If a bank and an affiliate engage in an asset exchange, where the bank gives one asset and receives another, is this a purchase of assets by the bank from the affiliate? The answer is yes, unless the asset being received by the bank is cash.
This distinction is important for structuring intercompany transactions. If the bank exchanges a portfolio of loans for a different portfolio of loans held by an affiliate, that constitutes a purchase of assets from an affiliate, a covered transaction subject to quantitative limits, collateral requirements, and the low-quality asset prohibition.
However, if the bank exchanges an asset for cash from the affiliate, that is simply a sale by the bank to the affiliate, which is not a covered transaction from the bank’s perspective (though it may be subject to Section 23B’s market-terms requirement).
The practical distinction matters in corporate reorganizations and portfolio rebalancing within holding company structures. Banks should be aware that any non-cash asset received from an affiliate in an exchange triggers Regulation W’s full suite of protections.
DM Tip: When contemplating asset swaps with affiliates, consider whether the transaction can be restructured as two separate cash transactions (bank sells for cash, then buys separately) rather than a direct asset exchange. If a direct exchange is necessary, ensure the assets received are measured and counted against your Regulation W limits.
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