Regulation W: Definition of an Affiliate
Regulation W, a regulation enforced by the Federal Reserve, defines an affiliate as any company that controls, is controlled by, or is under common control with a member bank. Control, in this context, generally refers to ownership, control of voting securities, or the ability to direct a company’s management or policies.
Covered Transactions
Regulation W imposes restrictions on covered transactions between member banks and their affiliates. Covered transactions include loans, asset purchases, asset sales, guarantees, letters of credit, and other types of transactions.
Quantitative Limits
Regulation W establishes quantitative limits on covered transactions between member banks and their affiliates. These limits are based on a percentage of the member bank’s capital and surplus.
Collateral Requirements
Regulation W requires collateral for certain covered transactions between member banks and their affiliates. The collateral must meet specific requirements outlined in the regulation.
Exceptions
There are several exceptions to the general rules of Regulation W. These exceptions include transactions between member banks and their subsidiaries, transactions between member banks and their affiliates that are well-capitalized and well-managed, and transactions that are exempt under other federal regulations.
Implications for Member Banks
Regulation W has several implications for member banks. Member banks must be aware of the definition of an affiliate and the restrictions on covered transactions. They must also ensure that they have adequate collateral for covered transactions and that they comply with the quantitative limits. Failure to comply with Regulation W can result in penalties, including fines and enforcement actions.
Sources
- Federal Reserve Board – Frequently Asked Questions about Regulation W
- Regulation W: Definition in Banking and When It Applies
- The Fed – Supervisory Policy and Guidance Topics – Affiliate Transactions (Regulation W)
FAQs
What is a Reg W affiliate?
A Reg W affiliate is any company that controls, is controlled by, or is under common control with a member bank.
What is the purpose of Reg W?
Reg W imposes restrictions on covered transactions between member banks and their affiliates to prevent conflicts of interest and protect the safety and soundness of the banking system.
What are covered transactions under Reg W?
Covered transactions include loans, asset purchases, asset sales, guarantees, letters of credit, and other types of transactions between member banks and their affiliates.
What are the quantitative limits under Reg W?
Reg W sets quantitative limits on covered transactions between member banks and their affiliates. These limits are based on a percentage of the member bank’s capital and surplus.
What are the collateral requirements under Reg W?
Reg W requires collateral for certain covered transactions between member banks and their affiliates. The collateral must meet specific requirements outlined in the regulation.
Are there any exceptions to Reg W?
Yes, there are several exceptions to Reg W, including transactions between member banks and their subsidiaries, transactions between member banks and their affiliates that are well-capitalized and well-managed, and transactions that are exempt under other federal regulations.
What are the penalties for violating Reg W?
Failure to comply with Reg W can result in penalties, including fines and enforcement actions.