Securities Activities of Banks in the GLB Era - Cleary Gottlieb Steen ...

egulatory restrictions have been reduced, the importance of
Sections 23A/23B has increased.
(i) Among other things, Section 23A limits a bank’s
“covered transactions” (including credit extensions and
purchases of assets) with an “affiliate” to 10% (and
with all “affiliates” combined to 20%) of the bank’s
capital and surplus, and imposes collateralization
requirements on any extension of credit to an affiliate
by a bank.
(ii) Among other things, Section 23B subjects all
transactions between a bank and its affiliates to a
requirement that such transactions be at least as
favorable to the bank as those prevailing at the time for
comparable transactions involving unaffiliated
companies (the “Market Terms Requirement”).
b. Areas of compliance focus in the Section 23A/23B context
include:
(i) The nature, scope, pricing and disclosure of affiliate
service and support agreements.
(ii) Satisfaction of the requirements for exemption from
Section 23A of intraday extensions of credit by a bank
to its affiliate (12 C.F.R. § 223.42(l)) that the bank
(A) establish and maintain policies reasonably
designed to manage the credit exposure arising from
such credit extensions in a safe and sound manner
(including policies for (1) monitoring and controlling
the credit exposure from the bank’s intraday extensions
of credit to each affiliate and all affiliates in the
aggregate, and (2) ensuring that any intraday extension
of credit by the bank to an affiliate complies with the
Market Terms Requirement; (B) has no reason to
believe that the affiliate will have difficulty repaying
the extension of credit in accordance with its terms;
and (C) ceases to treat such extension of credit as an
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