Related Organizations

Collateral Requirements

A credit transaction with an affiliate must be secured by collateral having a market value that complies with the schedule set forth in section 23A:

• 100 percent of the amount of the transaction if the collateral is obligations of or fully guaranteed by the U.S. government or its agencies; notes, drafts, bill of exchange, or eligible acceptances; or a segregated, earmarked deposit account meeting certain requirements;

• 110 percent if the collateral is obligations of any state or its political subdivisions;

• 120 percent if the collateral is other debt instruments, including loans and other receivables; or

• 130 percent if the collateral is stock, leases, or other property.

The bank must ensure that any required collateral that is retired or amortized is replaced by eligible collateral to maintain the required percentage. Low-quality assets, any securities issued by an affiliate, equity securities issued by the bank, debt securities issued by the bank that represent regulatory capital of the bank, guarantees, letters of credit (or similar instruments), and intangible assets (unless approved by the FRB) are not eligible collateral.

A bank must maintain a perfected security interest in collateral that secures a covered transaction. If the bank does not obtain a first-priority security interest in the collateral, it must make a prescribed deduction from the collateral’s value to reflect the senior interests.

Certain credit transactions, including purchases of an affiliate’s debt securities from a nonaffiliate in a bona fide secondary market transaction, are exempt from collateral requirements.

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