§ 371c. Banking affiliates
(a)
Restrictions on transactions with affiliates
(1)
A member bank and its subsidiaries may engage in a covered transaction with an affiliate only if—
(2)
For the purpose of this section, any transaction by a member bank with any person shall be deemed to be a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, that affiliate.
(b)
Definitions
For the purpose of this section—
(1)
the term “affiliate” with respect to a member bank means—
(A)
any company that controls the member bank and any other company that is controlled by the company that controls the member bank;
(C)
any company—
(D)
(E)
any company that the Board determines by regulation or order to have a relationship with the member bank or any subsidiary or affiliate of the member bank, such that covered transactions by the member bank or its subsidiary with that company may be affected by the relationship to the detriment of the member bank or its subsidiary; and
(2)
the following shall not be considered to be an affiliate:
(A)
any company, other than a bank, that is a subsidiary of a member bank, unless a determination is made under paragraph (1)(E) not to exclude such subsidiary company from the definition of affiliate;
(D)
any company engaged solely in holding obligations of the United States or its agencies or obligations fully guaranteed by the United States or its agencies as to principal and interest; and
(E)
any company where control results from the exercise of rights arising out of a bona fide debt previously contracted, but only for the period of time specifically authorized under applicable State or Federal law or regulation or, in the absence of such law or regulation, for a period of two years from the date of the exercise of such rights or the effective date of this Act, whichever date is later, subject, upon application, to authorization by the Board for good cause shown of extensions of time for not more than one year at a time, but such extensions in the aggregate shall not exceed three years;
(3)
(A)
a company or shareholder shall be deemed to have control over another company if—
(i)
such company or shareholder, directly or indirectly, or acting through one or more other persons owns, controls, or has power to vote 25 per centum or more of any class of voting securities of the other company;
(B)
notwithstanding any other provision of this section, no company shall be deemed to own or control another company by virtue of its ownership or control of shares in a fiduciary capacity, except as provided in paragraph (1)(C) of this subsection or if the company owning or controlling such shares is a business trust;
(4)
the term “subsidiary” with respect to a specified company means a company that is controlled by such specified company;
(6)
the term “company” means a corporation, partnership, business trust, association, or similar organization and, unless specifically excluded, the term “company” includes a “member bank” and a “bank”;
(7)
the term “covered transaction” means with respect to an affiliate of a member bank—
(C)
a purchase of assets, including assets subject to an agreement to repurchase, from the affiliate, except such purchase of real and personal property as may be specifically exempted by the Board by order or regulation;
(8)
the term “aggregate amount of covered transactions” means the amount of the covered transactions about to be engaged in added to the current amount of all outstanding covered transactions;
(10)
the term “low-quality asset” means an asset that falls in any one or more of the following categories:
(11)
Rebuttable presumption of control of portfolio companies.—
In addition to paragraph (3), a company or shareholder shall be presumed to control any other company if the company or shareholder, directly or indirectly, or acting through 1 or more other persons, owns or controls 15 percent or more of the equity capital of the other company pursuant to subparagraph (H) or (I) of section
1843
(k)(4) of this title or rules adopted under section 122 of the Gramm-Leach-Bliley Act, if any, unless the company or shareholder provides information acceptable to the Board to rebut this presumption of control.
(c)
Collateral for certain transactions with affiliates
(1)
Each loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate by a member bank or its subsidiary shall be secured at the time of the transaction by collateral having a market value equal to—
(A)
100 per centum of the amount of such loan or extension of credit, guarantee, acceptance, or letter of credit, if the collateral is composed of—
(ii)
obligations fully guaranteed by the United States or its agencies as to principal and interest;
(B)
110 per centum of the amount of such loan or extension of credit, guarantee, acceptance, or letter of credit if the collateral is composed of obligations of any State or political subdivision of any State;
(2)
Any such collateral that is subsequently retired or amortized shall be replaced by additional eligible collateral where needed to keep the percentage of the collateral value relative to the amount of the outstanding loan or extension of credit, guarantee, acceptance, or letter of credit equal to the minimum percentage required at the inception of the transaction.
(3)
A low-quality asset shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate.
(d)
Exemptions
The provisions of this section, except subsection (a)(4) of this section, shall not be applicable to—
(1)
any transaction, subject to the prohibition contained in subsection (a)(3) of this section, with a bank—
(2)
making deposits in an affiliated bank or affiliated foreign bank in the ordinary course of correspondent business, subject to any restrictions that the Board may prescribe by regulation or order;
(3)
giving immediate credit to an affiliate for uncollected items received in the ordinary course of business;
(4)
making a loan or extension of credit to, or issuing a guarantee, acceptance, or letter of credit on behalf of, an affiliate that is fully secured by—
(5)
purchasing securities issued by any company of the kinds described in section
1843
(c)(1) of this title;
(e)
Rules relating to banks with financial subsidiaries
(2)
Financial subsidiary treated as an affiliate
(3)
Exceptions for transactions with financial subsidiaries
(A)
Exception from limit on covered transactions with any individual financial subsidiary
Notwithstanding paragraph (2), the restriction contained in subsection (a)(1)(A) of this section shall not apply with respect to covered transactions between a bank and any individual financial subsidiary of the bank.
(4)
Anti-evasion provision
For purposes of this section and section
371c–1 of this title—
(A)
any purchase of, or investment in, the securities of a financial subsidiary of a bank by an affiliate of the bank shall be considered to be a purchase of or investment in such securities by the bank; and
(B)
any extension of credit by an affiliate of a bank to a financial subsidiary of the bank shall be considered to be an extension of credit by the bank to the financial subsidiary if the Board determines that such treatment is necessary or appropriate to prevent evasions of this chapter and the Gramm-Leach-Bliley Act.
(f)
Rulemaking and additional exemptions
(1)
The Board may issue such further regulations and orders, including definitions consistent with this section, as may be necessary to administer and carry out the purposes of this section and to prevent evasions thereof.
(2)
The Board may, at its discretion, by regulation or order exempt transactions or relationships from the requirements of this section if it finds such exemptions to be in the public interest and consistent with the purposes of this section.
(3)
Rulemaking required concerning derivative transactions and intraday credit.—
(A)
In general.—
Not later than 18 months after November 12, 1999, the Board shall adopt final rules under this section to address as covered transactions credit exposure arising out of derivative transactions between member banks and their affiliates and intraday extensions of credit by member banks to their affiliates.