FINAL RULE ON SECTION 23A OF THE FEDERAL RESERVE ACT REGARDING BANK AFFILIATES.

The Federal Reserve Board announced on May 4, 2001, that it is publishing a final rule granting exemptions from and providing interpretations of section 23A of the Federal Reserve Act. The Board approved the final rule at its meeting on May 2, 2001.

The Board proposed and sought public comment on the exemptions and interpretations in June 1998. However, the content of the rule is incorporated in a newly proposed Regulation W, which will allow an additional opportunity for public comment.

Section 23A restricts loans by a bank to an affiliate, asset purchases by a bank from an affiliate, and other transactions between a bank and its affiliates.

The rule's first exemption and interpretation applies to loans made by an insured depository institution to an unaffiliated borrower that uses the proceeds of the loan to purchase certain third-party securities through a registered broker-dealer affiliate of the institution acting exclusively as a broker or risk-less principal in the transaction. The second exemption applies to loans by an insured depository institution to an unaffiliated borrower that uses the proceeds to purchase certain securities underwritten or sold as principal by a registered broker-dealer affiliate of the institution.

The remaining interpretation expands the ability of an insured depository institution to purchase from an affiliate of a registered broker-dealer securities that have a ready market and prices that can be verified from a reliable independent source. The final rule will be published in the Federal Register.