12 C.F.R. Subpart E—Exemptions from the Provisions of Section 23A
Title 12 - Banks and Banking
The following transactions are not subject to the quantitative limits of §§223.11 and 223.12 or the collateral requirements of §223.14. The transactions are, however, subject to the safety and soundness requirement of §223.13 and the prohibition on the purchase of a low-quality asset of §223.15. (a) Parent institution/subsidiary institution transactions. Transactions with a depository institution if the member bank controls 80 percent or more of the voting securities of the depository institution or the depository institution controls 80 percent or more of the voting securities of the member bank. (b) Transactions between a member bank and a depository institution owned by the same holding company. Transactions with a depository institution if the same company controls 80 percent or more of the voting securities of the member bank and the depository institution. (c) Certain loan purchases from an affiliated depository institution. Purchasing a loan on a nonrecourse basis from an affiliated depository institution. (d) Internal corporate reorganization transactions. Purchasing assets from an affiliate (including in connection with a transfer of securities issued by an affiliate to a member bank described in paragraph (a) of §223.31), if: (1) The asset purchase is part of an internal corporate reorganization of a holding company and involves the transfer of all or substantially all of the shares or assets of an affiliate or of a division or department of an affiliate; (2) The member bank provides its appropriate Federal banking agency and the Board with written notice of the transaction before consummation, including a description of the primary business activities of the affiliate and an indication of the proposed date of the asset purchase; (3) The member bank's top-tier holding company commits to its appropriate Federal banking agency and the Board before consummation either: (i) To make quarterly cash contributions to the member bank, for a two-year period following the member bank's purchase, equal to the book value plus any write-downs taken by the member bank, of any transferred assets that have become low-quality assets during the quarter; or (ii) To repurchase, on a quarterly basis for a two-year period following the member bank's purchase, at a price equal to the book value plus any write-downs taken by the member bank, any transferred assets that have become low-quality assets during the quarter; (4) The member bank's top-tier holding company complies with the commitment made under paragraph (d)(3) of this section; (5) A majority of the member bank's directors reviews and approves the transaction before consummation; (6) The value of the covered transaction (as computed under this part), when aggregated with the value of any other covered transactions (as computed under this part) engaged in by the member bank under this exemption during the preceding 12 calendar months, represents less than 10 percent of the member bank's capital stock and surplus (or such higher amount, up to 25 percent of the member bank's capital stock and surplus, as may be permitted by the member bank's appropriate Federal banking agency after conducting a review of the member bank's financial condition and the quality of the assets transferred to the member bank); and (7) The holding company and all its subsidiary member banks and other subsidiary depository institutions are well capitalized and well managed and would remain well capitalized upon consummation of the transaction. The following transactions are not subject to the quantitative limits of §§223.11 and 223.12, the collateral requirements of §223.14, or the prohibition on the purchase of a low-quality asset of §223.15. The transactions are, however, subject to the safety and soundness requirement of §223.13. (a) Making correspondent banking deposits. Making a deposit in an affiliated depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) or affiliated foreign bank that represents an ongoing, working balance maintained in the ordinary course of correspondent business. (b) Giving credit for uncollected items. Giving immediate credit to an affiliate for uncollected items received in the ordinary course of business. (c) Transactions secured by cash or U.S. government securities. (1) In general. Engaging in a credit transaction with an affiliate to the extent that the transaction is and remains secured by: (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; or (iii) A segregated, earmarked deposit account with the member bank that is for the sole purpose of securing credit transactions between the member bank and its affiliates and is identified as such. (2) Example. A member bank makes a $100 non-amortizing term loan to an affiliate secured by U.S. Treasury securities with a market value of $50 and real estate with a market value of $75. The value of the covered transaction is $50. If the market value of the U.S. Treasury securities falls to $45 during the life of the loan, the value of the covered transaction would increase to $55. (d) Purchasing securities of a servicing affiliate. Purchasing a security issued by any company engaged solely in providing services described in section 4(c)(1) of the Bank Holding Company Act (12 U.S.C. 1843(c)(1)). (e) Purchasing certain liquid assets. Purchasing an asset having a readily identifiable and publicly available market quotation and purchased at or below the asset's current market quotation. An asset has a readily identifiable and publicly available market quotation if the asset's price is quoted routinely in a widely disseminated publication that is readily available to the general public. (f) Purchasing certain marketable securities. Purchasing a security from a securities affiliate, if: (1) The security has a “ready market,” as defined in 17 CFR 240.15c3–1(c)(11)(i); (2) The security is eligible for a State member bank to purchase directly, subject to the same terms and conditions that govern the investment activities of a State member bank, and the member bank records the transaction as a purchase of a security for purposes of its Call Report, consistent with the requirements for a State member bank; (3) The security is not a low-quality asset; (4) The member bank does not purchase the security during an underwriting, or within 30 days of an underwriting, if an affiliate is an underwriter of the security, unless the security is purchased as part of an issue of obligations of, or obligations fully guaranteed as to principal and interest by, the United States or its agencies; (5) The security's price is quoted routinely on an unaffiliated electronic service that provides indicative data from real-time financial networks, provided that: (i) The price paid by the member bank is at or below the current market quotation for the security; and (ii) The size of the transaction executed by the member bank does not cast material doubt on the appropriateness of relying on the current market quotation for the security; and (6) The member bank maintains, for a period of two years, records and supporting information that are sufficient to enable the appropriate Federal banking