[Code of Federal Regulations]
[Title 12, Volume 3]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR223.24]

[Page 69]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 223--TRANSACTIONS BETWEEN MEMBER BANKS AND THEIR AFFILIATES (REGULATION W)--Table of Contents
 
      Subpart C--Valuation and Timing Principles Under Section 23A
 
Sec. 223.24  What valuation principles apply to extensions of credit secured by affiliate securities?

    (a) Valuation of extensions of credit secured exclusively by 
affiliate securities. An extension of credit by a member bank to a 
nonaffiliate secured exclusively by securities issued by an affiliate of 
the member bank must be valued at the lesser of:
    (1) The total value of the extension of credit; or
    (2) The fair market value of the securities issued by an affiliate 
that are pledged as collateral, if the member bank verifies that such 
securities meet the market quotation standard contained in paragraph (e) 
of Sec. 223.42 or the standards set forth in paragraphs (f)(1) and (5) 
of Sec. 223.42.
    (b) Valuation of extensions of credit secured by affiliate 
securities and other collateral. An extension of credit by a member bank 
to a nonaffiliate secured in part by securities issued by an affiliate 
of the member bank and in part by nonaffiliate collateral must be valued 
at the lesser of:
    (1) The total value of the extension of credit less the fair market 
value of the nonaffiliate collateral; or
    (2) The fair market value of the securities issued by an affiliate 
that are pledged as collateral, if the member bank verifies that such 
securities meet the market quotation standard contained in paragraph (e) 
of Sec. 223.42 or the standards set forth in paragraphs (f)(1) and (5) 
of Sec. 223.42.
    (c) Exclusion of eligible affiliated mutual fund securities. (1) The 
exclusion. Eligible affiliated mutual fund securities are not considered 
to be securities issued by an affiliate, and are instead considered to 
be nonaffiliate collateral, for purposes of paragraphs (a) and (b) of 
this section, unless the member bank knows or has reason to know that 
the proceeds of the extension of credit will be used to purchase the 
eligible affiliated mutual fund securities collateral or will otherwise 
be used for the benefit of or transferred to an affiliate of the member 
bank.
    (2) Definition. ``Eligible affiliated mutual fund securities'' with 
respect to a member bank are securities issued by an affiliate of the 
member bank that is an open-end investment company registered with the 
Securities and Exchange Commission under the Investment Company Act of 
1940 (15 U.S.C. 80a-1 et seq.), if:
    (i) The securities issued by the investment company:
    (A) Meet the market quotation standard contained in paragraph (e) of 
Sec. 223.42;
    (B) Meet the standards set forth in paragraphs (f)(1) and (5) of 
Sec. 223.42; or
    (C) Have closing prices that are made public through a mutual fund 
``supermarket'' website maintained by an unaffiliated securities broker-
dealer or mutual fund distributor; and
    (ii) The member bank and its affiliates do not own or control in the 
aggregate more than 5 percent of any class of voting securities or of 
the equity capital of the investment company (excluding securities held 
by the member bank or an affiliate in good faith in a fiduciary 
capacity, unless the member bank or affiliate holds the securities for 
the benefit of the member bank or affiliate, or the shareholders, 
employees, or subsidiaries of the member bank or affiliate).
    (3) Example. A member bank proposes to lend $100 to a nonaffiliate 
secured exclusively by eligible affiliated mutual fund securities. The 
member bank knows that the nonaffiliate intends to use all the loan 
proceeds to purchase the eligible affiliated mutual fund securities that 
would serve as collateral for the loan. Under the attribution rule in 
Sec. 223.16, the member bank must treat the loan to the nonaffiliate as 
a loan to an affiliate, and, because securities issued by an affiliate 
are ineligible collateral under Sec. 223.14, the loan would not be in 
compliance with Sec. 223.14.