3-1175
FEDERAL RESERVE
ACT
SECTION 23A—Relations with
Affiliates
(a) Restrictions
on transactions with affiliates.
(1) A member bank and its subsidiaries
may engage in a covered transaction with an affiliate only if—
(A) in the case of any affiliate, the aggregate amount of covered
transactions of the member bank and its subsidiaries will not exceed
10 per centum of the capital stock and surplus of the member bank;
and
(B) in the case
of all affiliates, the aggregate amount of covered transactions of
the member bank and its subsidiaries will not exceed 20 per centum
of the capital stock and surplus of the member bank.
(2) For the purpose of
this section, any transaction by a member bank with any person shall
be deemed to be a transaction with an affiliate to the extent that
the proceeds of the transaction are used for the benefit of, or transferred
to, that affiliate.
(3) A member bank and its subsidiaries may not purchase a low-quality
asset from an affiliate unless the bank or such subsidiary, pursuant
to an independent credit evaluation, committed itself to purchase
such asset prior to the time such asset was acquired by the affiliate.
(4) Any covered transactions
and any transactions exempt under subsection (d) between a member
bank and an affiliate shall be on terms and conditions that are consistent
with safe and sound banking practices.
3-1175.1
(b) Definitions. For the purpose of
this section—
(1) the term “affiliate” with respect to
a member bank means—
(A) any company that controls the member
bank and any other company that is controlled by the company that
controls the member bank;
(B) a bank subsidiary of the member
bank;
(C) any company—
(i) that is controlled directly or indirectly, by a trust or otherwise,
by or for the benefit of shareholders who beneficially or otherwise
control, directly or indirectly, by trust or otherwise, the member
bank or any company that controls the member bank; or
(ii) in which a majority of its directors
or trustees constitute a majority of the persons holding any such
office with the member bank or any company that controls the member
bank;
(D) any investment fund with respect to which a member bank or affiliate
thereof is an investment adviser; and
(E) any company that the Board determines
by regulation or order to have a relationship with the member bank
or any subsidiary or affiliate of the member bank, such that covered
transactions by the member bank or its subsidiary with that company
may be affected by the relationship to the detriment of the member
bank or its subsidiary; and
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(2) The following shall not be considered
to be an affiliate:
(A) any company, other than a bank,
that is a subsidiary of a member bank, unless a determination is made
under paragraph (1)(E) not to exclude such subsidiary company from
the definition of affiliate;
(B) any company engaged solely in holding
the premises of the member bank;
(C) any company engaged solely in conducting
a safe deposit business;
(D) any company engaged solely in holding
obligations of the United States or its agencies or obligations fully
guaranteed by the United States or its agencies as to principal and
interest; and
(E) any
company where control results from the exercise of rights arising
out of a bona fide debt previously contracted, but only for the period
of time specifically authorized under applicable State or Federal
law or regulation or, in the absence of such law or regulation, for
a period of two years from the date of the exercise of such rights
or the effective date of this Act, whichever date is later, subject,
upon application, to authorization by the Board for good cause shown
of extensions of time for not more than one year at a time, but such
extensions in the aggregate shall not exceed three years;
3-1175.3
(3) (A) a company or shareholder
shall be deemed to have control over another company if—
(i) such company
or shareholder, directly or indirectly, or acting through one or more
other persons owns, controls, or has power to vote 25 per centum or
more of any class of voting securities of the other company;
(ii) such company or shareholder
controls in any manner the election of a majority of the directors
or trustees of the other company; or
(iii) the Board determines, after notice and
opportunity for hearing, that such company or shareholder, directly
or indirectly, exercises a controlling influence over the management
or policies of the other company; and
(B) notwithstanding any other provision
of this section, no company shall be deemed to own or control another
company by virtue of its ownership or control of shares in a fiduciary
capacity, except as provided in paragraph (1)(C) of this subsection
or if the company owning or controlling such shares is a business
trust;
3-1175.4
(4)
