[Federal Register Volume 67, Number 239 (Thursday, December 12, 2002)]
[Rules and Regulations]
[Pages 76620-76622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30636]



  Federal Register / Vol. 67, No. 239 / Thursday, December 12, 2002 / 
Rules and Regulations  

[[Page 76620]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 250

[Miscellaneous Interpretations]


Transactions Between Member Banks and Their Affiliates

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: Sections 23A and 23B of the Federal Reserve Act restrict the 
ability of a member bank to engage in certain transactions with an 
affiliate. Since its initial passage in 1933, the Board and its staff 
have issued numerous formal and informal interpretations of section 
23A. On October 31, 2002, the Board adopted a new Regulation W, which 
implements sections 23A and 23B and incorporates most of these 
interpretations. Accordingly, the Board is rescinding most of its 
formal interpretations of section 23A and removing these 
interpretations, as well as most staff opinions relating to section 
23A, from the Federal Reserve Regulatory Service. With the adoption of 
Regulation W, most of the Board's previous section 23A interpretations 
are outdated or unnecessary, and the Board believes that reliance on 
the new Regulation W will eliminate confusion and simplify compliance 
with sections 23A and 23B.

EFFECTIVE DATE: April 1, 2003.

FOR FURTHER INFORMATION CONTACT: Pamela G. Nardolilli, Senior Counsel 
(202/452-3289), or Mark E. Van Der Weide, Counsel (202/452-2263), Legal 
Division; Board of Governors of the Federal Reserve System, 20th and C 
Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION: Sections 23A and 23B of the Federal Reserve 
Act are two of the most important statutory protections against a bank 
suffering losses because of its transactions with affiliates and, 
correspondingly, are two of the most effective means of limiting the 
ability of a bank to transfer to its affiliates the subsidy arising 
from the bank's access to the Federal safety net. Although sections 23A 
and 23B each explicitly grant the Board broad authority to issue 
regulations to administer these sections,\1\ the Board never issued a 
regulation fully implementing either section. Instead, banks seeking 
guidance on how to comply with sections 23A and 23B have relied on a 
series of Board interpretations and informal staff guidance. Some of 
these Board interpretations are codified in part 250 of title 12 of the 
Code of Federal Regulations. Many of the staff interpretations are 
publicly available, and the summaries of the interpretations can be 
found in the Board's loose-leaf service, the Federal Reserve Regulatory 
Service.
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    \1\ 12 U.S.C. 371c(f), 371c-1(e).
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    On October 31, 2002, the Board adopted Regulation W, which 
comprehensively implements sections 23A and 23B. In order to avoid 
confusion and simplify compliance with sections 23A and 23B, the Board 
is deleting the section 23A interpretations that are codified in part 
250 of title 12 of the Code of Federal Regulations. In addition, the 
Board is deleting most of the summaries of staff interpretations of 
section 23A that are published in the Federal Reserve Regulatory 
Service.
    Below is a chart of the interpretations of sections 23A and 23B 
found in the Federal Reserve Regulatory Service along with an 
indication of whether each summary will be retained in the Federal 
Reserve Regulatory Service or removed. For those summaries that will be 
removed, the chart identifies the provision of Regulation W or an 
appropriate statute that renders the summary unnecessary or 
inconsistent with current law. The Board believes that a few existing 
interpretations of section 23A would provide helpful guidance to 
banking organizations, but are too fact-specific to include in 
Regulation W; the summaries of these interpretations will remain in the 
Federal Reserve Regulatory Service. All new Board interpretations of 
sections 23A and 23B will be codified under part 223 instead of the 
Miscellaneous Interpretations found in part 250, and will be available 
on the Board's public Web site, http://www.federalreserve.gov. Persons 
desiring older written interpretations will be able to obtain them by 
filing a request pursuant to the Freedom of Information Act.

