The Dodd-Frank Wall Street Reform and Consumer Protection Act ("D-F Act") imposes additional restrictions on transactions between banks and their affiliates. Generally, an affiliate transaction is governed by the provisions of Sections 23A and 23B of the Federal Reserve Act. Most bankers are aware of the limitations and restrictions imposed by these Sections. For affiliate transactions that occur on or after July 21, 2012, particular attention should be given to the D-F Act Amendments.
The Amendments change the definition of "affiliate" and modify the definition of a "covered transaction." In addition, there are collateral requirements for some affiliate transactions. The Amendments also affect the treatment of derivatives. The appropriate amount of collateral in an affiliate transaction must be maintained at all times, not just at the beginning of a transaction.
The D-F Act authorizes the regulatory authorities to exempt a transaction from the requirements of Section 23A and limits the authority of the Federal Reserve to grant an exemption under Section 23B.
Affiliate transactions often draw regulatory attention during the course of an examination. Commencing July 21, 2012, the amendments to Sections 23A and 23B of the Federal Reserve Act should be considered before consummating any transaction with an affiliate.