A member bank wants to sell assets to an affiliated bank that is 100 percent owned by the same bank holding company. Is this transaction allowed?
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A. B. C. D.C
The sale of assets by a member bank to an affiliated bank that is 100 percent owned by the same bank holding company is regulated by the Federal Reserve under the Bank Holding Company Act (BHCA) and its implementing regulations.
The correct answer to the question is B: Yes, but it is subject to an aggregate limit of 10 percent of the member bank's capital and unimpaired surplus.
Under section 23A of the Federal Reserve Act and its implementing Regulation W, member banks are subject to quantitative limits on transactions with their affiliates. One of these limits is the 10 percent limit on the amount of assets that a member bank may sell to an affiliate. The limit is calculated based on the member bank's capital and unimpaired surplus.
In addition to the quantitative limits, the transaction must also comply with the qualitative requirements set forth in section 23B of the Federal Reserve Act and its implementing Regulation W. These requirements are designed to ensure that transactions with affiliates are conducted on an arms-length basis and are consistent with safe and sound banking practices.
Therefore, the transaction is allowed, but subject to the 10 percent limit and compliance with the qualitative requirements. The transaction is not prohibited, and there is no requirement that the assets be classified as low quality assets.