the term “subsidiary” with respect to a specified company means a
company that is controlled by such specified company;
(5) the term “bank” includes a State bank,
national bank, banking association, and trust company;
(6) the term “company” means
a corporation, partnership, business trust, association, or similar
organization and, unless specifically excluded, the term “company”
includes a “member bank” and a “bank”;
(7) the term “covered transaction” means
with respect to an affiliate of a member bank—
(A) a loan
or extension of credit to the affiliate, including a purchase of assets
subject to an agreement to repurchase;
(B) a purchase of or an investment in
securities issued by the affiliate;
(C) a purchase of assets from the affiliate,
except such purchase of real and personal property as may be specifically
exempted by the Board by order or regulation;
(D) the acceptance of securities or
other debt obligations issued by the affiliate as collateral security
for a loan or extension of credit to any person or company;
(E) the issuance of a guarantee,
acceptance, or letter of credit, including an endorsement or standby
letter of credit, on behalf of an affiliate;
(F) a transaction with an affiliate
that involves the borrowing or lending of securities, to the extent
that the transaction causes a member bank or a subsidiary to have
credit exposure to the affiliate; or
(G) a derivative transaction, as defined
in paragraph (3) of section 5200(b) of the Revised Statutes of the
United States (12 U.S.C. 84(b)), with an affiliate, to the extent
that the transaction causes a member bank or a subsidiary to have
credit exposure to the affiliate;
3-1175.5
(8) the term “aggregate amount of covered
transactions” means the amount of the covered transactions about to
be engaged in added to the current amount of all outstanding covered
transactions;
(9) the
term “securities” means stocks, bonds, debentures, notes, or other
similar obligations; and
(10) the term “low-quality asset” means an asset that falls in any one or
more of the following categories:
(A) an asset classified
as “substandard”, “doubtful”, or “loss” or treated as “other loans
especially mentioned” in the most recent report of examination or
inspection of an affiliate prepared by either a Federal or State supervisory
agency;
(B) an asset
in a nonaccrual status;
(C) an asset on which principal or interest
payments are more than thirty days past due; or
(D) an asset whose terms have been renegotiated
or compromised due to the deteriorating financial condition of the
obligor.
3-1175.6
(11) Rebuttable
presumption of control of portfolio companies. In addition to
paragraph (3), a company or shareholder shall be presumed to control
any other company if the company or shareholder, directly or indirectly,
or acting through 1 or more other persons, owns or controls 15 percent
or more of the equity capital of the other company pursuant to subparagraph
(H) or (I) of section 4(k)(4) of the Bank Holding Company Act of 1956
or rules adopted under section 122 of the Gramm-Leach-Bliley Act,
if any, unless the company or shareholder provides information acceptable
to the Board to rebut this presumption of control.
3-1175.7
(c) Collateral for certain transactions
with affiliates.
(1) Each loan or extension of credit to,
or guarantee, acceptance, or letter of credit issued on behalf of,
an affiliate by a member bank or its subsidiary, and any credit exposure
of a member bank or a subsidiary to an affiliate resulting from a
securities borrowing or lending transaction, or a derivative transaction,
shall be secured at all times by collateral having a market value
equal to—
(A) 100 per centum of the amount of
such loan or extension of credit, guarantee, acceptance, letter of
credit, or credit exposure if the collateral is composed of—
(i) obligations
of the United States or its agencies;
(ii) obligations fully guaranteed by the United
States or its agencies as to principal and interest;
(iii) notes, drafts, bills of exchange or
bankers’ acceptances that are eligible for rediscount or purchase
by a Federal Reserve Bank; or
(iv) a segregated, earmarked deposit account with the member bank;
(B)
110 per centum of the amount of such loan or extension of credit,
guarantee, acceptance, letter of credit, or credit exposure if the
collateral is composed of obligations of any State or political subdivision
of any State;
(C)
120 per centum of the amount of such loan or extension of credit,
guarantee, acceptance, letter of credit, or credit exposure if the
collateral is composed of other debt instruments, including receivables;
or
(D) 130 per centum
of the amount of such loan or extension of credit, guarantee, acceptance,
letter of credit, or credit exposure if the collateral is composed
of stock, leases, or other real or personal property.
