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Reg W

applies to federally insured depository institutions. BHC does not accept deposits and is not fed insured unless the bank is also a BHC


Reg W transactions applications to proprietorships

natural persons and Proprietorships cannot be affiliates


Who is affiliate and related interest?

An affiliate is NOT an individual and must be an entity such as company, partnership, LLC, business trust.


Non Affiliates (exempt)

Non-banking (mortgage bank) subsidiary (not controlled by another affiliate of the bank), sister bank, company engaged solely in holding the bank premises or obligations of the US govt and/or its agencies, companies engaged solely in safe deposit business, and company where control results from debt previously contracted. Non-depository and non-financial subs of member bank are exempt.


Covered transactions

A loan to a customer who is a 50% owner of the bank. Is this a covered transaction? It is not a covered transaction unless the loan is secured by affiliate stock or used for the benefit of an affiliate. It can't be secured by bank stock. And yes, an individual is not an affiliate. Accept of a security issued by an affiliate as collateral for a loan to a 3rd party is a covered trans so is purchase/investment in security issued by an affiliate.


BHC director owns 50% of the BHC stock and 100% of auto dealership. Borrows money from the bank and gives it to the dealership. Is this a covered transaction and does he needs to notify Fed?

Yes, it is a covered transaction. No, he does not need to notify Fed.


Attribution rule

if a bank loan funds to an individual (3rd party) who lends the same amount to the bank’s parent HC, the bank would be considered to have made a loan to its parent comp subject to all of the requirements and restrictions of the regulation. Covered Transaction.


Covered transaction limits

-10% of bank’s cap stock and surplus (single non-finan affil);

-20% with a single financial affiliate or with all affiliates.


Collateral LTV requirements

100%: cash or us govt agcy sec; 110%: Munis; 120%: loans & receivables, CMOs, mtg notes by FHA; 130%: stocks, RE


Ineligible collateral

sec of an affiliate/bank, intangible and low quality assets, guaranty and letters or credits


Exempt transactions between affiliate

sister bank exemption (between 2 or more ins depository inst owned 80% or more by the same parent comp); purchase of loans on a non-recourse basis; internal cor re-orgs; trans sec by cash or US govt sec; purchase of municipal and loans (independent evaluation/prior commitment); intraday ext of credit; purchase of an asset/sec with a readily identifiable market value.


Prohibited asset purchase

purchase as fiduciary any security/other assets from any affiliate; cannot acquire a security during an underwriting where a principal underwriter of the sec is an affiliate of the member bank; advance or guaranty showing bank resp for affiliate obligations unless the transaction meets the quantitative and collateral requirements of the reg.


Can a low quality asset be sold to a sister bank or not?

An exception to low quality asset prohibition is where a bank has participated in a loan originated by an affiliate that has since become low quality

No. The primary purpose of the sister bank exemption is to facilitate low-risk transactions that occur in the normal course of business. A low quality asset is contrary to this exemption, since considered high risk.


What are the 2 primary risks associated with Reg W

Legal and operational risks