Steven J. Eisen, Esq.
Baker, Donelson, Bearman & Caldwell
Suite 1700
Nashville City Center
511 Union Street
Nashville, Tennessee 37219

Dear Mr. Eisen:

This is in response to your letter requesting guidance regarding whether a loan from a bank to its affiliate that is fully secured by Guaranteed Interest Certificates ("GICs") that are guaranteed by the Small Business Administration ("SBA") is exempt from the quantitative limits imposed by section 23A of the Federal Reserve Act.¹ Under section 23A, a loan that is fully secured by "obligations fully guaranteed by the United States or its agencies as to principal and interest" ("Agency Guarantee"), is exempt from the quantitative limits of the statute.²

The SBA is authorized to make loans and issue certificates guaranteeing all or part of such loans made by participating lenders to assist small business concerns in the United States.³ The GIC that you provided to the Board states that the SBA guarantee is backed by the full faith and credit of the United States, and the SBA has confirmed that the full faith and credit of the United States is pledged to pay any amount that may be required to be paid under the terms of the GIC.⁴ Accordingly, staff believes that the GIC meets the criteria set forth in section 23A(c)(1)(A)(ii) and (d)(4)(B) and that a loan that is fully secured by a GIC is exempt from the quantitative limits of section 23A. This conclusion is based solely on the information provided and should not be relied upon to determine the status of any other instrument issued or guaranteed by the SBA for any purpose under the provisions of the section 23A.

You also have asked whether a purchase of a GIC by a bank from an affiliate would qualify for the exemption in section 23A(d)(6), which exempts an insured depository institution's purchase of an asset from an affiliate if the asset has a "readily identifiable and publicly available" market quotation.⁵ Generally, this exemption has been available for asset purchases where the price of the asset is recorded in widely disseminated publications, such as newspapers with a national circulation. Based on conversations with the staff of the SBA, GICs generally are not actively traded, and prices for the certificates are not available in widely disseminated publications or other media. The Board recently recognized an additional exception for the purchase from a broker-dealer that is registered with the Securities and Exchange Commission of securities in transactions that meet certain other requirements.⁶ Although it is unclear from the information currently available whether this exception would be appropriate in this case, staff is available to discuss the requirements of the exemption with you to determine the applicability of the exemption to a specific purchase.

If you have further questions, please contact Ms. Pam Nardolilli of my staff at 202/452-3289.

Sincerely,

(Signed) J. Virgil Mattingly

1. 12 U.S.C. � 371c(d)(6). Return to text

2. 12 U.S.C. � 371c(d)(4)(B). See also 12 U.S.C. � 371c(c)(1)(A)(ii). Return to text

3. 15 U.S.C. �� 634 & 636. Return to text

4. See also, 15 U.S.C. �� 634(g) and 636 and Opinion of the Att'y General dated April 14, 1971. Return to text

5. 12 U.S.C. � 371c(d)(6). Return to text

6. 66 Federal Register 24,225 (2001) (to be codified at 12 C.F.R. � 250.246). A copy of the regulation is enclosed for your information. Return to text