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Affiliate Restrictions Considerations for Non-Banks Converting to, or Acquiring, a Bank - White Paper

Executive Summary

Many non-banks consider acquiring a bank (or establishing a de novo bank) to serve their customers and capture benefits afforded to a bank. Before embarking on this strategy, one dimension that should be well understood are the regulatory limitations applied to the affiliated businesses of an institution, or investors, which owns a bank. Our overview is not a comprehensive review of these restrictions, nor a substitution for legal advice. However, given the importance of these restrictions, we believe a general overview is necessary, and provides a good foundation for more detailed discussions with attorneys intimately acquainted with banking laws.

Reg W limits transactions between a bank and its affiliates. Any company or individual within the same corporate family or under common control is deemed an affiliate. Restrictions include limits on lending, payments, and other transactions between a bank and its affiliates. Furthermore, affiliates will face heightened risk and compliance requirements. Myriad regulations, administration costs, and compliance with changes to the rules (usually brought about by a crisis) can impact a strategic plan. Regulation W is one of these obstacles that needs to be well understood. When considering transactions with affiliates, including lending to an affiliate, a bank must first take into account what is in the best interest of the depositors – not customers, shareholders, or employees.

Affiliate Restrictions Considerations for Non-Banks Converting to, or Acquiring, a Bank White Paper

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