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Federal Register: December 12, 2002 (Volume 67, Number 239)

DOCID: FR Doc 02-30636

FEDERAL RESERVE SYSTEM

Veterans Affairs Department

CFR Citation: 12 CFR Part 250

DOCUMENT ID: [Miscellaneous Interpretations]

NOTICE: Part III

DOCUMENT ACTION: Final rule.

SUBJECT CATEGORY:

Transactions Between Member Banks and Their Affiliates

EFFECTIVE DATES: April 1, 2003.

DOCUMENT 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 With the adoption of Regulation W, most of the Board's previous section 23A interpretations are outdated or unnecessary, and the Board believes that reliance on the new Regulation W will eliminate confusion and simplify compliance with sections 23A and 23B.

SUMMARY:

Federal Reserve System,

SUPPLEMENTAL 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 looseleaf service, the Federal Reserve Regulatory Service.

\1\ 12 U.S.C. 371c(f), 371c1(e).

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 factspecific 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 31118, 12 CFR 250.242........ Definition of Capital Sec. 223.3(d). Stock and Surplus.
31120, 1934 Fed. Res. Bull. CollateralPaper Sec.
391. Eligible for 223.14(b)(1). Rediscount or
Purchase by Federal
Reserve Banks.
31121, 1935 Fed. Res. Bull. CollateralStock..... Sec.
395. 223.14(b)(1)(iv ). 31125, 1936 Fed. Res. Bull. ExemptionsIndebtedne No exemption 324. ss for Unpaid available. Balances Due on
Purchased Assets.
31126, S285, 10/24/41....... ExemptionsRelationsh Sec.
ips Arising Out of 223.2(b)(5). Bona Fide Debt
Previously Contracted.
31127, 12 CFR 250.240........ ExemptionsLoan to Sec. Sec. Bank Operations 223.2(b) & (2). Subsidiary.
31128, 12 CFR 250.241........ ExemptionsTransactio Sec.
ns Subject to Review 223.42(j). Under the Bank Merger
Act.
31128.1, 12 CFR 250.245...... ExemptionsLoans and Sec.
Extensions of Credit 223.16(c)(3). by Member Bank to
Third Party.
31128.2, 12 CFR 250.246...... ExemptionsPurchase Sec.
of Security by 223.42(f). Insured Depository
Institution from an
Affiliate.
31130, 1934 Fed. Res. Bull. Extension of Credit Retained. 391. Loan on Note Bearing
Endorsement by
Affiliate.
31131, 1951 Fed. Res. Bull. Extension of Credit Sec.
960. Purchase of 223.3(o)(4). Affiliate's Notes.
31132, 12 CFR 250.160(b)..... Extension of Credit Sec. 223.3(o). Federal Funds
Transaction.
31133, 12 CFR 250.250........ Extension of Credit Sec.
Purchase of Mortgage 223.42(k). Note or Participation
from Nonbank
Affiliates.
31135, 1933 Fed. Res. Bull. Loans & Investments See Preamble For 501. Made Before June 16, Grandfathering. 1933.
31136, 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.
31137, 12 CFR 250.247........ Market Terms Sec. 223.33. RequirementDerivati
ves.
[[Page 76621]]
31137.1, 12 CFR 250.248...... Market Terms Sec. RequirementIntraday 223.42(l). Extensions of Credit
by Insured Depository
Institutions to Their
Affiliates.
31140........................ Affiliates to Which Sec. 223.2(b). ApplicableCotrustee
or Coexecutor of
Corporation.
31141........................ Affiliates to Which Retained. Applicable.
31142........................ Affiliates to Which Sec. ApplicableSmall 223.2(a)(2). Business Subsidiary
of Bank Holding
Company.
31143........................ Affiliate to Which Sec. ApplicableJoint 223.2(b)(1)(iii Venture in Which ). Subsidiary Has 50%
Interest.
31144........................ Affiliates to Which Sec. ApplicableCorporati 223.3(p)(1)(ii) on with Stock Held as .
Collateral.
31145........................ Affiliates to Which Sec. ApplicableCorporati 223.3(p)(1)(ii) on Owned by Affiliate .
Edge Corporation.
31146........................ Affiliates to Which Retained. ApplicableTrust.
31146.1...................... Affiliates to Which Sec. ApplicableForeign 223.2(a)(2). Affiliate of Domestic
Bank Holding Company.
31146.2...................... Affiliates to Which Sec. ApplicableLess Than 223.2(a)(3). 25 Percent Control.
31146.3...................... Affiliates to Which Sec. ApplicableAgricultu 223.2(b)(1)(iii ral Credit ). Corporation.
31146.4...................... Affiliates to Which Sec. ApplicableBank 223.2(b)(1). Subsidiaries of Bank
Holding Company.
31146.5...................... Affiliates to Which Sec. 223.16. ApplicablePurchaser
of Subsidiary Banks.
31146.6...................... Affiliates to Which Retained. ApplicableCommon
Shareholders.
31146.61..................... Affiliates to Which Retained. ApplicablePartnersh
ip & Association.
31146.7...................... Affiliates to Which Retained. ApplicableForeign
Exchange Fund.
31150........................ BankSavings Loan.... 12 U.S.C. 1468. 31151........................ BankBank Whose 12 U.S.C. Deposits Are Insured 1828(j). by the FDIC.
31152........................ BankForeign Bank.... 12 U.S.C. 371c(b)(5) & Sec. 223.18. 31152.1...................... BankDomestic Branch 12
of a Foreign Bank. U.S.C.371c(b)(5 ) & Sec. 223.3(k). 31152.2...................... BankNational Bank 12 U.S.C. Subsidiary. 371c(b)(5). 31155........................ CollateralAutomobile Sec.
