Federal Reserve Board

FEDERAL RESERVE SYSTEM

12 CFR Part 250

[Miscellaneous Interpretations; Docket R-1016]

Applicability of Section 23A of the Federal Reserve Act to Loans and Extensions of Credit Made by a Member Bank to a Third Party

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed rulemaking.

SUMMARY: Section 23A of the Federal Reserve Act restricts the ability of a member bank to fund its affiliates through direct investments, loans, or certain other transactions (covered transactions). Section 23A deems transactions between a member bank and a nonaffiliated third party as covered transactions between the bank and its affiliate to the extent that proceeds of the transactions are used for the benefit of or transferred to the affiliate. The Board is proposing to grant two exemptions from section 23A for certain loans and extensions of credit made by an insured depository institution to customers that use the proceeds to purchase certain securities from or through the depository institution's registered broker-dealer affiliate. The first exemption would apply when the affiliate is acting solely as a broker or riskless principal in the securities transaction. The second exemption would apply when the extension of credit is made pursuant to a pre-existing line of credit that was not established for the purpose of buying securities from or through an affiliate. The Board proposes to grant these exemptions from section 23A to permit customers to gain more flexible use of the services of insured depository institutions and their registered broker-dealer affiliates, while still ensuring that the credit transactions are conducted in a manner that is consistent with safe and sound banking practices.

DATES: Comments must be submitted on or before July 21, 1998.

ADDRESSES: Comments, which should refer to Docket No. R-1016, may be mailed to Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. Comments addressed to Ms. Johnson also may be delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. and to the security control room outside of those hours. Both the mail room and the security control room are accessible from the courtyard entrance on 20th Street between Constitution Avenue and C Street, N.W. Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00 p.m. weekdays, except as provided in section 261.12 of the Board's Rules Regarding Availability of Information.

FOR FURTHER INFORMATION CONTACT: Thomas M. Corsi, Senior Counsel (202/452-3275), Pamela G. Nardolilli, Senior Counsel (202/452-3289), or Satish M. Kini, Senior Attorney (202/452-3818), Legal Division; or Molly S. Wassom, Deputy Associate Director, Banking Supervision and Regulation (202/452-2305), Board of Governors of the Federal Reserve System. For the hearing impaired only, Telecommunications Device of the Deaf (TDD), Diane Jenkins (202/452-3254).

Proposed exemptions for certain extensions of credit (27 KB PDF)

Proposed rule on purchases of securities (22 KB PDF)

1998 Banking and consumer regulatory policy


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Last update: June 12, 1998, 4:00 PM