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U.S. Code as of:
01/19/04
Section 371c. Banking affiliates
(a) Restrictions on transactions with affiliates
(1) A member bank and its subsidiaries may engage in a covered
transaction with an affiliate only if -
(A) in the case of any affiliate, the aggregate amount of
covered transactions of the member bank and its subsidiaries will
not exceed 10 per centum of the capital stock and surplus of the
member bank; and
(B) in the case of all affiliates, the aggregate amount of
covered transactions of the member bank and its subsidiaries will
not exceed 20 per centum of the capital stock and surplus of the
member bank.
(2) For the purpose of this section, any transaction by a member
bank with any person shall be deemed to be a transaction with an
affiliate to the extent that the proceeds of the transaction are
used for the benefit of, or transferred to, that affiliate.
(3) A member bank and its subsidiaries may not purchase a
low-quality asset from an affiliate unless the bank or such
subsidiary, pursuant to an independent credit evaluation, committed
itself to purchase such asset prior to the time such asset was
acquired by the affiliate.
(4) Any covered transactions and any transactions exempt under
subsection (d) of this section between a member bank and an
affiliate shall be on terms and conditions that are consistent with
safe and sound banking practices.
(b) Definitions
For the purpose of this section -
(1) the term "affiliate" with respect to a member bank means -
(A) any company that controls the member bank and any other
company that is controlled by the company that controls the
member bank;
(B) a bank subsidiary of the member bank;
(C) any company -
(i) that is controlled directly or indirectly, by a trust
or otherwise, by or for the benefit of shareholders who
beneficially or otherwise control, directly or indirectly, by
trust or otherwise, the member bank or any company that
controls the member bank; or
(ii) in which a majority of its directors or trustees
constitute a majority of the persons holding any such office
with the member bank or any company that controls the member
bank;
(D)(i) any company, including a real estate investment trust,
that is sponsored and advised on a contractual basis by the
member bank or any subsidiary or affiliate of the member bank;
or
(ii) any investment company with respect to which a member
bank or any affiliate thereof is an investment advisor as
defined in section 80a-2(a)(20) of title 15; and
(E) any company that the Board determines by regulation or
order to have a relationship with the member bank or any
subsidiary or affiliate of the member bank, such that covered
transactions by the member bank or its subsidiary with that
company may be affected by the relationship to the detriment of
the member bank or its subsidiary; and
(2) the following shall not be considered to be an affiliate:
(A) any company, other than a bank, that is a subsidiary of a
member bank, unless a determination is made under paragraph
(1)(E) not to exclude such subsidiary company from the
definition of affiliate;
(B) any company engaged solely in holding the premises of the
member bank;
(C) any company engaged solely in conducting a safe deposit
business;
(D) any company engaged solely in holding obligations of the
United States or its agencies or obligations fully guaranteed
by the United States or its agencies as to principal and
interest; and
(E) any company where control results from the exercise of
rights arising out of a bona fide debt previously contracted,
but only for the period of time specifically authorized under
applicable State or Federal law or regulation or, in the
absence of such law or regulation, for a period of two years
from the date of the exercise of such rights or the effective
date of this Act, whichever date is later, subject, upon
application, to authorization by the Board for good cause shown
of extensions of time for not more than one year at a time, but
such extensions in the aggregate shall not exceed three years;
(3)(A) a company or shareholder shall be deemed to have control
over another company if -
(i) such company or shareholder, directly or indirectly, or
acting through one or more other persons owns, controls, or has
power to vote 25 per centum or more of any class of voting
securities of the other company;
(ii) such company or shareholder controls in any manner the
election of a majority of the directors or trustees of the
other company; or
(iii) the Board determines, after notice and opportunity for
hearing, that such company or shareholder, directly or
indirectly, exercises a controlling influence over the
management or policies of the other company; and
(B) notwithstanding any other provision of this section, no
company shall be deemed to own or control another company by
virtue of its ownership or control of shares in a fiduciary
capacity, except as provided in paragraph (1)(C) of this
subsection or if the company owning or controlling such shares is
a business trust;
