Reg W Flashcards
What is the purpose of placing restrictions on transactions with affiliates?
to safeguard the banks assets and deposits from losses related to unsafe or unsound activities
Affiliates do not include subsidiaries of the bank unless the company is a depository institution, a financial subsidiary, directly controlled by one or more affiliates of the bank or a shareholder that controls the bank, OR
an employee stock option plan for the benefit of the shareholders, partners, or employees of the bank or its affiliates
What transactions are covered by Reg W?
* extension of credit
* purchase of an investment in a security
* a purchase of a non exempt asset
* an acceptance of a security issued by the affiliate as collateral for an extension of credit
* the issuance of a guarantee, acceptance, or letter of credit on behalf of the affiliate
The aggregate of covered transactions between a bank and a single affiliate (other than a financial subsidiary of the bank) may not exceed:
10 percent of the capital stock and surplus of the bank
The aggregate of covered transactions between a bank and all affiliates may not exceed:
20 percent of the banks capital and surplus
What items are not eligible to be used as collateral for credit transactions between affiliates?
* low-quality assets
* securities issued by any affiliates
* equity securities or debt securities issued by the bank
* non approved intangible assets
* guarantees, letters of credit, and similar instruments
A bank may not purchase a low quality asset from an affiliate unless, pursuant to an independent credit evaluation,:
the bank had committed itself to the purchase before the time the asset was acquired by the affiliate
Any transaction with any person must be treated as a transaction with an affiliate to the extent that:
the proceeds are used for the benefit of or are transferred to the affiliate
A credit transaction with an affiliate acquired from a nonaffiliated must be valued at the sum of the total amount of consideration given by the bank AND
any additional amount that the bank might be required to provide to or on behalf of the affiliate under the terms of the transaction
Generally, the purchase of assets by a bank from an affiliate must be valued initially at the:
total amount of consideration given for the asset
The purchase of or investment in a security issued by an affiliate remains a covered transaction for:
as long as the bank holds the security
T or F
The 10 percent limit for covered transactions does not apply to transactions between a bank and a financial subsidiary.
TRUE
T or F
The 20 percent aggregate limit on transactions between the bank and all affiliates does apply to transactions between a bank and a financial subsidiary.
TRUE
The bank must establish and maintain policies and procedures designed to manage credit exposure arising from its derivative transactions with affiliates in:
a safe and sound manner
A bank may not engage in transactions unless on the terms and conditions substantially the same or at least as favorable to the bank as those prevailing at the time for comparable transactions involving nonaffiliated OR
in the absence of comparable transactions, on terms and under circumstances that, in good faith, would be offered to a nonaffiliated
