How is the amount that a commercial bank can lend determined?


Quick Answer

The amount that a bank can lend to an individual borrower is based on regulations administered by the Federal Deposit Insurance Corporation. The amount is calculated contingent upon the capital and surplus the bank has available, according to the FDIC.

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Full Answer

While federal regulation determines the maximum amount the bank can lend to the company or individual, it is up to the bank to determine how much they are willing to lend. According to an article from the Canandaigua National Bank & Trust, this is decided by evaluating the specific risks associated with the transaction. The articles explains that risk is assessed by factoring in the character of the borrower, the borrower's ability to repay the debt, the amount of equity to the bank, the type of collateral used to secure the loan and the conditions of the loan.

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