Banks can’t put more than 15% of their total money into one person’s or company’s stocks or bonds.
•This rule doesn’t apply to safe investments like U.S. government bonds or California state bonds.
•The bank’s total money includes shareholders’ equity, capital notes, and other reserves.

Example

A bank has $100 million in total money (shareholders’ equity, capital notes, etc.).

The bank can invest up to $15 million in one company's stocks or bonds, but it can invest more in U.S. government bonds or California state bonds because those are considered safe.

How to Calculate

Maximum Investment = 15% × (Shareholders’ Equity + Allowance for Loan and Lease Losses + Capital Notes + Debentures)

Add up the bank’s shareholders’ equity, allowance for loan and lease losses, capital notes, and debentures.
Multiply the total by 15% (or 0.15) to find the maximum amount the bank can invest in one person’s or company’s securities.
This limit does not apply to safe investments like U.S. government bonds or California state bonds.

A bank has $50 million in shareholders’ equity, $5 million in allowance for loan and lease losses, $10 million in capital notes, and $5 million in debentures.

Result: Maximum Investment = 15% × ($50M + $5M + $10M + $5M) = 15% × $70M = $10.5 million

Key Takeaways

Example

How to Calculate

Key Terms

References

§ 1510 Bank Securities Investment Limit

Key Takeaways

Example

How to Calculate

Key Terms

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References