3-1175.8
(2) A low-quality asset
shall not be acceptable as collateral for a loan or extension of credit
to, or guarantee, acceptance, or letter of credit issued on behalf
of, an affiliate, or credit exposure to an affiliate resulting from
a securities borrowing or lending transaction, or derivative transaction.
(3) The securities or
other debt obligations issued by an affiliate of the member bank shall
not be acceptable as collateral for a loan or extension of credit
to, guarantee, acceptance, or letter of credit issued on behalf of,
or credit exposure from a securities borrowing or lending transaction,
or derivative transaction to, that affiliate or any other affiliate
of the member bank.
(4) The collateral requirements of this paragraph shall
not be applicable to an acceptance that is already fully secured either
by attached documents or by other property having an ascertainable
market value that is involved in the transaction.
3-1175.9
(d) Exemptions. The provisions of
this section, except paragraph (a)(4), shall not be applicable to—
(1) any transaction, subject
to the prohibition contained in subsection (a)(3), with a bank—
(A) which controls 80 per centum or more of the voting shares of
the member bank;
(B) in which the member bank controls 80 per centum or more of the
voting shares; or
(C) in which 80 per centum or more of the voting shares are controlled
by the company that controls 80 per centum or more of the voting shares
of the member bank;
(2) making deposits in an affiliated bank
or affiliated foreign bank in the ordinary course of correspondent
business, subject to any restrictions that the Board may prescribe
by regulation or order;
(3) giving immediate credit to an affiliate for uncollected items
received in the ordinary course of business;
(4) making a loan or extension of credit
to, issuing a guarantee, acceptance, or letter of credit on behalf
of, or having credit exposure resulting from a securities borrowing
or lending transaction, or derivative transaction to, an affiliate
that is fully secured by—
(A) obligations of the United States
or its agencies;
(B) obligations fully guaranteed by the United States or its agencies
as to principal and interest; or
(C) a segregated, earmarked deposit
account with the member bank;
(5) purchasing securities issued by any
company of the kinds described in section 4(c)(1) of the Bank Holding
Company Act of 1956;
(6) purchasing assets having a readily identifiable and publicly
available market quotation and purchased at that market quotation
or, subject to the prohibition contained in subsection (a)(3), purchasing
loans on a nonrecourse basis from affiliated banks; and
(7) purchasing from an affiliate
a loan or extension of credit that was originated by the member bank
and sold to the affiliate subject to a repurchase agreement or with
recourse.
3-1176
(e) Rules
relating to banks with financial subsidiaries.
(1) Financial
subsidiary defined. For purposes of this section and section
23B, the term “financial subsidiary” means any company that is a subsidiary
of a bank that would be a financial subsidiary of a national bank
under section 5136A of the Revised Statutes of the United States.
(2) Financial subsidiary treated as an affiliate. For purposes of applying this section and section 23B, and notwithstanding
subsection (b)(2) of this section or section 23B(d)(1), a financial
subsidiary of a bank—
(A) shall be deemed to be an affiliate
of the bank; and
(B) shall not be deemed to be a subsidiary of the bank.
(3) Anti-evasion provision. For purposes of
this section and section 23B—
(A) any purchase of, or
investment in, the securities of a financial subsidiary of a bank
by an affiliate of the bank shall be considered to be a purchase of
or investment in such securities by the bank; and
(B) any extension of credit by an affiliate
of a bank to a financial subsidiary of the bank shall be considered
to be an extension of credit by the bank to the financial subsidiary
if the Board determines that such treatment is necessary or appropriate
to prevent evasions of this Act and the Gramm-Leach-Bliley Act.
3-1176.1
(f) Rulemaking
and additional exemptions.
(1) The Board may issue such further regulations
and orders, including definitions consistent with this section, as
may be necessary to administer and carry out the purposes of this
section and to prevent evasions thereof.
