[Code of Federal Regulations]
[Title 12, Volume 2, Parts 200 to 219]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR208.24]

[Page 174]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL RESERVE SYSTEM (REGULATION H)--Table of Contents
 
                    Subpart B--Investments and Loans
 
Sec. 208.24  Letters of credit and acceptances.

    (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\
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    \6\ A standby letter of credit does not include: (1) Commercial 
letters of credit and similar instruments, where the issuing bank 
expects the beneficiary to draw upon the issuer, and which do not 
guaranty payment of a money obligation; or (2) a guaranty or similar 
obligation issued by a foreign branch in accordance with and subject to 
the limitations of 12 CFR part 211 (Regulation K).
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    (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.
    (c) Bank's lending limits. Standby letters of credit and ineligible 
acceptances count toward member banks' 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.