          Deletions From the Federal Reserve Regulatory Service
                         [Board Interpretations]
------------------------------------------------------------------------
           FRRS No.                     Subject         12 CFR reference
------------------------------------------------------------------------
3-1118, 12 CFR 250.242........  Definition of Capital   Sec.   223.3(d).
                                 Stock and Surplus.
3-1120, 1934 Fed. Res. Bull.    Collateral--Paper       Sec.
 391.                            Eligible for            223.14(b)(1).
                                 Rediscount or
                                 Purchase by Federal
                                 Reserve Banks.
3-1121, 1935 Fed. Res. Bull.    Collateral--Stock.....  Sec.
 395.                                                    223.14(b)(1)(iv
                                                         ).
3-1125, 1936 Fed. Res. Bull.    Exemptions--Indebtedne  No exemption
 324.                            ss for Unpaid           available.
                                 Balances Due on
                                 Purchased Assets.
3-1126, S-285, 10/24/41.......  Exemptions--Relationsh  Sec.
                                 ips Arising Out of      223.2(b)(5).
                                 Bona Fide Debt
                                 Previously Contracted.
3-1127, 12 CFR 250.240........  Exemptions--Loan to     Sec.  Sec.
                                 Bank Operations         223.2(b) & (2).
                                 Subsidiary.
3-1128, 12 CFR 250.241........  Exemptions--Transactio  Sec.
                                 ns Subject to Review    223.42(j).
                                 Under the Bank Merger
                                 Act.
3-1128.1, 12 CFR 250.245......  Exemptions--Loans and   Sec.
                                 Extensions of Credit    223.16(c)(3).
                                 by Member Bank to
                                 Third Party.
3-1128.2, 12 CFR 250.246......  Exemptions--Purchase    Sec.
                                 of Security by          223.42(f).
                                 Insured Depository
                                 Institution from an
                                 Affiliate.
3-1130, 1934 Fed. Res. Bull.    Extension of Credit--   Retained.
 391.                            Loan on Note Bearing
                                 Endorsement by
                                 Affiliate.
3-1131, 1951 Fed. Res. Bull.    Extension of Credit--   Sec.
 960.                            Purchase of             223.3(o)(4).
                                 Affiliate's Notes.
3-1132, 12 CFR 250.160(b).....  Extension of Credit--   Sec.   223.3(o).
                                 Federal Funds
                                 Transaction.
3-1133, 12 CFR 250.250........  Extension of Credit--   Sec.
                                 Purchase of Mortgage    223.42(k).
                                 Note or Participation
                                 from Nonbank
                                 Affiliates.
3-1135, 1933 Fed. Res. Bull.    Loans & Investments     See Preamble For
 501.                            Made Before June 16,    Grandfathering.
                                 1933.
3-1136, 1934 Fed. Res. Bull.    Limitations on Amount-- Sec.
 391.                            Loans Secured by        223.14(b)(1)(C)
                                 Paper Eligible for      .
                                 Rediscount by Federal
                                 Reserve Bank.
3-1137, 12 CFR 250.247........  Market Terms            Sec.   223.33.
                                 Requirement--Derivati
                                 ves.

[[Page 76621]]

