(a) Standby letters of credit. For the purpose of this section,
standby letters of credit include every letter of credit (or similar
arrangement however named or designated) that represents an obligation
to the beneficiary on the part of the issuer—
(1) to repay money borrowed by or advanced
to or for the account of the account party; or
(2) to make payment on account of any evidence
of indebtedness undertaken by the account party; or
(3) to make payment on account of any default
by the party procuring the issuance of the letter of credit in the
performance of an obligation.
6(b) Ineligible acceptance. An ineligible acceptance
is a time draft accepted by a bank, which does not meet the requirements
for discount with a Federal Reserve Bank.
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(c) Bank’s lending limits. Standby letters
of credit and ineligible acceptances count toward member bank’s lending
limits imposed by state law.
(d) Exceptions. A standby letter of credit
or ineligible acceptance is not subject to the restrictions set forth
in paragraph (c) of this section if prior to or at the time of issuance
of the credit—
(1) the issuing bank is paid an amount
equal to the bank’s maximum liability under the standby letter of
credit; or
(2) the party
procuring the issuance of a letter of credit or ineligible acceptance
has set aside sufficient funds in a segregated, clearly earmarked
deposit account to cover the bank’s maximum liability under the standby
letter of credit or ineligible acceptance.
