We have a borrower who is looking for a C&I loan and business assets are a part of the collateral. Customer has a chain of the same business (around 6-7) of which two are in a leased building. One of the leased buildings is in a flood zone. The question is would it be required by the reg to have coverage on the contents in the leased building in the flood zone? It seems more of a credit risk decision, as if contents are lost during a flood, the borrower would be expected to come out of pocket for the equipment which could affect the repayment of the loan.

In order for contents requiring to be covered, you have to have one loan that is secured by both the building and the contents located in that building. Since you have no security interest in the leased building, you are correct in that this is a credit risk decision.