(4) the term "subsidiary" with respect to a specified company
means a company that is controlled by such specified company;
(5) the term "bank" includes a State bank, national bank,
banking association, and trust company;
(6) the term "company" means a corporation, partnership,
business trust, association, or similar organization and, unless
specifically excluded, the term "company" includes a "member
bank" and a "bank";
(7) the term "covered transaction" means with respect to an
affiliate of a member bank -
(A) a loan or extension of credit to the affiliate;
(B) a purchase of or an investment in securities issued by
the affiliate;
(C) a purchase of assets, including assets subject to an
agreement to repurchase, from the affiliate, except such
purchase of real and personal property as may be specifically
exempted by the Board by order or regulation;
(D) the acceptance of securities issued by the affiliate as
collateral security for a loan or extension of credit to any
person or company; or
(E) the issuance of a guarantee, acceptance, or letter of
credit, including an endorsement or standby letter of credit,
on behalf of an affiliate;
(8) the term "aggregate amount of covered transactions" means
the amount of the covered transactions about to be engaged in
added to the current amount of all outstanding covered
transactions;
(9) the term "securities" means stocks, bonds, debentures,
notes, or other similar obligations; and
(10) the term "low-quality asset" means an asset that falls in
any one or more of the following categories:
(A) an asset classified as "substandard", "doubtful", or
"loss" or treated as "other loans especially mentioned" in the
most recent report of examination or inspection of an affiliate
prepared by either a Federal or State supervisory agency;
(B) an asset in a nonaccrual status;
(C) an asset on which principal or interest payments are more
than thirty days past due; or
(D) an asset whose terms have been renegotiated or
compromised due to the deteriorating financial condition of the
obligor.
(11) Rebuttable presumption of control of portfolio companies.
- In addition to paragraph (3), a company or shareholder shall be
presumed to control any other company if the company or
shareholder, directly or indirectly, or acting through 1 or more
other persons, owns or controls 15 percent or more of the equity
capital of the other company pursuant to subparagraph (H) or (I)
of section 1843(k)(4) of this title or rules adopted under
section 122 of the Gramm-Leach-Bliley Act, if any, unless the
company or shareholder provides information acceptable to the
Board to rebut this presumption of control.
(c) Collateral for certain transactions with affiliates
(1) Each loan or extension of credit to, or guarantee,
acceptance, or letter of credit issued on behalf of, an affiliate
by a member bank or its subsidiary shall be secured at the time of
the transaction by collateral having a market value equal to -
(A) 100 per centum of the amount of such loan or extension of
credit, guarantee, acceptance, or letter of credit, if the
collateral is composed of -
(i) obligations of the United States or its agencies;
(ii) obligations fully guaranteed by the United States or its
agencies as to principal and interest;
(iii) notes, drafts, bills of exchange or bankers'
acceptances that are eligible for rediscount or purchase by a
Federal Reserve Bank; or
(iv) a segregated, earmarked deposit account with the member
bank;
(B) 110 per centum of the amount of such loan or extension of
credit, guarantee, acceptance, or letter of credit if the
collateral is composed of obligations of any State or political
subdivision of any State;
(C) 120 per centum of the amount of such loan or extension of
credit, guarantee, acceptance, or letter of credit if the
collateral is composed of other debt instruments, including
receivables; or
(D) 130 per centum of the amount of such loan or extension of
credit, guarantee, acceptance, or letter of credit if the
collateral is composed of stock, leases, or other real or
personal property.
(2) Any such collateral that is subsequently retired or amortized
shall be replaced by additional eligible collateral where needed to
keep the percentage of the collateral value relative to the amount
of the outstanding loan or extension of credit, guarantee,
acceptance, or letter of credit equal to the minimum percentage
required at the inception of the transaction.
(3) A low-quality asset shall not be acceptable as collateral for
a loan or extension of credit to, or guarantee, acceptance, or
letter of credit issued on behalf of, an affiliate.
(4) The securities issued by an affiliate of the member bank
shall not be acceptable as collateral for a loan or extension of
credit to, or guarantee, acceptance, or letter of credit issued on
behalf of, that affiliate or any other affiliate of the member
bank.
(5) The collateral requirements of this paragraph shall not be
applicable to an acceptance that is already fully secured either by
attached documents or by other property having an ascertainable
market value that is involved in the transaction.
