Legal Lending Limit

The legal lending limit (LLL) is the maximum amount of money a depository institution can lend to a single borrower. The LLL is set by the Federal Reserve Board and is based on the institution's capital. The LLL is designed to protect depository institutions from excessive risk and to ensure the safety and soundness of the financial system.

There are two types of LLLs: the aggregate LLL and the single-borrower LLL. The aggregate LLL is the total amount of money a depository institution can lend to all borrowers. The single-borrower LLL is the maximum amount of money a depository institution can lend to a single borrower.

The aggregate LLL is calculated by multiplying the institution's capital by a multiplier. The multiplier is determined by the institution's risk category. The risk categories are:

* Well-capitalized: The multiplier is 10.
* Adequately capitalized: The multiplier is 8.
* Undercapitalized: The multiplier is 6.
* Significantly undercapitalized: The multiplier is 4.
* Critically undercapitalized: The multiplier is 2.

The single-borrower LLL is calculated by multiplying the institution's capital by a different multiplier. The multiplier is determined by the institution's risk category and the borrower's credit rating. The credit ratings are:

* A: The multiplier is 10.
* B: The multiplier is 8.
* C: The multiplier is 6.
* D: The multiplier is 4.
* E: The multiplier is 2.

The LLL is a critical tool for depository institutions to manage their risk. By limiting the amount of money they can lend to a single borrower, depository institutions can reduce their exposure to credit risk. The LLL also helps to ensure the safety and soundness of the financial system by preventing depository institutions from taking on too much risk.