To All Depository Institutions and Others
Concerned in the Second Federal Reserve District:
In a supervisory letter (03-2) dated January 9, 2003, the Federal Reserve Board provides interpretive guidance on Regulation W, the rule that comprehensively implements sections 23A and 23B of the Federal Reserve Act.
The rule is effective April 1, 2003.
Sections 23A and 23B and Regulation W limit the risks to a bank from transactions between the bank and its affiliates and limit the ability of a bank to transfer to its affiliates the subsidy arising from the bank's access to the Federal safety net. The statute and rule accomplish these purposes by imposing quantitative and qualitative limits on the ability of a bank to extend credit to, or engage in certain other transactions with, an affiliate. Transactions between a bank and a nonaffiliate that benefit an affiliate of the bank are covered by the statute and regulation as well, through the well-established "attribution" principle. However, certain transactions that generally do not expose a bank to undue risk or abuse the safety net are exempted from coverage under Regulation W.
A comprehensive review of the rule is contained in the appendix to the Board's supervisory letter.
Questions on this matter may be directed, at this Bank, to James V. Keogh, Examining Officer, Legal & Compliance Risk Department.
