(a) Valuation of extensions of credit secured exclusively by affiliate
securities. An extension of credit by a member bank to a nonaffiliate
secured exclusively by securities issued by an affiliate of the member
bank must be valued at the lesser of—
(1) the total value of the extension of
credit; or
(2) the
fair market value of the securities issued by an affiliate that are
pledged as collateral, if the member bank verifies that such securities
meet the market-quotation standard contained in paragraph (e) of section
223.42 or the standards set forth in paragraphs (f)(1) and (5) of
section 223.42.
(b) Valuation of extensions of credit secured by
affiliate securities and other collateral. An extension of credit
by a member bank to a nonaffiliate secured in part by securities issued
by an affiliate of the member bank and in part by nonaffiliate collateral
must be valued at the lesser of—
(1) the total value of the extension of
credit less the fair market value of the nonaffiliate collateral;
or
(2) the fair market
value of the securities issued by an affiliate that are pledged as
collateral, if the member bank verifies that such securities meet
the market-quotation standard contained in paragraph (e) of section
223.42 or the standards set forth in paragraphs (f)(1) and (5) of
section 223.42.
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(c) Exclusion of eligible affiliated mutual fund
securities.
(1) The exclusion. Eligible affiliated mutual fund securities are not considered to
be securities issued by an affiliate, and are instead considered to
be nonaffiliate collateral, for purposes of paragraphs (a) and (b)
of this section, unless the member bank knows or has reason to know
that the proceeds of the extension of credit will be used to purchase
the eligible affiliated mutual fund securities collateral or will
otherwise be used for the benefit of or transferred to an affiliate
of the member bank.
(2) Definition. Eligible affiliated
mutual fund securities with respect to a member bank are securities
issued by an affiliate of the member bank that is an open-end investment
company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 (15 USC 80a-1 et seq.), if—
(i) the securities issued by the investment company—
(A) meet the market-quotation
standard contained in paragraph (e) of section 223.42;
(B) meet the standards set forth
in paragraphs (f)(1) and (5) of section 223.42; or
(C) have closing prices that are made public
through a mutual fund “supermarket” web site maintained by an unaffiliated
securities broker-dealer or mutual fund distributor; and
(ii) the member bank
and its affiliates do not own or control in the aggregate more than
5 percent of any class of voting securities or of the equity capital
of the investment company (excluding securities held by the member
bank or an affiliate in good faith in a fiduciary capacity, unless
the member bank or affiliate holds the securities for the benefit
of the member bank or affiliate, or the shareholders, employees, or
subsidiaries of the member bank or affiliate).
(3) Example. A member bank proposes to lend $100 to a nonaffiliate
secured exclusively by eligible affiliated mutual fund securities.
The member bank knows that the nonaffiliate intends to use all the
loan proceeds to purchase the eligible affiliated mutual fund securities
that would serve as collateral for the loan. Under the attribution
rule in section 223.16, the member bank must treat the loan to the
nonaffiliate as a loan to an affiliate, and, because securities issued
by an affiliate are ineligible collateral under section 223.14, the
loan would not be in compliance with section 223.14.
