(a) Valuation.
(1) In general. Except as provided in paragraph (b) of section 223.32 with respect to financial
subsidiaries, a member bank’s purchase of or investment in a security
issued by an affiliate must be valued at the greater of—
(i) the
total amount of consideration given (including liabilities assumed)
by the member bank in exchange for the security, reduced to reflect
amortization of the security to the extent consistent with GAAP; or
(ii) the carrying
value of the security.
(2) Examples. The following are examples of how to value a member bank’s purchase
of or investment in securities issued by an affiliate (other than
a financial subsidiary of the member bank).
(i) Purchase of the debt securities of an affiliate. The parent holding company of a member bank owns 100 percent of
the shares of a mortgage company. The member bank purchases debt securities
issued by the mortgage company for $600. The initial carrying value
of the securities is $600. The member bank initially must value the
investment at $600.
(ii) Purchase of the shares of an affiliate. The parent holding company of a member bank owns 51 percent of the
shares of a mortgage company. The member bank purchases an additional
30 percent of the shares of the mortgage company from a third party
for $100. The initial carrying value of the shares is $100. The member
bank initially must value the investment at $100. Going forward, if
the member bank’s carrying value of the shares declines to $40, the
member bank must continue to value the investment at $100.
(iii) Contribution of the shares of an affiliate. The parent holding company of a member bank owns 100 percent of
the shares of a mortgage company and contributes 30 percent of the
shares to the member bank. The member bank gives no consideration
in exchange for the shares. If the initial carrying value of the shares
is $300, then the member bank initially must value the investment
at $300. Going forward, if the member bank’s carrying value of the
shares increases to $500, the member bank must value the investment
at $500.
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(b) Timing.
(1) In general. A purchase of or investment in a security issued by an affiliate
remains a covered transaction for a member bank for as long as the
member bank holds the security.
(2) A member
bank’s purchase of or investment in a security issued by a nonaffiliate
that becomes an affiliate of the member bank. A member bank’s
purchase of or investment in a security issued by a nonaffiliate that
becomes an affiliate of the member bank must be treated according
to the same transition rules that apply to credit transactions described
in paragraph (b)(2) of section 223.21.