agency to ensure the member bank's compliance with the terms of this exemption. (g) Purchasing municipal securities. Purchasing a municipal security from a securities affiliate if: (1) The security is rated by a nationally recognized statistical rating organization or is part of an issue of securities that does not exceed $25 million; (2) The security is eligible for purchase by a State member bank, subject to the same terms and conditions that govern the investment activities of a State member bank, and the member bank records the transaction as a purchase of a security for purposes of its Call Report, consistent with the requirements for a State member bank; and (3)(i) The security's price is quoted routinely on an unaffiliated electronic service that provides indicative data from real-time financial networks, provided that: (A) The price paid by the member bank is at or below the current market quotation for the security; and (B) The size of the transaction executed by the member bank does not cast material doubt on the appropriateness of relying on the current market quotation for the security; or (ii) The price paid for the security can be verified by reference to two or more actual, current price quotes from unaffiliated broker-dealers on the exact security to be purchased or a security comparable to the security to be purchased, where: (A) The price quotes obtained from the unaffiliated broker-dealers are based on a transaction similar in size to the transaction that is actually executed; and (B) The price paid is no higher than the average of the price quotes; or (iii) The price paid for the security can be verified by reference to the written summary provided by the syndicate manager to syndicate members that discloses the aggregate par values and prices of all bonds sold from the syndicate account, if the member bank: (A) Purchases the municipal security during the underwriting period at a price that is at or below that indicated in the summary; and (B) Obtains a copy of the summary from its securities affiliate and retains the summary for three years. (h) Purchasing an extension of credit subject to a repurchase agreement. Purchasing from an affiliate an extension of credit that was originated by the member bank and sold to the affiliate subject to a repurchase agreement or with recourse. (i) Asset purchases by a newly formed member bank. The purchase of an asset from an affiliate by a newly formed member bank, if the appropriate Federal banking agency for the member bank has approved the asset purchase in writing in connection with its review of the formation of the member bank. (j) Transactions approved under the Bank Merger Act. Any merger or consolidation between a member bank and an affiliated depository institution or U.S. branch or agency of a foreign bank, or any acquisition of assets or assumption of deposit liabilities by a member bank from an affiliated depository institution or U.S. branch or agency of a foreign bank, if the transaction has been approved by the responsible Federal banking agency pursuant to the Bank Merger Act (12 U.S.C. 1828(c)). (k) Purchasing an extension of credit from an affiliate. Purchasing from an affiliate, on a nonrecourse basis, an extension of credit, if: (1) The extension of credit was originated by the affiliate; (2) The member bank makes an independent evaluation of the creditworthiness of the borrower before the affiliate makes or commits to make the extension of credit; (3) The member bank commits to purchase the extension of credit before the affiliate makes or commits to make the extension of credit; (4) The member bank does not make a blanket advance commitment to purchase extensions of credit from the affiliate; and (5) The dollar amount of the extension of credit, when aggregated with the dollar amount of all other extensions of credit purchased from the affiliate during the preceding 12 calendar months by the member bank and its depository institution affiliates, does not represent more than 50 percent (or such lower percent as is imposed by the member bank's appropriate Federal banking agency) of the dollar amount of extensions of credit originated by the affiliate during the preceding 12 calendar months. (l) Intraday extensions of credit—(1) In general. An intraday extension of credit to an affiliate, if the member bank: (i) Has established and maintains policies and procedures reasonably designed to manage the credit exposure arising from the member bank's intraday extensions of credit to affiliates in a safe and sound manner, including policies and procedures for: (A) Monitoring and controlling the credit exposure arising at any one time from the member bank's intraday extensions of credit to each affiliate and all affiliates in the aggregate; and (B) Ensuring that any intraday extension of credit by the member bank to an affiliate complies with the market terms requirement of §223.51; (ii) Has no reason to believe that the affiliate will have difficulty repaying the extension of credit in accordance with its terms; and (iii) Ceases to treat any such extension of credit (regardless of jurisdiction) as an intraday extension of credit at the end of the member bank's business day in the United States. (2) Definition. Intraday extension of credit by a member bank to an affiliate means an extension of credit by a member bank to an affiliate that the member bank expects to be repaid, sold, or terminated, or to qualify for a complete exemption under this regulation, by the end of its business day in the United States. (m) Riskless principal transactions. Purchasing a security from a securities affiliate of the member bank if: (1) The member bank or the securities affiliate is acting exclusively as a riskless principal in the transaction; and (2) The security purchased is not issued, underwritten, or sold as principal (other than as riskless principal) by any affiliate of the member bank. (a) The standards. The Board may, at its discretion, by regulation or order, exempt transactions or relationships from the requirements of section 23A and subparts B, C, and D of this part if it finds such exemptions to be in the public interest and consistent with the purposes of section 23A. (b) Procedure. A member bank may request an exemption from the requirements of section 23A and subparts B, C, and D of this part by submitting a written request to the General Counsel of the Board. Such a request must: (1) Describe in detail the transaction or relationship for which the member bank seeks exemption; (2) Explain why the Board should exempt the transaction or relationship; and (3) Explain how the exemption would be in the public interest and consistent with the purposes of section 23A.
Title 12: Banks and Banking
PART 223—TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES (REGULATION W)
Subpart E—Exemptions from the Provisions of Section 23A
§ 223.41 What covered transactions are exempt from the quantitative limits and collateral requirements?
§ 223.42 What covered transactions are exempt from the quantitative limits, collateral requirements, and low-quality asset prohibition?
§ 223.43 What are the standards under which the Board may grant additional exemptions from the requirements of section 23A?
