Sec. 223.16 What transactions by a member bank with any person are treated as transactions with
an affiliate?
(a) In general. A member bank must treat any of its transactions with any person as a
transaction with an affiliate to the extent that the proceeds of the transaction are used for the
benefit of, or transferred to, an affiliate.
(b) Certain agency transactions. (1) Except to the extent described in paragraph (b)(2)
of this section, an extension of credit by a member bank to a nonaffiliate is not treated as an
extension of credit to an affiliate under paragraph (a) of this section if:
(i) The proceeds of the extension of credit are used to purchase an asset through an
affiliate of the member bank, and the affiliate is acting exclusively as an agent or broker in the
transaction; and
(ii) The asset purchased by the nonaffiliate is not issued, underwritten, or sold as
principal by any affiliate of the member bank.
(2) The interpretation set forth in paragraph (b)(1) of this section does not apply to the
extent of any agency fee, brokerage commission, or other compensation received by an
affiliate from the proceeds of the extension of credit. The receipt of such compensation may
qualify, however, for the exemption contained in paragraph (c)(2) of this section.
(c) Exemptions. Notwithstanding paragraph (a) of this section, the following
transactions are not subject to the quantitative limits of §§ 223.11 and 223.12 or the collateral
requirements of § 223.14. The transactions are, however, subject to the safety and soundness
requirement of § 223.13 and the market terms requirement and other provisions of subpart F
(implementing section 23B).
(1) Certain riskless principal transactions. An extension of credit by a member bank to
a nonaffiliate, if:
(i) The proceeds of the extension of credit are used to purchase a security through a
securities affiliate of the member bank, and the securities affiliate is acting exclusively as a
riskless principal in the transaction;
(ii) The security purchased by the nonaffiliate is not issued, underwritten, or sold as
principal (other than as riskless principal) by any affiliate of the member bank; and
(iii) Any riskless principal mark-up or other compensation received by the securities
affiliate from the proceeds of the extension of credit meets the market terms standard set forth
in paragraph (c)(2) of this section.
(2) Brokerage commissions, agency fees, and riskless principal mark-ups. An
affiliate’s retention of a portion of the proceeds of an extension of credit described in
paragraph (b) or (c)(1) of this section as a brokerage commission, agency fee, or riskless
principal mark-up, if that commission, fee, or mark-up is substantially the same as, or lower
than, those prevailing at the same time for comparable transactions with or involving other
nonaffiliates, in accordance with the market terms requirement of § 223.51.
(3) Preexisting lines of credit. An extension of credit by a member bank to a
nonaffiliate, if:
(i) The proceeds of the extension of credit are used to purchase a security from or
through a securities affiliate of the member bank; and
(ii) The extension of credit is made pursuant to, and consistent with any conditions
imposed in, a preexisting line of credit that was not established in contemplation of the
purchase of securities from or through an affiliate of the member bank.
(4) General purpose credit card transactions.
(i) In general. An extension of credit by a member bank to a nonaffiliate, if:
(A) The proceeds of the extension of credit are used by the nonaffiliate to purchase a
product or service from an affiliate of the member bank; and
(B) The extension of credit is made pursuant to, and consistent with any conditions
imposed in, a general purpose credit card issued by the member bank to the nonaffiliate.
(ii) Definition. “General purpose credit card” means a credit card issued by a member
bank that is widely accepted by merchants that are not affiliates of the member bank for the
purchase of products or services, if:
(A) Less than 25 percent of the total value of products and services purchased with the
card by all cardholders are purchases of products and services from one or more affiliates of
the member bank;
(B) All affiliates of the member bank would be permissible for a financial holding
company (as defined in 12 U.S.C. 1841) under section 4 of the Bank Holding Company Act
(12 U.S.C. 1843), and the member bank has no reason to believe that 25 percent or more of the
total value of products and services purchased with the card by all cardholders are or would be
purchases of products and services from one or more affiliates of the member bank; or
(C) The member bank presents information to the Board that demonstrates, to the
Board’s satisfaction, that less than 25 percent of the total value of products and services
purchased with the card by all cardholders are and would be purchases of products and services
from one or more affiliates of the member bank.
(iii) Calculating compliance. To determine whether a credit card qualifies as a general
purpose credit card under the standard set forth in paragraph (c)(4)(ii)(A) of this section, a
member bank must compute compliance on a monthly basis, based on cardholder purchases
that were financed by the credit card during the preceding 12 calendar months. If a credit card
has qualified as a general purpose credit card for 3 consecutive months but then ceases to
qualify in the following month, the member bank may continue to treat the credit card as a
general purpose credit card for such month and three additional months (or such longer period
as may be permitted by the Board).
(iv) Example of calculating compliance with the 25 percent test. A member bank seeks
to qualify a credit card as a general purpose credit card under paragraph (c)(4)(ii)(A) of this
section. The member bank assesses its compliance under paragraph (c)(4)(iii) of this section
on the 15th day of every month (for the preceding 12 calendar months). The credit card
qualifies as a general purpose credit card for at least three consecutive months. On June 15,
2005, however, the member bank determines that, for the 12-calendar-month period from
June 1, 2004, through May 31, 2005, 27 percent of the total value of products and services
purchased with the card by all cardholders were purchases of products and services from an
affiliate of the member bank. Unless the credit card returns to compliance with the 25 percent
limit by the 12-calendar-month period ending August 31, 2005, the card will cease to qualify
as a general purpose credit card as of September 1, 2005. Any outstanding extensions of credit
under the credit card that were used to purchase products or services from an affiliate of the
member bank would become covered transactions at such time.
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
