Sec. 223.3 What are the meanings of the other terms used in sections 23A and 23B and this
regulation?
For purposes of this part:
(a) “Aggregate amount of covered transactions” means the amount of the covered
transaction about to be engaged in added to the current amount of all outstanding covered
transactions.
(b) “Appropriate Federal banking agency” with respect to a member bank or other
depository institution has the same meaning as in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813).
(c) “Bank holding company” has the same meaning as in 12 CFR 225.2.
(d) “Capital stock and surplus” means the sum of:
(1) A member bank’s tier 1 and tier 2 capital under the risk-based capital guidelines of
the appropriate Federal banking agency, based on the member bank’s most recent consolidated
Report of Condition and Income filed under 12 U.S.C. 1817(a)(3);
(2) The balance of a member bank’s allowance for loan and lease losses not included in
its tier 2 capital under the risk-based capital guidelines of the appropriate Federal banking
agency, based on the member bank’s most recent consolidated Report of Condition and Income
filed under 12 U.S.C. 1817(a)(3); and
(3) The amount of any investment by a member bank in a financial subsidiary that
counts as a covered transaction and is required to be deducted from the member bank’s capital
for regulatory capital purposes.
(e) “Carrying value” with respect to a security means (unless otherwise provided) the
value of the security on the financial statements of the member bank, determined in accordance
with GAAP.
(f) “Company” means a corporation, partnership, limited liability company, business
trust, association, or similar organization and, unless specifically excluded, includes a member
bank and a depository institution.
(g) Control. (1) In general. “Control” by a company or shareholder over another
company means that:
(i) The company or shareholder, directly or indirectly, or acting through one or more
other persons, owns, controls, or has power to vote 25 percent or more of any class of voting
securities of the other company;
(ii) The company or shareholder controls in any manner the election of a majority of the
directors, trustees, or general partners (or individuals exercising similar functions) of the other
company; or
(iii) The Board determines, after notice and opportunity for hearing, that the company
or shareholder, directly or indirectly, exercises a controlling influence over the management or
policies of the other company.
(2) Ownership or control of shares as fiduciary. Notwithstanding any other provision
of this regulation, no company will be deemed to control another company by virtue of its
ownership or control of shares in a fiduciary capacity, except as provided in paragraph (a)(3)
of § 223.2 or if the company owning or controlling the shares is a business trust.
(3) Ownership or control of securities by subsidiary. A company controls securities,
assets, or other ownership interests owned or controlled, directly or indirectly, by any
subsidiary (including a subsidiary depository institution) of the company.
(4) Ownership or control of convertible instruments. A company or shareholder that
owns or controls instruments (including options or warrants) that are convertible or
exercisable, at the option of the holder or owner, into securities, controls the securities, unless
the company or shareholder presents information to the Board that demonstrates, to the
Board’s satisfaction, that the company or shareholder should not be deemed to control the
securities.
(5) Ownership or control of nonvoting securities. A company or shareholder that owns
or controls 25 percent or more of the equity capital of another company controls the other
company, unless the company or shareholder presents information to the Board that
demonstrates, to the Board’s satisfaction, that the company or shareholder does not control the
other company.
(h) “Covered transaction” with respect to an affiliate means:
(1) An extension of credit to the affiliate;
(2) A purchase of, or an investment in, a security issued by the affiliate;
(3) A purchase of an asset from the affiliate, including an asset subject to recourse or an
agreement to repurchase, except such purchases of real and personal property as may be
specifically exempted by the Board by order or regulation;
(4) The acceptance of a security issued by the affiliate as collateral for an extension of
credit to any person or company; and
(5) The issuance of a guarantee, acceptance, or letter of credit, including an
endorsement or standby letter of credit, on behalf of the affiliate, a confirmation of a letter of
credit issued by the affiliate, and a cross-affiliate netting arrangement.
(i) “Credit transaction” with an affiliate means:
(1) An extension of credit to the affiliate;
(2) An issuance of a guarantee, acceptance, or letter of credit, including an endorsement
or standby letter of credit, on behalf of the affiliate and a confirmation of a letter of credit
issued by the affiliate; and
(3) A cross-affiliate netting arrangement.
