Sec. 204.127 Nondepository participation in
"Federal funds" market.
(a) The Board has considered whether the use of interdepository institution
loan participations (IDLPs) which involve participation by third parties
other than depository institutions in Federal funds transactions, comes
within the exemption from deposit classification for certain obligations
owed by a depository institution to an institution exempt in Sec. 204.2(a)(1)(vii)(A)
of Regulation D. An IDLP transaction is one through which an institution
that has sold Federal funds to a depository institution, subsequently sells
or participates out that obligation to a nondepository third party without
notifying the obligated institution.
(b) The Board's interpretation regarding Federal funds transactions
(12 CFR 204.126) clarified that a depository institutions's liability must
be issued to an exempt institution described in Sec. 204.2(a)(1)(vii)(A)
of Regulation D for its own account in order to come within the nondeposit
exemption for interdepository liabilities. The Board regards transactions
which result in third parties gaining access to the Federal funds market
as contrary to the exemption contained in Sec. 204.2(a)(1)(vii)(A) of Regulation
D regardless of whether the nondepository institution third party is a
party to the initial transaction or thereafter becomes a participant in
the transaction through purchase of all or part of the obligation held
by the selling depository institution.
(c) The Board regards the notice requirements set out in 12 CFR 204.126
as applicable to IDLP-type transactions as described herein so that a depository
institution selling Federal funds must provide to the purchaser--
(1) Notice of its intention, at the time of the initial transaction,
to sell or participate out its loan contract to a nondepository third party,
and
(2) Full and prompt notice whenever it (the selling depository institution)
subsequently sells or participates out its loan contract to a non-depository
third party.
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