The OCC released an interpretive letter, dated December 19, granting an exemption from the quantitative limits of Section 23A of the Federal Reserve Act, and its implementing regulation (Regulation W) — allowing a national bank to merge the fixed income derivatives business of its nonbank affiliate into the bank. Section 23A and Regulation W limit covered transactions between banks and affiliates to 10 percent of a bank’s capital stock and surplus for a single affiliate and 20 percent in aggregate and prohibit banks from purchasing low-quality assets from affiliates.

The OCC found the exemption to be in the public interest and consistent with Section 23A’s purposes, citing projected organizational efficiencies, cost savings, and increased competitiveness in the derivatives market. The OCC explained that the merger was considered a purchase of assets under Section 23A because the bank will assume the affiliate’s liabilities. The letter noted that, as required to grant such an exemption, the Fed concurred with the OCC’s findings, and the FDIC did not object to the exemption as an unacceptable risk to the Deposit Insurance Fund. The letter provided that the decision was conditioned on the bank’s compliance with all commitments and representations made in its exemption request, including ensuring the quality of transferred assets, the absence of low-quality assets, provision of parental financial support to offset liabilities, and obtaining all other required regulatory approvals.