District Circular Letters

May 23, 2001

BANKING SUPERVISION AND REGULATION:
COMMENT REQUESTED -
PROPOSED NEW REGULATION W

To State Member Banks, Bank
Holding Companies, U.S. Branches
and Agencies of Foreign Banks,
and Others Concerned,
in the Twelfth Federal Reserve District

Proposed New Regulation W Implementing Sections 23A and 23B of the Federal Reserve Act (R-1103)

The Federal Reserve Board is seeking public comment on a proposed new Regulation W comprehensively implementing sections 23A and 23B of the Federal Reserve Act. The sections restrict loans by a bank to an affiliate, asset purchases by a bank from an affiliate and other transactions between a bank and its affiliates.

Regulation W would unify in one document various Board and staff interpretations issued over the years as well as several new interpretations of the statute. It also would provide several additional exemptions from the statute. The purpose of sections 23A and 23B and Regulation W is to limit a bank's risk of loss in transactions with affiliates and limit a bank's ability to transfer to its affiliates the benefits arising from its access to the federal safety net.

Comment is requested on or before August 15, 2001.

Until Regulation W is finalized, all previously issued valid Board and staff interpretations regarding sections 23A and 23B remain in effect.

Separately, the Board, as required by the Gramm-Leach-Bliley Act, approved an interim final rule, (Docket R-1104) under sections 23A and 23B, requiring institutions to adopt policies and procedures designed to monitor, manage, and control credit exposures arising from derivatives transactions with affiliates and intraday credit extensions to affiliates.

The interim rules are effective January 1, 2002. Comments are requested on or before August 15, 2001.

The Board also approved a final rule granting exemptions from and providing interpretations of section 23A The Board proposed and sought public comment on the exemptions and interpretations in June 1998. The rule is effective June 11, 2001. However, the content of the rule is incorporated in the proposed Regulation W, which will allow an additional opportunity to comment.

The first exemption and interpretation (Docket R-1015) applies to loans made by an insured depository institution to an unaffiliated borrower that uses the proceeds of the loan to purchase certain third-party securities through a registered broker-dealer affiliate of the institution. The second exemption (Docket R-1016) applies to loans by an insured depository institution to an unaffiliated borrower that uses the proceeds to purchase certain securities underwritten or sold as principal by a registered broker-dealer affiliate of the institution. The remaining interpretation expands the ability of an insured depository institution to purchase from a registered broker-dealer affiliate securities that have a ready market and prices that can be verified from a reliable independent source.

Copies

Copies of the Board's notices (Docket R-1103 [147KB], R-1104 [27KB], R-1015 [41KB], R-1016 [31KB]) are available from our Corporate Services Department. To request copies to be sent by mail, please call (415) 974-2060.

All circulars and documents are available on the Internet through the Federal Reserve Bank of San Francisco's web site, at http://www.frbsf.org/banking/letters.

Additional Information

For additional information about the proposed new Regulation W, please contact our Banking Supervision and Regulation Department, at (415) 974-2210.

FEDERAL RESERVE BANK OF SAN FRANCISCO