Regulation L Compliance Relationships
Question
Which of the following relationships does NOT violate Regulation L?
" Relationship A: First National Bank is located in the same city as an affiliate of First Savings and Loan. First National and the affiliate share a board member.
" Relationship B: State Bank and an affiliate of First National Bank are located in the same RMSA but not in the same town. State Bank has assets of $60 million, and the affiliate has assets of $7 million. The two institutions share a board member.
" Relationship C: Savings and Loan Association and Bank Holding Company do not have offices within the same RMS
Bank Holding Company's assets are in excess of $1.75 billion, and Savings and Loan Association's assets are in excess of $2.5 billion. These institutions share a board member.
Answers
Explanations
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A. B. C. D.B
Regulation L is a Federal Reserve regulation that governs transactions between member banks and their affiliates. The regulation aims to prevent insider abuse and conflicts of interest in transactions between banks and their affiliates. Under Regulation L, certain transactions between member banks and their affiliates are prohibited or restricted.
Based on the given information, we need to determine which of the following relationships violates Regulation L.
Relationship A: First National Bank and an affiliate of First Savings and Loan share a board member and are located in the same city. This relationship does not violate Regulation L. Although they share a board member, they are not located in the same RMSA (Regulatory Metropolitan Statistical Area) and do not have offices in the same location.
Relationship B: State Bank and an affiliate of First National Bank are located in the same RMSA but not in the same town. They share a board member, and State Bank has assets of $60 million, while the affiliate has assets of $7 million. This relationship does not violate Regulation L either, as the assets of the two institutions are below the regulatory thresholds that trigger restrictions on transactions between member banks and their affiliates.
Relationship C: Savings and Loan Association and Bank Holding Company do not have offices within the same RMSA. However, both institutions share a board member, and their respective assets exceed the regulatory thresholds ($2.5 billion for the Savings and Loan Association and $1.75 billion for the Bank Holding Company). This relationship violates Regulation L because it involves a transaction between a member bank and its affiliate, and the transaction exceeds the regulatory thresholds.
Therefore, the correct answer is C. Relationship C violates Regulation L, whereas Relationships A and B do not violate Regulation L.