Rental Contracts. 223.14(b)(1)(iv ). 31156........................ CollateralStock..... Sec. 223.24. 31157........................ Collateral``Secured Sec. 223.14. by''.
31158........................ CollateralStock in Sec. 223.14. Wholly Owned
Subsidiary.
31160........................ CollateralFHA Sec. 223.3(y). Mortgages.
31161........................ CollateralU.S. Sec. 223.14. Government Securities.
31162........................ CollateralStock Retained Valuation.
31163........................ CollateralStock Retained. Valuation.
31164........................ CollateralStock Retained. Valuation.
31164.1...................... CollateralStock of a Sec.
Subsidiary Bank. 223.14(c)(2). 31164.2...................... CollateralReal Sec.
Estate. 223.14(b)(l)(iv ). 31164.3...................... CollateralMortgage Sec.
Servicing Rights. 223.14(c)(4). 31167........................ Covered Transactions Sec.
Purchase of 223.3(h)(2). Affiliate's
Securities.
31167.1...................... Covered Transactions Retained. Purchase of Assets.
31167.2...................... Covered Transactions Sec.
Purchase of Assets. 223.42(k). 31167.3...................... Covered Transactions Retained. Acceptance of
Securities.
31167.4...................... Covered Transactions Retained. Issuance of Guarantee.
31167.5...................... Covered Transactions Sec. 223.42(k) Purchase of Leases. & Subpart F. 31170........................ ExemptionsIndebtedne Sec. 223.3(h). ss for Unpaid
Balances Due on
Purchased Assets.
31171........................ ExemptionsCorporatio Sec.
n Holding Premises of 223.2(b)(2). Bank.
31172........................ ExemptionsInvestment Sec. 223.2. in Agricultural
Credit Corporation.
31173........................ ExemptionsSale of Sec.
Assets on Credit. 223.3(h)(1). 31174........................ ExemptionsTrust..... Sec. 223.2. 31175........................ ExemptionsLoans to Sec.
Subsidiary Bank 223.2(b)(2). Premises.
31176........................ ExemptionsCorporatio Sec.
n Holding Premises of 223.2(b)(2). Bank.
31177........................ ExemptionsBank Sec.
Operations Subsidiary. 223.2(b)(1). 31177.1...................... ExemptionsBank Sec. Sec. Controlled by Same 223.41(b) & Company. 223.3(k) & (v). 31177.2...................... ExemptionsBank Sec.
Premises Subsidiary. 223.2(a)(3) & (b)(2). 31177.3...................... ExemptionsPrivately Retained. Issued Collateralized
Mortgage Obligations.
31177.4...................... ExemptionsBank Sec.
Controlled by Same 223.41(b). Company That Is Not
Bank Holding Company.
31180........................ Extension of Credit Sec.
Nonrecourse 223.3(o)(4). Acquisition of
Promissory Note.
31181........................ Extension of Credit Sec. Sec. Transaction with Bank 223.3(o) & Holding Company. 223.42(h). 31182........................ Extension of Credit Sec. 225.3(o). Guaranteed Debt of
Holding Company.
31183........................ Extension of Credit Deleted. Participation in
Assets Pool.
31184........................ Extension of Credit Sec.
Purchase of Mortgage 223.42(k). Note or Participation
from Nonbank
Affiliate.
31185........................ Extension of Credit Retained. GNMA Certificate of
Guarantee.
31186........................ Extension of Credit Sec. 223.3(o). Paid Letter of Credit.
31187........................ Extension of Credit Retained. Equipment Lease
Agreement.
31188........................ Extension of Credit Sec.
Participation in 223.42(k). Mortgage Loan Pool.
[[Page 76622]]
31189........................ Extension of Credit Sec.
Finance Company Loan 223.42(k). Participation.
31189.1...................... Extension of Credit Sec. Sec. Transactions 223.3(h)(1) & Involving Funding, 223.3(h)(5). Letters of Credit &
Bankers Acceptance.
31189.2...................... Extension of Credit Sec. 223.3(h). Contingency,
Negotiating or
Accepting Letters of
Credit.
31195........................ Limitations on Amount See Preamble Loans & Investments Grandfathering. Made Before June 16,
1933.
31196........................ Limitations on Amount Sec.
Loan Secured by Paper 223.14(b)(i)(C) Eligible for .
Rediscount or
Purchase by Federal
Reserve Bank.
31197........................ Limitations on Amount Sec.
Capital Stock. 223.3(h)(2). 31198........................ Limitations on Amount Sec. Sec. Stockholder Ownership 223.3(h) & & Capital 223.7(c) Expenditures.
31199........................ Limitations on Amount Sec.
Valuation of 223.24(b). Transactions.
31199.5...................... LowQuality Asset Retained. OpenEnd Credit Card
Account.
31199.51..................... LowQuality 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 250MISCELLANEOUS INTERPRETATIONS

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

Authority: 12 U.S.C. 78, 248(i), 371c(f) and 371c1(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. 0230636 Filed 121102; 8:45 am]
BILLING CODE 621001P

FOR FURTHER INFORMATION CONTACT

Pamela G. Nardolilli, Senior Counsel (202/4523289), or Mark E. Van Der Weide, Counsel (202/4522263), Legal Division; Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551.