Regulation W - Explained
What is Regulation W?
Written by J. Mance Gordon
Updated at April 18th, 2022
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What is Regulation W?
Regulation W is an administrative regulation promulgated by the US Federal Reserve Bank pursuant to the Federal Reserve Act. It regulates certain transactions between depository institutions and their affiliates who are members of the US Federal Reserve System, insured state non-member banks, and insured savings and loan associations.
Back to:BANKING, LENDING, & CREDIT INDUSTRY
How Does Regulation W Work?
Regulation W consolidates the rulemaking authority granted to the Federal Reserve pursuant to section 23A and 23B of the Federal Reserve Act. It regulates Covered Transactions, such as the extension of credit to an affiliate, investment in securities issued by an affiliate, asset purchases from an affiliate, issuance of a guarantee on behalf of an affiliate, and acceptance of securities issued by an affiliate as collateral for credit. Regulation W limits the amount or value of loans and places security or collateral requirements in covered transactions. No transaction with a single affiliate can exceed 10% of an institution's capital. Further, all affiliate transactions cannot exceed 20% of the institutions held capital. Any extension of credit must be secured by collateral constituting between 100% and 130% of the value of the credit extended - depending upon the transaction. Further, banks are not allowed to purchase specified low-quality assets. Regulation W allows the Reserve Bank to grant exemptions from these requirements - though many such exemptions require approval from the Federal Deposit Insurance Corporation (FDIC).