(d) Exemptions
The provisions of this section, except subsection (a)(4) of this
section, shall not be applicable to -
(1) any transaction, subject to the prohibition contained in
subsection (a)(3) of this section, with a bank -
(A) which controls 80 per centum or more of the voting shares
of the member bank;
(B) in which the member bank controls 80 per centum or more
of the voting shares; or
(C) in which 80 per centum or more of the voting shares are
controlled by the company that controls 80 per centum or more
of the voting shares of the member bank;
(2) making deposits in an affiliated bank or affiliated foreign
bank in the ordinary course of correspondent business, subject to
any restrictions that the Board may prescribe by regulation or
order;
(3) giving immediate credit to an affiliate for uncollected
items received in the ordinary course of business;
(4) making a loan or extension of credit to, or issuing a
guarantee, acceptance, or letter of credit on behalf of, an
affiliate that is fully secured by -
(A) obligations of the United States or its agencies;
(B) obligations fully guaranteed by the United States or its
agencies as to principal and interest; or
(C) a segregated, earmarked deposit account with the member
bank;
(5) purchasing securities issued by any company of the kinds
described in section 1843(c)(1) of this title;
(6) purchasing assets having a readily identifiable and
publicly available market quotation and purchased at that market
quotation or, subject to the prohibition contained in subsection
(a)(3) of this section, purchasing loans on a nonrecourse basis
from affiliated banks; and
(7) purchasing from an affiliate a loan or extension of credit
that was originated by the member bank and sold to the affiliate
subject to a repurchase agreement or with recourse.
(e) Rules relating to banks with financial subsidiaries
(1) Financial subsidiary defined
For purposes of this section and section 371c-1 of this title,
the term "financial subsidiary" means any company that is a
subsidiary of a bank that would be a financial subsidiary of a
national bank under section 24a of this title.
(2) Financial subsidiary treated as an affiliate
For purposes of applying this section and section 371c-1 of
this title, and notwithstanding subsection (b)(2) of this section
or section 371c-1(d)(1) of this title, a financial subsidiary of
a bank -
(A) shall be deemed to be an affiliate of the bank; and
(B) shall not be deemed to be a subsidiary of the bank.
(3) Exceptions for transactions with financial subsidiaries
(A) Exception from limit on covered transactions with any
individual financial subsidiary
Notwithstanding paragraph (2), the restriction contained in
subsection (a)(1)(A) of this section shall not apply with
respect to covered transactions between a bank and any
individual financial subsidiary of the bank.
(B) Exception for earnings retained by financial subsidiaries
Notwithstanding paragraph (2) or subsection (b)(7) of this
section, a bank's investment in a financial subsidiary of the
bank shall not include retained earnings of the financial
subsidiary.
(4) Anti-evasion provision
For purposes of this section and section 371c-1 of this title -
(A) any purchase of, or investment in, the securities of a
financial subsidiary of a bank by an affiliate of the bank
shall be considered to be a purchase of or investment in such
securities by the bank; and
(B) any extension of credit by an affiliate of a bank to a
financial subsidiary of the bank shall be considered to be an
extension of credit by the bank to the financial subsidiary if
the Board determines that such treatment is necessary or
appropriate to prevent evasions of this chapter and the
Gramm-Leach-Bliley Act.
(f) Rulemaking and additional exemptions
(1) The Board may issue such further regulations and orders,
including definitions consistent with this section, as may be
necessary to administer and carry out the purposes of this section
and to prevent evasions thereof.
(2) The Board may, at its discretion, by regulation or order
exempt transactions or relationships from the requirements of this
section if it finds such exemptions to be in the public interest
and consistent with the purposes of this section.
(3) Rulemaking required concerning derivative transactions and
intraday credit. -
(A) In general. - Not later than 18 months after November 12,
1999, the Board shall adopt final rules under this section to
address as covered transactions credit exposure arising out of
derivative transactions between member banks and their affiliates
and intraday extensions of credit by member banks to their
affiliates.
(B) Effective date. - The effective date of any final rule
adopted by the Board pursuant to subparagraph (A) shall be
delayed for such period as the Board deems necessary or
appropriate to permit banks to conform their activities to the
requirements of the final rule without undue hardship.
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