Regulatory Alerts2013-11-04
OFI Advisory Opinion No. 10 – Legal Lending Limit Treatment of Derivative Transactions
The Louisiana Office of Financial Institutions issued Advisory Opinion No. 10 to clarify how state-chartered banks calculate credit exposure from derivative and securities financing transactions for legal lending limit compliance under LSA-R.S. 6:415. The opinion endorses the Office of the Comptroller of the Currency’s Current Exposure Method and Conversion Factor Matrix Method, allowing institutions to select valuation approaches that align with their size, product complexity, and risk management practices. By adopting these OCC-aligned calculations, state-chartered banks may safely engage in derivatives without violating lending limits, provided they implement formal policies, assess transaction quality during examinations, and make reasonable efforts to bring nonconforming exposures into compliance.