(j) “Cross-affiliate netting arrangement” means an arrangement among a member bank,
one or more affiliates of the member bank, and one or more nonaffiliates of the member bank
in which:
1) A nonaffiliate is permitted to deduct any obligations of an affiliate of the member
bank to the nonaffiliate when settling the nonaffiliate’s obligations to the member bank; or
(2) The member bank is permitted or required to add any obligations of its affiliate to a
nonaffiliate when determining the member bank’s obligations to the nonaffiliate.
(k) “Depository institution” means, unless otherwise noted, an insured depository
institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)), but
does not include any branch of a foreign bank. For purposes of this definition, an operating
subsidiary of a depository institution is treated as part of the depository institution.
(l) “Derivative transaction” means any derivative contract listed in sections III.E.1.a.
through d. of Appendix A to 12 CFR part 225 and any similar derivative contract, including a
credit derivative contract.
(m) “Eligible affiliated mutual fund securities” has the meaning specified in
paragraph (c)(2) of § 223.24.
(n) “Equity capital” means:
(1) With respect to a corporation, preferred stock, common stock, capital surplus,
retained earnings, and accumulated other comprehensive income, less treasury stock, plus any
other account that constitutes equity of the corporation; and
(2) With respect to a partnership, limited liability company, or other company, equity
accounts similar to those described in paragraph (n)(1) of this section.
(o) “Extension of credit” to an affiliate means the making or renewal of a loan, the
granting of a line of credit, or the extending of credit in any manner whatsoever, including on
an intraday basis, to an affiliate. An extension of credit to an affiliate includes, without
limitation:
(1) An advance to an affiliate by means of an overdraft, cash item, or otherwise;
(2) A sale of Federal funds to an affiliate;
(3) A lease that is the functional equivalent of an extension of credit to an affiliate;
(4) An acquisition by purchase, discount, exchange, or otherwise of a note or other
obligation, including commercial paper or other debt securities, of an affiliate;
(5) Any increase in the amount of, extension of the maturity of, or adjustment to the
interest rate term or other material term of, an extension of credit to an affiliate; and
(6) Any other similar transaction as a result of which an affiliate becomes obligated to
pay money (or its equivalent).
(p) “Financial subsidiary”
(1) In general. Except as provided in paragraph (p)(2) of this section, the term
“financial subsidiary” means any subsidiary of a member bank that:
(i) Engages, directly or indirectly, in any activity that national banks are not permitted
to engage in directly or that is conducted under terms and conditions that differ from those that
govern the conduct of such activity by national banks; and
(ii) Is not a subsidiary that a national bank is specifically authorized to own or control
by the express terms of a Federal statute (other than 12 U.S.C. 24a), and not by implication or
interpretation.
(2) Exceptions. “Financial subsidiary” does not include:
(i) A subsidiary of a member bank that is considered a financial subsidiary under
paragraph (p)(1) of this section solely because the subsidiary engages in the sale of insurance
as agent or broker in a manner that is not permitted for national banks; and
(ii) A subsidiary of a State bank (other than a subsidiary described in section 46(a) of
the Federal Deposit Insurance Act (12 U.S.C. 1831w(a))) that is considered a financial
subsidiary under paragraph (p)(1) of this section solely because the subsidiary engages in one
or more of the following activities:
(A) An activity that the State bank may engage in directly under applicable Federal and
State law and that is conducted under the same terms and conditions that govern the conduct of
the activity by the State bank; and
(B) An activity that the subsidiary was authorized by applicable Federal and State law
to engage in prior to [date of publication in Federal Register], and that was lawfully engaged in
by the subsidiary on that date.
(3) Subsidiaries of financial subsidiaries. If a company is a financial subsidiary under
paragraphs (p)(1) and (p)(2) of this section, any subsidiary of such a company is also a
financial subsidiary.
(q) “Foreign bank” and an “agency,” “branch,” or “commercial lending company” of a
foreign bank have the same meanings as in section 1(b) of the International Banking Act of
1978 (12 U.S.C. 3101).
