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ARTICLE · 26 AUGUST 2026

Control : When Loan Covenants Become Limiting Contractual Rights

Duane Morris LLP
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The Federal Reserve's 2020 final rule on Control and Divestiture Proceedings introduced critical clarity around limiting contractual rights in banking law. Understanding when contractual provisions...

United StatesFinance and Banking
Joseph E. Silvia
Joseph E. Silvia
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The Federal Reserve’s 2020 final rule on Control and Divestiture Proceedings brought significant clarity to one of banking law’s most complex areas. Among its most important provisions is the treatment of “limiting contractual rights” — contractual provisions that can, in combination with other factors, create a presumption of control over another company.

What Constitutes a Limiting Contractual Right?

A contractual provision requiring a second company to conform its activities to BHC Act or Home Owners’ Loan Act (HOLA) restrictions is generally classified as a “limiting contractual right.” This classification applies regardless of the type of agreement in which the provision appears. Critically, a loan covenant that meets this definition is a limiting contractual right — the control rule makes no exception for loan agreements.

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