§ 371c-1. — Restrictions on transactions with affiliates.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC371c-1]
TITLE 12--BANKS AND BANKING
CHAPTER 3--FEDERAL RESERVE SYSTEM
SUBCHAPTER X--POWERS AND DUTIES OF MEMBER BANKS
Sec. 371c-1. Restrictions on transactions with affiliates
(a) In general
(1) Terms
A member bank and its subsidiaries may engage in any of the
transactions described in paragraph (2) only--
(A) on terms and under circumstances, including credit
standards, that are substantially the same, or at least as
favorable to such bank or its subsidiary, as those prevailing at
the time for comparable transactions with or involving other
nonaffiliated companies, or
(B) in the absence of comparable transactions, on terms and
under circumstances, including credit standards, that in good
faith would be offered to, or would apply to, nonaffiliated
companies.
(2) Transactions covered
Paragraph (1) applies to the following:
(A) Any covered transaction with an affiliate.
(B) The sale of securities or other assets to an affiliate,
including assets subject to an agreement to repurchase.
(C) The payment of money or the furnishing of services to an
affiliate under contract, lease, or otherwise.
(D) Any transaction in which an affiliate acts as an agent
or broker or receives a fee for its services to the bank or to
any other person.
(E) Any transaction or series of transactions with a third
party--
(i) if an affiliate has a financial interest in the
third party, or
(ii) if an affiliate is a participant in such
transaction or series of transactions.
(3) Transactions that benefit affiliate
For the purpose of this subsection, any transaction by a member
bank or its subsidiary with any person shall be deemed to be a
transaction with an affiliate of such bank if any of the proceeds of
the transaction are used for the benefit of, or transferred to, such
affiliate.
(b) Prohibited transactions
(1) In general
A member bank or its subsidiary--
(A) shall not purchase as fiduciary any securities or other
assets from any affiliate unless such purchase is permitted--
(i) under the instrument creating the fiduciary
relationship,
(ii) by court order, or
(iii) by law of the jurisdiction governing the fiduciary
relationship; and
(B) whether acting as principal or fiduciary, shall not
knowingly purchase or otherwise acquire, during the existence of
any underwriting or selling syndicate, any security if a
principal underwriter of that security is an affiliate of such
bank.
(2) Exception
Subparagraph (B) of paragraph (1) shall not apply if the
purchase or acquisition of such securities has been approved, before
such securities are initially offered for sale to the public, by a
majority of the directors of the bank based on a determination that
the purchase is a sound investment for the bank irrespective of the
fact that an affiliate of the bank is a principal underwriter of the
securities.
(3) Definitions
For the purpose of this subsection--
(A) the term ``security'' has the meaning given to such term
in section 78c(a)(10) of title 15; and
(B) the term ``principal underwriter'' means any underwriter
who, in connection with a primary distribution of securities--
(i) is in privity of contract with the issuer or an
affiliated person of the issuer;
(ii) acting alone or in concert with one or more other
persons, initiates or directs the formation of an
underwriting syndicate; or
(iii) is allowed a rate of gross commission, spread, or
other profit greater than the rate allowed another
underwriter participating in the distribution.
(c) Advertising restriction
A member bank or any subsidiary or affiliate of a member bank shall
not publish any advertisement or enter into any agreement stating or
suggesting that the bank shall in any way be responsible for the
obligations of its affiliates.
(d) Definitions
For the purpose of this section--
(1) the term ``affiliate'' has the meaning given to such term in
section 371c of this title (but does not include any company
described in section \1\ (b)(2) of such section or any bank);
---------------------------------------------------------------------------
\1\ So in original. Probably should be ``subsection''.
---------------------------------------------------------------------------
(2) the terms ``bank'', ``subsidiary'', ``person'', and
``security'' (other than security as used in subsection (b) of this
section) have the meanings given to such terms in section 371c of
this title; and
(3) the term ``covered transaction'' has the meaning given to
such term in section 371c of this title (but does not include any
transaction which is exempt from such definition under subsection
(d) of such section).
(e) Regulations
The Board may prescribe regulations to administer and carry out the
purposes of this section, including--
(1) regulations to further define terms used in this section;
and
(2) regulations to--
(A) exempt transactions or relationships from the
requirements of this section; and
(B) exclude any subsidiary of a bank holding company from
the definition of affiliate for purposes of this section,
if the Board finds such exemptions or exclusions are in the public
interest and are consistent with the purposes of this section.
(Dec. 23, 1913, ch. 6, Sec. 23B, as added Pub. L. 100-86, title I,
Sec. 102(a), Aug. 10, 1987, 101 Stat. 564; amended Pub. L. 106-102,
title VII, Sec. 738, Nov. 12, 1999, 113 Stat. 1480.)
Amendments
1999--Subsec. (b)(2). Pub. L. 106-102 amended text of par. (2)
generally. Prior to amendment, text read as follows: ``Subparagraph (B)
of paragraph (1) shall not apply if the purchase or acquisition of such
securities has been approved, before such securities are initially
offered for sale to the public, by a majority of the directors of the
bank who are not officers or employees of the bank or any affiliate
thereof.''
Section Referred to in Other Sections
This section is referred to in sections 371c, 504, 1468, 1815, 1828,
1831w, 1843 of this title.