(r) “GAAP” means U.S. generally accepted accounting principles.
(s) “General purpose credit card” has the meaning specified in paragraph (c)(4)(ii) of
§ 223.16.
(t) In contemplation. A transaction between a member bank and a nonaffiliate is
presumed to be “in contemplation” of the nonaffiliate becoming an affiliate of the member
bank if the member bank enters into the transaction with the nonaffiliate after the execution of,
or commencement of negotiations designed to result in, an agreement under the terms of which
the nonaffiliate would become an affiliate.
(u) “Intraday extension of credit” has the meaning specified in paragraph (l)(2) of
§ 223.42.
(v) “Low-quality asset” means:
(1) An asset (including a security) classified as “substandard,” “doubtful,” or “loss,” or
treated as “special mention” or “other transfer risk problems,” either in the most recent report
of examination or inspection of an affiliate prepared by either a Federal or State supervisory
agency or in any internal classification system used by the member bank or the affiliate (including an asset that receives a rating that is substantially equivalent to “classified” or
“special mention” in the internal system of the member bank or affiliate);
(2) An asset in a nonaccrual status;
(3) An asset on which principal or interest payments are more than thirty days past due;
(4) An asset whose terms have been renegotiated or compromised due to the
deteriorating financial condition of the obligor; and
(5) An asset acquired through foreclosure, repossession, or otherwise in satisfaction of
a debt previously contracted, if the asset has not yet been reviewed in an examination or
inspection.
(w) “Member bank” means any national bank, State bank, banking association, or trust
company that is a member of the Federal Reserve System. For purposes of this definition, an
operating subsidiary of a member bank is treated as part of the member bank.
(x) “Municipal securities” has the same meaning as in section 3(a)(29) of the Securities
Exchange Act of 1934 (17 U.S.C. 78c(a)(29)).
(y) “Nonaffiliate” with respect to a member bank means any person that is not an
affiliate of the member bank.
(z) “Obligations of, or fully guaranteed as to principal and interest by, the United States
or its agencies” includes those obligations listed in 12 CFR 201.108(b) and any additional
obligations as determined by the Board. The term does not include Federal Housing
Administration or Veterans Administration loans.
(aa) “Operating subsidiary” with respect to a member bank or other depository
institution means any subsidiary of the member bank or depository institution other than a
subsidiary described in paragraphs (b)(1)(i) through (v) of § 223.2.
(bb) “Person” means an individual, company, trust, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization, or any other form of entity.
(cc) “Principal underwriter” has the meaning specified in paragraph (c)(1) of § 223.53.
(dd) “Purchase of an asset” by a member bank from an affiliate means the acquisition
by a member bank of an asset from an affiliate in exchange for cash or any other consideration,
including an assumption of liabilities. The merger of an affiliate into a member bank is a
purchase of assets by the member bank from an affiliate if the member bank assumes any
liabilities of the affiliate or pays any other form of consideration in the transaction.
(ee) Riskless principal. A company is “acting exclusively as a riskless principal” if,
after receiving an order to buy (or sell) a security from a customer, the company purchases (or
sells) the security in the secondary market for its own account to offset a contemporaneous sale
to (or purchase from) the customer.
(ff) “Securities” means stocks, bonds, debentures, notes, or similar obligations
(including commercial paper).
(gg) “Securities affiliate” with respect to a member bank means:
(1) An affiliate of the member bank that is registered with the Securities and Exchange
Commission as a broker or dealer; or
(2) Any other securities broker or dealer affiliate of a member bank that is approved by
the Board.
(hh) “State bank” has the same meaning as in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. 1813).
(ii) “Subsidiary” with respect to a specified company means a company that is
controlled by the specified company.
(jj) “Voting securities” has the same meaning as in 12 CFR 225.2.
(kk) “Well capitalized” has the same meaning as in 12 CFR 225.2 and, in the case of
any holding company that is not a bank holding company, “well capitalized” means that the
holding company has and maintains at least the capital levels required for a bank holding
company to be well capitalized under 12 CFR 225.2.
(ll) “Well managed” has the same meaning as in 12 CFR 225.2.
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