I'm new to a bank that is covered by Reg. W and have been asked to write a policy on it. Would someone be willing to share an outline or index of what they have or refer me to something that may give me some direction? Thanks!!

Here is a brief summary:

Regulation W implements Sections 23A and 23B of the Federal Reserve Act, which had been in existence for a number of years, but had never previously had supporting regulations. The original intent of the legislation was to prevent the misuse of a bank’s resources stemming from large-scale, “non-arm’s-length” loans to affiliates.

“Affiliates” include the parent company of the financial institution, other companies owned by that parent company, and various other related companies.

“Covered transactions” include loans and other extensions of credit to an affiliate, investments in the securities of an affiliate, purchases of assets from an affiliate, the acceptance of securities issued by an affiliate as collateral, or the issuance of a guarantee, acceptance, or letter of credit on behalf of an affiliate.

OVERVIEW OF SECTION 23A

First, it prohibits a “covered transaction” with an affiliate if, after the transaction,
(i) the aggregate amount of the bank’s covered transactions with that affiliate would exceed 10 percent of the bank’s capital stock and surplus, or
(ii) the aggregate amount of the bank’s covered transactions with all affiliates would exceed 20 percent of the bank’s capital stock and surplus.

Second, it requires all covered transactions on terms and conditions that are consistent with safe and sound banking practices.

Third, it prohibits a bank from purchasing low-quality assets from its affiliates. Low-quality assets are generally those loans or securities for which there may be doubt about collectability.

Fourth, it requires that a bank’s extensions of credit to affiliates be secured by a statutorily defined amount of collateral, ranging from 100 to 130 percent of the amount of the transaction depending on the type of collateral.

Finally, it contains an attribution rule that provides that any transaction by a bank with any person is deemed to be a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, the affiliate.

OVERVIEW OF SECTION 23B

Section 23B protects a bank by requiring that transactions between the bank and its affiliates occur on market terms. Section 23B applies this restriction to any covered transaction (as defined in section 23A) with an affiliate as well as certain other transactions, including
(i) any sale of assets by the bank to an affiliate;
(ii) any payment of money or furnishing of services by the bank to an affiliate;
(iii) any transaction in which an affiliate acts as an agent or broker for the bank or for any other person if the bank is a participant in the transaction; and
(iv) any transaction by the bank with a third party if an affiliate has a financial interest in the third party or if an affiliate is a participant in the transaction.