I. INTRODUCTION
The Competitive Equality Banking Act of 1987 contains a new section to the Federal Reserve Act, section 23B, which restricts transactions between member banks and their affiliates. Section 23B, which became effective on August 10, 1987, essentially expands existing section 23A (23 U.S.C. 371c) by imposing four additional types of restrictions:
These restrictions are summarized below. Section 23B generally incorporates the definitions used in section 23A. However, banks are not “affiliates” for purposes of section 23B.
II. COMPARABILITY REQUIREMENT
Transactions subject to the comparability requirement must be either:
The comparability requirement applies to the following types of transactions involving a member bank or its subsidiary:
Moreover, for purposes of the comparability requirement, a transaction shall be deemed to be with an affiliate if any of the proceeds are transferred to or used for the benefit of the affiliate. Additionally, under the last item above, the requirement can apply to loans made to non-affiliated third parties which are dealing with an affiliate.
III. RESTRICTIONS ON FIDUCIARY PURCHASES FROM AFFILIATES
A bank or its subsidiary may not as a fiduciary purchase any asset or security from an affiliate unless the purchase is permitted:
However, a bank will not be deemed to be a fiduciary for this purpose when acting as a broker.
IV. PURCHASE OF SECURITIES WHERE AN AFFILIATE IS THE UNDERWRITER
A bank or its subsidiary, as fiduciary or principal, may not purchase or acquire any security, during the existence of any underwriting or selling syndication, if an affiliate is a principal underwriter of that security. However, such securities may be purchased or acquired if the acquisition is approved by a majority of a bank’s directors who are not officers or employees of the bank or any of its affiliates and if the approval is granted before the securities are initially offered for sale to the public.
Such approval may be either in the form of a prior approval of the specific acquisition or by the advance establishment of specific standards for such acquisitions. However, if the latter, the outside directors will be responsible for regularly reviewing acquisitions under the standards and to periodically review the standards to assure that they continue to be appropriate in light of mrket and other conditions.
V. RESTRICTIONS ON RESPONSIBILITY FOR AFFILIATE OBLIGATIONS
A bank, its subsidiaries, and its affiliates, may not publish any advertisement or enter into any agreement stating or suggesting that the bank shall in any way be responsible for the obligations of its affiliates.
VI. CONCLUSION
The Federal Reserve Board has the authority to issue regulations exempting transactions or relationships from the above requirements and excluding certain subsidiaries of a bank holding company from the definitions of “affiliate” for purpose of this section, if the Board finds such exemptions or exclusions to be in the public interest and consistent with the purposes of the new section 23B.