(2) (A) In general. The Board may, at its discretion,
by regulation exempt transactions or relationships from the requirements
of this section if—
(i) the Board finds the exemption to be in
the public interest and consistent with the purposes of this section,
and notifies the Federal Deposit Insurance Corporation of such finding;
and
(ii) before the end
of the 60-day period beginning on the date on which the Federal Deposit
Insurance Corporation receives notice of the finding under clause
(i), the Federal Deposit Insurance Corporation does not object, in
writing, to the finding, based on a determination that the exemption
presents an unacceptable risk to the Deposit Insurance Fund.
(B) Additional exemptions.
(i) National banks. The Comptroller of the
Currency may, by order, exempt a transaction of a national bank from
the requirements of this section if—
(I) the Board and the Office of the Comptroller of the Currency jointly
find the exemption to be in the public interest and consistent with
the purposes of this section and notify the Federal Deposit Insurance
Corporation of such finding; and
(II) before the end of the 60-day period
beginning on the date on which the Federal Deposit Insurance Corporation
receives notice of the finding under subclause (I), the Federal Deposit
Insurance Corporation does not object, in writing, to the finding,
based on a determination that the exemption presents an unacceptable
risk to the Deposit Insurance Fund.
(ii) State banks. The Federal Deposit Insurance Corporation may, by order, exempt
a transaction of a State nonmember bank, and the Board may, by order,
exempt a transaction of a State member bank, from the requirements
of this section if—
(I) the Board and the Federal Deposit Insurance Corporation jointly
find that the exemption is in the public interest and consistent with
the purposes of this section; and
(II) the Federal Deposit Insurance Corporation
finds that the exemption does not present an unacceptable risk to
the Deposit Insurance Fund.
(3) Rulemaking required concerning derivative transactions and intraday
credit.
(A) In general. Not later than 18 months after the date of the enactment of the
Gramm-Leach-Bliley Act, the Board shall adopt final rules under this
section to address as covered transactions credit exposure arising
out of derivative transactions between member banks and their affiliates
and intraday extensions of credit by member banks to their affiliates.
(B) Effective date. The effective date of any
final rule adopted by the Board pursuant to subparagraph (A) shall
be delayed for such period as the Board deems necessary or appropriate
to permit banks to conform their activities to the requirements of
the final rule without undue hardship.
(4) Amounts of
covered transactions. The Board may issue such regulations or
interpretations as the Board determines are necessary or appropriate
with respect to the manner in which a netting agreement may be taken
into account in determining the amount of a covered transaction between
a member bank or a subsidiary and an affiliate, including the extent
to which netting agreements between a member bank or a subsidiary
and an affiliate may be taken into account in determining whether
a covered transaction is fully secured for purposes of subsection
(d)(4). An interpretation under this paragraph with respect to a specific
member bank, subsidiary, or affiliate shall be issued jointly with
the appropriate federal banking agency for such member bank, subsidiary,
or affiliate.
[12 USC 371c. As added by act of June 16, 1933 (48 Stat. 183) and
amended by acts of Aug. 23, 1935 (49 Stat. 717); June 30, 1954 (68
Stat. 358); Sept. 8, 1959 (73 Stat. 457); July 1, 1966 (80 Stat. 241,
243); Oct. 15, 1982 (96 Stat. 1515); Jan. 12, 1983 (96 Stat. 2509);
Nov. 12, 1999 (113 Stat. 1378, 1379, 1380); and July 21, 2010 (124
Stat. 1608, 1611). Section 410 of the Garn-St Germain Depository Institutions
Act of 1982, which completely revised this section, provides in paragraph
(c) (12 USC 371c note) the following:
(c) Section 23A of the Federal Reserve Act, as amended
by this section, shall apply to any transaction entered into after
the date of enactment of this Act [October 15, 1982], except for transactions
which are the subject of a binding written contract or commitment
entered into on or before July 28, 1982, and except that any renewal
of a participation in a loan outstanding on July 28, 1982, to a company
that becomes an affiliate as a result of the enactment of this Act,
or any participation in a loan to such an affiliate emanating from
the renewal of a binding written contract or commitment outstanding
on July 28, 1982, shall not be subject to the collateral requirements
of this Act.]
