REQUEST FOR COMMENT ON PROPOSED NEW REGULATION W REGARDING BANKS AND AFFILIATES.

The Federal Reserve Board on May 2, 2001, decided to seek public comment on a proposed new Regulation W that would comprehensively implement sections 23A and 23B of the Federal Reserve Act. The sections restrict loans by a bank to an affiliate, asset purchases by a bank from an affiliate, and other transactions between a bank and its affiliates.

Regulation W would unify in one document various Board and staff interpretations issued over the years as well as several new interpretations of the statute. It would also provide several additional exemptions from the statute. The purpose of sections 23A and 23B and Regulation W is to limit a bank's risk of loss in transactions with affiliates and limit a bank's ability to transfer to its affiliates the benefits arising from its access to the federal safety net. Comment is requested within ninety days of publication in the Federal Register.

Until Regulation W is finalized, all previously issued, valid Board and staff interpretations regarding sections 23A and 23B remain in effect.

Separately, the Board, as required by the Gramm-Leach-Bliley Act, approved an interim final rule on May 4, 2001, under sections 23A and 23B, requiring institutions to adopt policies and procedures designed to monitor, manage, and control credit exposures arising from derivatives transactions with affiliates and intraday credit extensions to affiliates.

The interim rules are effective January 1, 2002. Comments are requested within ninety days of publication in the Federal Register.

The Board also approved on May 4, 2001, a final rule granting exemptions from and providing interpretations of section 23A. The Board proposed and sought public comment on the exemptions and interpretations in June 1998. The rule is effective thirty days after publication in the Federal Register.

However, the content of the rule is incorporated in the proposed Regulation W, which will allow an additional opportunity to comment.

The 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. 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 a registered affiliate of a broker-dealer securities that have a ready market and prices that can be verified from a reliable independent source.