Reg W: Transactions w/ Affiliates Flashcards
Which of the following items is considered a low-quality asset?
a. An asset in a nonaccrual status
b. An asset on which interest is past due 15 days
c. An asset that will be transferred to the workout area within the next 60 days so that the terms can be renegotiated
d. None of the above
a. An asset in a nonaccrual status
First National Bank made a loan to a nonbank affiliate of its holding company that is secured by stocks, bonds, and debentures. At the outset of the loan, First National had collateral with a market value equal to 150 percent of the loan amount. Over time, some of the collateral has been retired and amortized. Some has dropped in value. What is the responsibility of the bank regarding the collateral?
a. The bank has no responsibility once the loan is made provided the percentages were correct at the loan’s inception.
b. The bank must check values every month to ensure that the percentages are correct at all times.
c. The bank must check values when the collateral is retired or amortized to make sure the collateral is replaced with securities that will bring the loan into compliance with the percentages required in the law.
d. The bank must annually check the value of the collateral to ensure that the percentage of value is maintained.
c. The bank must check values when the collateral is retired or amortized to make sure the collateral is replaced with securities that will bring the loan into compliance with the percentages required in the law.
First National Bank is a wholly owned subsidiary of Bank Holding Company, Inc. Which of the following companies is NOT an affiliate of First National Bank?
a. A company that owns 60 percent of Bank Holding Company, Inc.
b. A company of which First National owns 100 percent of the stock, set up solely to hold the title to the First National Bank building
c. A company established to sell securities and that is 100 percent owned by Bank Holding Company, Inc.
d. Another bank that is owned by Bank Holding Company, Inc.
b. A company of which First National owns 100 percent of the stock, set up solely to hold the title to the First National Bank building
First National Bank and Fidelity Bank are subsidiaries of Bank Holding Company, Inc. Fidelity is planning to sell First National two loan participations. It has been Fidelity’s practice for several years to sell overlines to First National.
• Loan A has been on Fidelity’s books for two years. It is a line of credit that will be over Fidelity’s loan limit with its next advance. It was recently classified as special mention during a safety and soundness examination. First National agreed to purchase overlines on Loan A before Fidelity’s funding of the loan two years ago and signed a participation agreement at that time.
• Loan B is 60 days past due for a principal payment, although interest payments are current. The loan has been on the books at Fidelity for one year. First National agreed to purchase overlines on Loan B six months ago.
Which, if any, of these loans can First National purchase? 12 CFR 223.15 Outline II C(1) First National agreed to purchase Loan A before its being acquired by Fidelity. Therefore, even though it is now a low-quality asset, First National can purchase it. Loan B is also a low-quality asset, but First National did not agree to purchase it before its being acquired by Fidelity, so it cannot participate in the loan now.
a. Neither, both are low-quality assets
b. Loan A only
c. Loan B only
d. Both Loan A and Loan B
b. Loan A only
First National agreed to purchase Loan A before its being acquired by Fidelity. Therefore, even though it is now a low-quality asset, First National can purchase it. Loan B is also a low-quality asset, but First National did not agree to purchase it before its being acquired by Fidelity, so it cannot participate in the loan now.
First National Bank would like to make a loan to an affiliate bank. Which of the following would NOT be acceptable as collateral for such a loan?
a. U.S. Treasury bills in an amount equal to the loan
b. Stock traded on the New York Stock Exchange that has a market value equal to 130 percent of the loan amount
c. An account for the benefit of First National held at the affiliate bank in an amount equal to the loan amount
d. Eligible bankers’ acceptances with a market value equal to the loan amount
c. An account for the benefit of First National held at the affiliate bank in an amount equal to the loan amount
To be acceptable collateral, a deposit account must be segregated and with the bank. In this case the account is being held at the affiliate, and it is therefore not proper collateral.
A national bank may make a loan to an affiliated mortgage company that is 100 percent owned by the same bank holding company, if the aggregate amount of all covered transactions of the national bank and its subsidiaries does not exceed a certain percentage of capital and surplus of the national bank. What is that percentage?
a. 10 percent
b. 15 percent
c. 20 percent
d. 25 percent
c. 20 percent
A member bank wants to sell assets to an affiliated bank that is 100 percent owned by the same bank holding company. Is this transaction allowed?
a. No. It is prohibited.
b. Yes, but it is subject to an aggregate limit of 10 percent of the member bank’s capital and unimpaired surplus.
c. Yes. It is permitted, if the assets are not low quality.
d. Yes, but it must be classified on the receiving bank’s books as low-quality assets.
c. Yes. It is permitted, if the assets are not low quality.
A member bank could only purchase the asset if it had committed to purchase it prior to the asset becoming ‘‘low quality.’’
Which of the following practices is authorized by the Federal Reserve Act?
a. An agreement by a bank that it is responsible for the obligations of its subsidiary
b. A bank’s purchase, in its fiduciary capacity, of the affiliate’s assets if the fiduciary instrument allows for such a purchase
c. The sale of a nonaccruing loan from a bank to its bank affiliate
d. The acceptance of an affiliate’s securities of an affiliate as collateral for a bank’s loan from the bank to the affiliate
b. A bank’s purchase, in its fiduciary capacity, of the affiliate’s assets if the fiduciary instrument allows for such a purchase
What is the definition of affiliate?
- Any company that controls the bank (i.e., holding company)
- Any other company that’s controlled by the company that controls the bank (any company that’s controlled by the holding company)
- Any bank subsidiaries of the bank
- A company controlled by shareholders who control the bank
What four transactions are covered by Reg W?
- loan
- purchase of securities in the affiliate
- purchase of assets subject to repurchase
- issuance of a guarantee
What are the 3 affiliate transaction limits?
- 10% of capital any affiliate
- 20% of capital all affiliates
- No low-quality assets
What are the collateral requirements for loans between affiliates?
- 100% if US Government obligations or segregated deposits
- 110% if state obligations
- 120% if other debt instruments
- 130% if real or personal property
*Loans have to more than dollar for dollar if secured.