 
3-1137.1, 12 CFR 250.248......  Market Terms            Sec.
                                 Requirement--Intraday   223.42(l).
                                 Extensions of Credit
                                 by Insured Depository
                                 Institutions to Their
                                 Affiliates.
3-1140........................  Affiliates to Which     Sec.   223.2(b).
                                 Applicable--Cotrustee
                                 or Coexecutor of
                                 Corporation.
3-1141........................  Affiliates to Which     Retained.
                                 Applicable.
3-1142........................  Affiliates to Which     Sec.
                                 Applicable--Small       223.2(a)(2).
                                 Business Subsidiary
                                 of Bank Holding
                                 Company.
3-1143........................  Affiliate to Which      Sec.
                                 Applicable--Joint       223.2(b)(1)(iii
                                 Venture in Which        ).
                                 Subsidiary Has 50%
                                 Interest.
3-1144........................  Affiliates to Which     Sec.
                                 Applicable--Corporati   223.3(p)(1)(ii)
                                 on with Stock Held as   .
                                 Collateral.
3-1145........................  Affiliates to Which     Sec.
                                 Applicable--Corporati   223.3(p)(1)(ii)
                                 on Owned by Affiliate   .
                                 Edge Corporation.
3-1146........................  Affiliates to Which     Retained.
                                 Applicable--Trust.
3-1146.1......................  Affiliates to Which     Sec.
                                 Applicable--Foreign     223.2(a)(2).
                                 Affiliate of Domestic
                                 Bank Holding Company.
3-1146.2......................  Affiliates to Which     Sec.
                                 Applicable--Less Than   223.2(a)(3).
                                 25 Percent Control.
3-1146.3......................  Affiliates to Which     Sec.
                                 Applicable--Agricultu   223.2(b)(1)(iii
                                 ral Credit              ).
                                 Corporation.
3-1146.4......................  Affiliates to Which     Sec.
                                 Applicable--Bank        223.2(b)(1).
                                 Subsidiaries of Bank
                                 Holding Company.
3-1146.5......................  Affiliates to Which     Sec.   223.16.
                                 Applicable--Purchaser
                                 of Subsidiary Banks.
3-1146.6......................  Affiliates to Which     Retained.
                                 Applicable--Common
                                 Shareholders.
3-1146.61.....................  Affiliates to Which     Retained.
                                 Applicable--Partnersh
                                 ip & Association.
3-1146.7......................  Affiliates to Which     Retained.
                                 Applicable--Foreign
                                 Exchange Fund.
3-1150........................  Bank--Savings Loan....  12 U.S.C. 1468.
3-1151........................  Bank--Bank Whose        12 U.S.C.
                                 Deposits Are Insured    1828(j).
                                 by the FDIC.
3-1152........................  Bank--Foreign Bank....  12 U.S.C.
                                                         371c(b)(5) &
                                                         Sec.   223.18.
3-1152.1......................  Bank--Domestic Branch   12
                                 of a Foreign Bank.      U.S.C.371c(b)(5
                                                         ) & Sec.
                                                         223.3(k).
3-1152.2......................  Bank--National Bank     12 U.S.C.
                                 Subsidiary.             371c(b)(5).
3-1155........................  Collateral--Automobile  Sec.
                                 Rental Contracts.       223.14(b)(1)(iv
                                                         ).
3-1156........................  Collateral--Stock.....  Sec.   223.24.
3-1157........................  Collateral--``Secured   Sec.   223.14.
                                 by''.
3-1158........................  Collateral--Stock in    Sec.   223.14.
                                 Wholly Owned
                                 Subsidiary.
3-1160........................  Collateral--FHA         Sec.   223.3(y).
                                 Mortgages.
3-1161........................  Collateral--U.S.        Sec.   223.14.
                                 Government Securities.
3-1162........................  Collateral--Stock       Retained
                                 Valuation.
3-1163........................  Collateral--Stock       Retained.
                                 Valuation.
3-1164........................  Collateral--Stock       Retained.
                                 Valuation.
3-1164.1......................  Collateral--Stock of a  Sec.
                                 Subsidiary Bank.        223.14(c)(2).
3-1164.2......................  Collateral--Real        Sec.
                                 Estate.                 223.14(b)(l)(iv
                                                         ).
3-1164.3......................  Collateral--Mortgage    Sec.
                                 Servicing Rights.       223.14(c)(4).
3-1167........................  Covered Transactions--  Sec.
                                 Purchase of             223.3(h)(2).
                                 Affiliate's
                                 Securities.
3-1167.1......................  Covered Transactions--  Retained.
                                 Purchase of Assets.
3-1167.2......................  Covered Transactions--  Sec.
                                 Purchase of Assets.     223.42(k).
3-1167.3......................  Covered Transactions--  Retained.
                                 Acceptance of
                                 Securities.
3-1167.4......................  Covered Transactions--  Retained.
                                 Issuance of Guarantee.
3-1167.5......................  Covered Transactions--  Sec.   223.42(k)
                                 Purchase of Leases.     & Subpart F.
3-1170........................  Exemptions--Indebtedne  Sec.   223.3(h).
                                 ss for Unpaid
                                 Balances Due on
                                 Purchased Assets.
3-1171........................  Exemptions--Corporatio  Sec.
                                 n Holding Premises of   223.2(b)(2).
                                 Bank.
3-1172........................  Exemptions--Investment  Sec.   223.2.
                                 in Agricultural
                                 Credit Corporation.
3-1173........................  Exemptions--Sale of     Sec.
                                 Assets on Credit.       223.3(h)(1).
3-1174........................  Exemptions--Trust.....  Sec.   223.2.
3-1175........................  Exemptions--Loans to    Sec.
                                 Subsidiary Bank         223.2(b)(2).
                                 Premises.
3-1176........................  Exemptions--Corporatio  Sec.
                                 n Holding Premises of   223.2(b)(2).
                                 Bank.
3-1177........................  Exemptions--Bank        Sec.
                                 Operations Subsidiary.  223.2(b)(1).
3-1177.1......................  Exemptions--Bank        Sec.  Sec.
                                 Controlled by Same      223.41(b) &
                                 Company.                223.3(k) & (v).
3-1177.2......................  Exemptions--Bank        Sec.
                                 Premises Subsidiary.    223.2(a)(3) &
                                                         (b)(2).
3-1177.3......................  Exemptions--Privately   Retained.
                                 Issued Collateralized
                                 Mortgage Obligations.
3-1177.4......................  Exemptions--Bank        Sec.
                                 Controlled by Same      223.41(b).
                                 Company That Is Not
                                 Bank Holding Company.
3-1180........................  Extension of Credit--   Sec.
                                 Nonrecourse             223.3(o)(4).
                                 Acquisition of
                                 Promissory Note.
3-1181........................  Extension of Credit--   Sec.  Sec.
                                 Transaction with Bank   223.3(o) &
                                 Holding Company.        223.42(h).
3-1182........................  Extension of Credit--   Sec.   225.3(o).
                                 Guaranteed Debt of
                                 Holding Company.
3-1183........................  Extension of Credit--   Deleted.
                                 Participation in
                                 Assets Pool.
3-1184........................  Extension of Credit--   Sec.
                                 Purchase of Mortgage    223.42(k).
                                 Note or Participation
                                 from Nonbank
                                 Affiliate.
3-1185........................  Extension of Credit--   Retained.
                                 GNMA Certificate of
                                 Guarantee.
3-1186........................  Extension of Credit--   Sec.   223.3(o).
                                 Paid Letter of Credit.
3-1187........................  Extension of Credit--   Retained.
                                 Equipment Lease
                                 Agreement.
3-1188........................  Extension of Credit--   Sec.
                                 Participation in        223.42(k).
                                 Mortgage Loan Pool.

