Authorized Practices under the Federal Reserve Act

B

The Federal Reserve Act authorizes certain practices for banks and their affiliates. Let's review each answer choice to determine which practice is authorized by the Act:

A. An agreement by a bank that it is responsible for the obligations of its subsidiary.

This practice is not authorized by the Federal Reserve Act. The Act prohibits banks from assuming responsibility for the obligations of their subsidiaries, unless they have received approval from the Federal Reserve.

B. A bank's purchase, in its fiduciary capacity, of the affiliate's assets if the fiduciary instrument allows for such a purchase.

This practice is authorized by the Federal Reserve Act. Banks are permitted to purchase assets in their fiduciary capacity, as long as the fiduciary instrument allows for such a purchase. This means that if a bank is acting as a trustee for a client and the client's assets include an affiliate's assets, the bank can purchase those assets as long as the terms of the trust allow for such a purchase.

C. The sale of a nonaccruing loan from a bank to its bank affiliate.

This practice is not authorized by the Federal Reserve Act. Banks are prohibited from selling nonaccruing loans to their affiliates.

D. The acceptance of an affiliate's securities of an affiliate as collateral for a NOTES bank's loan from the bank to the affiliate.

This practice is authorized by the Federal Reserve Act. Banks are permitted to accept securities from their affiliates as collateral for a loan, as long as the loan is made in accordance with applicable banking laws and regulations.

In summary, answer choice B and answer choice D are practices that are authorized by the Federal Reserve Act. Answer choice A and answer choice C are not authorized practices.