[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR204.132]

[Page 151-152]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)--Table of Contents
 
Sec. 204.132  Treatment of loan strip participations.

    (a) Effective March 31, 1988, the glossary section of the 
instructions for the Report of Condition and Income (FFIEC 031-034; OMB 
control number 7100-0036; available from a depository institution's 
primary federal regulator) (Call Report) was amended to clarify that 
certain short-term loan participation arrangements (sometimes known or 
styled as loan strips or strip participations) are regarded as 
borrowings rather than sales for Call Report purposes in certain 
circumstances. Through this interpretation, the Board is clarifying that 
such transactions should be treated as deposits for purposes of 
Regulation D.
    (b) These transactions involve the sale (or placement) of a short-
term

[[Page 152]]

loan by a depository institution that has been made under a long-term 
commitment of the depository institution to advance funds. For example, 
a 90-day loan made under a five-year revolving line of credit may be 
sold to or placed with a third party by the depository institution 
originating the loan. The depository institution originating the loan is 
obligated to renew the 90-day note itself (by advancing funds to its 
customer at the end of the 90-day period) in the event the original 
participant does not wish to renew the credit. Since, under these 
arrangements, the depository institution is obligated to make another 
loan at the end of 90 days (absent any event of default on the part of 
the borrower), the depository institution selling the loan or 
participation in effect must buy back the loan or participation at the 
maturity of the 90-day loan sold to or funded by the purchaser at the 
option of the purchaser. Accordingly, these transactions bear the 
essential characteristics of a repurchase agreement and, therefore, are 
reportable and reservable under Regulation D.
    (c) Because many of these transactions give rise to deposit 
liabilities in the form of promissory notes, acknowledgments of advance 
or similar obligations (written or oral) as described in 
Sec. 204.2(a)(1)(vii) of Regulation D, the exemptions from the 
definition of deposit incorporated in that section may apply to the 
liability incurred by a depository institution when it offers or 
originates a loan strip facility. Thus, for example, loan strips sold to 
domestic offices of other depository institutions are exempt from 
Regulation D under Sec. 204.2(a)(1)(vii)(A)(1) because they are 
obligations issued or undertaken and held for the account of a U.S. 
office of another depository institution. Similarly, some of these 
transactions result in Eurocurrency liabilities and are reportable and 
reservable as such.

[53 FR 24931, July 1, 1988]