Important Notices

Reminder: Request for Comments
Derivative Exposure and the California Lending Limits

The DFI made the request below on  October 5, 2012.  

Please submit comments no later than November 7, 2012.

Effective January 21, 2013, section 611 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) provides that an insured state chartered bank may engage in derivative transactions only if“the law with respect to lending limits of the State in which the insured State bank is chartered takes into consideration credit exposure to derivative transactions.”  Under the Dodd-Frank Act, a derivative transaction “includes any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.”
The California Financial Code (FC), Division 1.1, Chapter 14, Article 3, takes into consideration credit exposure to derivative transactions in section 1480 and 1481.  While section 1480 and 1481 fall under Article 3, which is entitled “Loan Limits,” the FC does not restrict the meaning of “obligations” to loan products.  Section 1480(a) defines “Obligations” to mean the total sums for the payment of which a person is obligated, primarily or secondarily, to a commercial bank.  Section 1481 limits the total amount of obligations that any one person may owe to a bank at any one time.  Therefore, “obligations” as defined and used in section 1480 encompasses “credit exposure to derivative transactions” and are subject to the limits imposed by section 1481(a). 
The Office of the Comptroller of the Currency (OCC) is amending its regulation governing lending limits for national banks to implement section 610 of the Dodd-Frank Act, which amends the statutory definition of “loans and extensions of credit” to include credit exposures arising from derivative transactions, repurchase agreements, reverse repurchase agreements, securities lending transactions and securities borrowing transactions.

The OCC’s Interim Final Rule ( implementing section 610 of the Dodd-Frank Act provides three different methods for calculating credit exposure for derivative transactions, outlined below, but mandates that a national bank or savings association must use the same method for all their exposures.  The Department is reviewing the OCC’s proposed methodologies to determine the appropriate approach to using any of the OCC’s proposed methodologies to determine credit exposure for derivative transactions at California state chartered banks. 

The DFI requests your comments on the OCC’s proposed methodologies to determine credit exposure for derivative transactions.  To provide comments, please access our secure electronic questionnaire by clicking the link below:

For questions regarding the content of the questionnaire, please contact Chief Examiner Scott Cameron at

For technical issues with the electronic questionnaire, please contact