by Regulation R is a federal regulation issued by the Federal Reserve Board that applies to banks and other depository institutions that are members of the Federal Reserve System. The regulation is designed to implement section 23A and 23B of the Federal Reserve Act, which place limitations on transactions between a bank and its affiliates.
The main provisions of Regulation R include:
- Limitations on transactions between a bank and its affiliates: Regulation R limits the transactions that a bank can engage in with its affiliates, including loans, extensions of credit, and other transactions. This is to ensure that a bank’s assets are not being used to benefit its affiliates at the expense of the bank’s depositors and creditors.
- Restrictions on transactions with insider companies: Regulation R also places restrictions on transactions between a bank and companies that are controlled by its insiders, such as its directors, officers, and certain shareholders.
- Recordkeeping and reporting requirements: Regulation R requires banks to keep records of their transactions with affiliates and insider companies and to file regular reports with the Federal Reserve Board.
- Prohibitions of evasions: The regulation also prohibits evasions of the limitations of transactions with affiliates and insider companies.
Regulation R is intended to protect a bank’s depositors and creditors by ensuring that a bank’s assets are not being used to benefit its affiliates at the expense of the bank’s depositors and creditors. It also aims to prevent insider transactions from undermining the safety and soundness of the bank. Violations of Regulation R can result in penalties and fines, as well as legal action by the Federal Reserve Board and other regulatory agencies.
Regulation R is important for several reasons:
- Protecting a bank’s depositors and creditors: The regulation limits the transactions that a bank can engage in with its affiliates, including loans, extensions of credit, and other transactions. This is to ensure that a bank’s assets are not being used to benefit its affiliates at the expense of the bank’s depositors and creditors.
- Preventing insider transactions from undermining the safety and soundness of the bank: Regulation R places restrictions on transactions between a bank and companies that are controlled by its insiders, such as its directors, officers, and certain shareholders. This helps to prevent insider transactions from undermining the safety and soundness of the bank.
- Maintaining transparency: The regulation requires banks to keep records of their transactions with affiliates and insider companies and to file regular reports with the Federal Reserve Board. This helps to maintain transparency and allows regulators to monitor the bank’s transactions with affiliates and insider companies.
- Promoting safety and soundness: By limiting the transactions that a bank can engage in with its affiliates, Regulation R helps to promote the safety and soundness of the bank.
- Helping to ensure fair competition: By preventing banks from using their assets to benefit their affiliates, the regulation helps to ensure fair competition among banks and financial institutions.