[[Page 76622]]

 
3-1189........................  Extension of Credit--   Sec.
                                 Finance Company Loan    223.42(k).
                                 Participation.
3-1189.1......................  Extension of Credit--   Sec.  Sec.
                                 Transactions            223.3(h)(1) &
                                 Involving Funding,      223.3(h)(5).
                                 Letters of Credit &
                                 Bankers Acceptance.
3-1189.2......................  Extension of Credit--   Sec.   223.3(h).
                                 Contingency,
                                 Negotiating or
                                 Accepting Letters of
                                 Credit.
3-1195........................  Limitations on Amount-- See Preamble
                                 Loans & Investments     Grandfathering.
                                 Made Before June 16,
                                 1933.
3-1196........................  Limitations on Amount-- Sec.
                                 Loan Secured by Paper   223.14(b)(i)(C)
                                 Eligible for            .
                                 Rediscount or
                                 Purchase by Federal
                                 Reserve Bank.
3-1197........................  Limitations on Amount-- Sec.
                                 Capital Stock.          223.3(h)(2).
3-1198........................  Limitations on Amount-- Sec.  Sec.
                                 Stockholder Ownership   223.3(h) &
                                 & Capital               223.7(c)
                                 Expenditures.
3-1199........................  Limitations on Amount-- Sec.
                                 Valuation of            223.24(b).
                                 Transactions.
3-1199.5......................  Low-Quality Asset--     Retained.
                                 Open-End Credit Card
                                 Account.
3-1199.51.....................  Low-Quality Assets--    Sec.
                                 Renewal of a Loan.      223.15(b).
------------------------------------------------------------------------

Regulatory Flexibility Act

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 603(a)), the Board is not required to publish a regulatory 
flexibility analysis with this rulemaking.

Administrative Procedure Act

    Pursuant to 5 U.S.C. 553, the Board is issuing this deletion of the 
Board and staff's existing section 23A interpretations as a final rule. 
Most of the interpretations in question are staff opinions, which were 
not subject to public comment pursuant to 5 U.S.C. 553(b)(2)(A). The 
deletion of the Board interpretations from the Code of Federal 
Regulations is part of the implementation of Regulation W, which the 
Board issued for public notice and comment on May 11, 2001, and thus 
further public comment on the deletions is unnecessary. A review of the 
public comments on Regulation W can be found in the preamble to 
Regulation W, 67 FR (2002).

Paperwork Reduction Act

    The Board has determined that the removal of the interpretations 
from the Code of Federal Regulations will not involve a collection of 
information pursuant to the provisions of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.).

List of Subjects in 12 CFR part 250

    Federal Reserve System.


    For reasons set out in the preamble, the Board amends 12 CFR part 
250 as follows:

PART 250--MISCELLANEOUS INTERPRETATIONS

    1. The authority citation for part 250 continues to read as 
follows:

    Authority: 12 U.S.C. 78, 248(i), 371c(f) and 371c-1(e).


Sec.  250.160  [Amended]

    2. In Sec.  250.160, remove paragraph (b).


Sec. Sec.  250.240, 250.248 and Sec.  250.250  [Removed]

    3. Sections 250.240, 250.241, 250.242, 250.243, 250.244, 250.245, 
250.246, 250.247, 250.248, and 250.250 are removed.

    By order of the Board of Governors of the Federal Reserve 
System, November 27, 2002.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 02-30636 Filed 12-11-02; 8:45 am]
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