Federal Reserve Board Proposes New Regulation W on Affiliate Transactions

Washington, DC, May 15, 2001 - The Federal Reserve Board has published for comment a new regulation, Regulation W, which is intended to implement the provisions of Sections 23A and 23B of the Federal Reserve Act, as recently amended by the Gramm-Leach-Bliley Act. Comments on the proposal must be filed with the Board no later than August 15, 2001.

Sections 23A and 23B of the Federal Reserve Act impose restrictions on a bank's loans to, purchases of assets from, and certain other transactions with, affiliates. Section 23B requires that transactions between the bank and its affiliates occur on market terms. "Covered transactions" include loans and other extensions of credit to an affiliate, investments in the securities of an affiliate, purchases or assets from an affiliate, and certain other transactions that expose the bank to the financial risks of its affiliates.

Sections 23A and 23B were amended by the GLB Act to subject transactions between a bank and its financial subsidiaries to nearly all of the same limitations as transactions between the bank and its affiliates.

According to the Board's Release, to date, guidance in interpreting and applying Sections 23A and 23B has been provided through a series of Board interpretations and staff letters and informal opinions. In view of this and the recent amendments to these sections by the GLB Act, Board has determined to propose adoption of Regulation W as a comprehensive regulation that would implement Sections 23A and 23B. As proposed, Regulation W would consist of Subparts A-H. Subparts A-G would address various substantive areas of Sections 23A and 23B, and Subpart H would define the terms used in these sections. With the exception of Subpart A, which sets forth the authority, purpose and scope of the regulation, the contents of each rule within the remaining subparts are set forth in a question and answer format. The proposal includes examples, which are considered part of the rule, and compliance with an example, to the extent applicable, would constitute compliance with the rule.