PART 206—LIMITATIONS ON INTERBANK LIABILITIES (REGULATION F) Authority: 12 U.S.C. 371b-2 Source: Reg. F, 57 FR 60106, Dec. 18, 1992, unless otherwise noted. § 206.1 Authority, purpose, and scope. (a) Authority and purpose. (b) Scope. [Reg. F, 57 FR 60106, Dec. 18, 1992, as amended at 68 FR 53283, Sept. 10, 2003] § 206.2 Definitions. As used in this part, unless the context requires otherwise: (a) Bank (b) Commonly-controlled correspondent (1) 25 percent or more of any class of voting securities of the bank and the correspondent are owned, directly or indirectly, by the same depository institution or company; or (2) Either the bank or the correspondent owns 25 percent or more of any class of voting securities of the other. (c) Correspondent (d) Exposure (e) Foreign bank (2) Engages in the business of banking; (3) Is recognized as a bank by the bank supervisory or monetary authorities of the country of the bank's organization; (4) Receives deposits to a substantial extent in the regular course of business; and (5) Has the power to accept demand deposits. (f) Primary federal supervisor (g) Total capital (h) U.S. depository institution [Reg. F, 57 FR 60106, Dec. 18, 1992, as amended at 68 FR 53283, Sept. 10, 2003; 84 FR 61796, Nov. 13, 2019] § 206.3 Prudential standards. (a) General. (b) Standards for selecting correspondents. (2) Where exposure to a correspondent is significant, the policies and procedures shall require periodic reviews of the financial condition of the correspondent and shall take into account any deterioration in the correspondent's financial condition. Factors bearing on the financial condition of the correspondent include the capital level of the correspondent, level of nonaccrual and past due loans and leases, level of earnings, and other factors affecting the financial condition of the correspondent. Where public information on the financial condition of the correspondent is available, a bank may base its review of the financial condition of a correspondent on such information, and is not required to obtain non-public information for its review. However, for those foreign banks for which there is no public source of financial information, a bank will be required to obtain information for its review. (3) A bank may rely on another party, such as a bank rating agency or the bank's holding company, to assess the financial condition of or select a correspondent, provided that the bank's board of directors has reviewed and approved the general assessment or selection criteria used by that party. (c) Internal limits on exposure. (2) A bank shall structure transactions with a correspondent or monitor exposure to a correspondent, directly or through another party, to ensure that its exposure ordinarily does not exceed the bank's internal limits, including limits established for credit exposure, except for occasional excesses resulting from unusual market disturbances, market movements favorable to the bank, increases in activity, operational problems, or other unusual circumstances. Generally, monitoring may be done on a retrospective basis. The level of monitoring required depends on: (i) The extent to which exposure approaches the bank's internal limits; (ii) The volatility of the exposure; and (iii) The financial condition of the correspondent. (3) A bank shall establish appropriate procedures to address excesses over its internal limits. (d) Review by board of directors. [Reg. F, 57 FR 60106, Dec. 18, 1992, as amended at 68 FR 53283, Sept. 10, 2003] § 206.4 Credit exposure. (a) Limits on credit exposure. (2) Where a bank is no longer able to demonstrate that a correspondent is at least adequately capitalized for the purposes of § 206.4(a) of this part, including where the bank cannot obtain adequate information concerning the capital ratios of the correspondent, the bank shall reduce its credit exposure to comply with the requirements of § 206.4(a)(1) of this part within 120 days after the date when the current Report of Condition and Income or other relevant report normally would be available. (b) Calculation of credit exposure. (c) Netting. (d) Exclusions. (1) Transactions, including reverse repurchase agreements, to the extent that the transactions are secured by government securities or readily marketable collateral, as defined in paragraph (f) of this section, based on the current market value of the collateral; (2) The proceeds of checks and other cash items deposited in an account at a correspondent that are not yet available for withdrawal; (3) Quality assets, as defined in paragraph (f) of this section, on which the correspondent is secondarily liable, or obligations of the correspondent on which a creditworthy obligor in addition to the correspondent is available, including but not limited to: (i) Loans to third parties secured by stock or debt obligations of the correspondent; (ii) Loans to third parties purchased from the correspondent with recourse; (iii) Loans or obligations of third parties backed by stand-by letters of credit issued by the correspondent; or (iv) Obligations of the correspondent backed by stand-by letters of credit issued by a creditworthy third party; (4) exposure that results from the merger with or acquisition of another bank for one year after that merger or acquisition is consummated; and (5) The portion of the bank's exposure to the correspondent that is covered by federal deposit insurance. (e) Credit exposure of subsidiaries. (f) Definitions. (1) Government securities (2) Readily marketable collateral (3)(i) Quality asset (A) That is not in a nonaccrual status; (B) On which principal or interest is not more than thirty days past due; and (C) Whose terms have not been renegotiated or compromised due to the deteriorating financial conditions of the additional obligor. (ii) An asset is not considered a “quality asset” if any other loans to the primary obligor on the asset have been classified as “substandard,” “doubtful,” or “loss,” or treated as “other loans specially mentioned” in the most recent report of examination or inspection of the bank or an affiliate prepared by either a federal or a state supervisory agency. [Reg. F, 57 FR 60106, Dec. 18, 1992, as amended at 68 FR 53283, Sept. 10, 2003] § 206.5 Capital levels of correspondents. (a) Adequately capitalized correspondents. 1 1 e.g. (1) A total risk-based capital ratio, as defined in paragraph (e)(1) of this section, of 8.0 percent or greater; (2) A Tier 1 risk-based capital ratio, as defined in paragraph (e)(2) of this section, of 4.0 percent or greater; and (3) A leverage ratio, as defined in paragraph (e)(3) of this section, of 4.0 percent or greater. (4) Notwithstanding paragraphs (a)(1) through (3) of this section, a qualifying community banking organization (as defined in § 217.12 of this chapter) that is subject to the community bank leverage ratio (as defined in § 217.12 of this chapter) is considered to have met the minimum capital requirements in this paragraph (a). (b) Frequency of monitoring capital levels. (c) Foreign banks. (d) Reliance on information. (e) Definitions. (1) Total risk-based capital ratio (2) Tier 1 risk-based capital ratio (3) Leverage ratio (f) Calculation of capital ratios. (2) For a correspondent that is a foreign bank organized in a country that has adopted the risk-based framework of the Basel Capital Accord, the ratios shall be calculated in accordance with the capital adequacy guidelines of the appropriate supervisory authority of the country in which the correspondent is chartered. (3) For a correspondent that is a foreign bank organized in a country that has not adopted the risk-based framework of the Basel Capital Accord, the ratios shall be calculated in accordance with the provisions of the Basel Capital Accord. [Reg. F, 57 FR 60106, Dec. 18, 1992, as amended at 68 FR 53283, Sept. 10, 2003; 84 FR 61796, Nov. 13, 2019] § 206.6 Waiver. The Board may waive the application of § 206.4(a) of this part to a bank if the primary Federal supervisor of the bank advises the Board that the bank is not reasonably able to obtain necessary services, including payment-related services and placement of funds, without incurring exposure to a correspondent in excess of the otherwise applicable limit.