When Is A Company NOT An Affiliate Under Section 23A Of The Federal Reserve Act And Regulation W?

Under Regulation W, the definition of “affiliate” is critical because it determines which entities trigger the quantitative limits, collateral requirements, and other restrictions of Sections 23A and 23B of the Federal Reserve Act. But not every company with a connection to your bank qualifies as an affiliate.

Consider the following: A company controls a subsidiary of a member bank but does not control the bank itself and does not otherwise meet the definition of ‘affiliate’ in 12 CFR 223.2. Is that company an affiliate of the bank? The answer is NO.

The affiliate definition in Regulation W focuses on control relationships with the member bank, not on control of entities further down the corporate chain. A company must independently meet one of the criteria in Regulation W to be deemed an “affiliate.” Simply controlling a subsidiary of the bank, without more, is insufficient.

This distinction is important because banks must correctly identify their affiliates to comply with the 10 percent single-affiliate limit and 20 percent aggregate limit on covered transactions. Misidentifying non-affiliates as affiliates can unnecessarily restrict business activities, while failing to identify true affiliates can lead to regulatory violations.

DM Tip: Maintain an up-to-date affiliate identification chart that maps all control relationships. When evaluating whether a company is an affiliate, trace the control relationship back to the bank itself, not just to its subsidiaries. Document your analysis for examiner review.