Letter 18: Use of the Reserve for Dividends Payable in Common Stock in Computing Legal Loaning Limits and Outstanding Loan Commitments
In computing the maximum legal loaning limit for banks under Section 221.29 of the Wisconsin Statutes, the reserve for dividends payable in common stock should be included in the computations. This should be considered as capital stock when using either the 15% including outstanding capital debentures or the 20% when excluding the debentures.
This reserve should only be allowed where it is being set up in accordance with the debenture agreement which requires a stock dividend in connection with the retirement of the capital debentures. This Department will review any written agreement or binding commitment to grant credit to any individual or corporation with the borrower or another lending institution. Banks should be cautioned that the unused commitments and outstanding loans to any one individual or corporation should not exceed the legal lending limit for the bank. The only exception would be where the bank has a written agreement from another bank or lending institution to take the amount over their legal loaning limit.
Bkg. Ltr. #18, April 9, 1974, Commissioner Mildenberg