(a) Valuation.
(1) In general. Except as provided in paragraph (a)(2) of this section, a purchase
of an
asset by a member bank from an affiliate must be valued initially
at the total amount of consideration given (including liabilities
assumed) by the member bank in exchange for the asset. The value of
the covered transaction after the purchase may be reduced to reflect
amortization or depreciation of the asset, to the extent that such
reductions are consistent with GAAP.
(2) Exceptions.
(i) Purchase
of an extension of credit to an affiliate. A purchase from an
affiliate of an extension of credit to an affiliate must be valued
in accordance with section 223.21, unless the note or obligation evidencing
the extension of credit is a security issued by an affiliate (in which
case the transaction must be valued in accordance with section 223.23).
(ii) Purchase of a security issued by an affiliate. A purchase from an affiliate of a security issued by an affiliate
must be valued in accordance with section 223.23.
(iii) Transfer
of a subsidiary. A transfer to a member bank of securities issued
by an affiliate that is treated as a purchase of assets from an affiliate
under section 223.31 must be valued in accordance with paragraph (b)
of section 223.31.
(iv) Purchase of a line of credit. A purchase from an affiliate of a line of credit, revolving credit
facility, or other similar credit arrangement for a nonaffiliate must
be valued initially at the total amount of consideration given by
the member bank in exchange for the asset plus any additional amount
that the member bank could be required to provide to the borrower
under the terms of the credit arrangement.
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(b) Timing.
(1) In general. A purchase of an asset from an affiliate remains a covered transaction
for a member bank for as long as the member bank holds the asset.
(2) Asset purchases by a member bank from a nonaffiliate
in contemplation of the nonaffiliate becoming an affiliate of the
member bank. If a member bank purchases an asset from a nonaffiliate
in contemplation of the nonaffiliate becoming an affiliate of the
member bank, the asset purchase becomes a covered transaction at the
time that the nonaffiliate becomes an affiliate of the member bank.
In addition, the member bank must ensure that the aggregate amount
of the member bank’s covered transactions (including any such transaction
with the nonaffiliate) would not exceed the quantitative limits of
section 223.11 or 223.12 at the time the nonaffiliate becomes an affiliate.
(c) Examples. The following are examples of how to value a member bank’s purchase
of an asset from an affiliate.
(1) Cash purchase
of assets. A member bank purchases a pool of loans from an affiliate
for $10 million. The member bank initially must value the covered
transaction at $10 million. Going forward, if the borrowers repay
$6 million of the principal amount of the loans, the member bank may
value the covered transaction at $4 million.
(2) Purchase
of assets through an assumption of liabilities. An affiliate
of a member bank contributes real property with a fair market value
of $200,000 to the member bank. The member bank pays the affiliate
no cash for the property, but assumes a $50,000 mortgage on the property.
The member bank has engaged in a covered transaction with the affiliate
and initially must value the transaction at $50,000. Going forward,
if the member bank retains the real property but pays off the mortgage,
the member bank must continue to value the covered transaction at
$50,000. If the member bank, however, sells the real property, the
transaction ceases to be a covered transaction at the time of the
sale (regardless of the status of the mortgage).
