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Intercompany Transactions Section 2020.0
WHAT’S NEW IN THIS REVISED SECTION
This section has been revised to incorporate references to the Federal Reserve Board’s Regulation W, primarily with regard to the bank holding company (BHC) inspection process. The section includes also a discussion of the mandatory reporting of certain intercompany transactions on the FR Y-8, The Bank Holding CompanyReport of Insured Depository Institutions’ Section 23A Transactions with Affiliates, and its instructions. The mandatory report is to be submitted quarterly to the Federal Reserve by (1) all top-tier BHCs, including financial holding companies, and (2) all foreign banking organizations that directly own a U.S. subsidiary bank. The examiner’s inspection responsibilities are discussed. deteriorate.These dividends may also have a negative effect on the subsidiary’s liquidity position. Transactions with affiliates. Transactions between subsidiary IDI affiliates is another area of potential abuse of subsidiary banks. Regulatory concern centers on the quantitative limits and collateral restrictions on certain transactions by subsidiary banks with their affiliates. These restrictions are designed toprotect subsidiary IDIs from losses resulting from transactions with affiliates. Fees paid by subsidiaries. Management or service fees are another cash outflow of bank subsidiaries. These fees may be paid to the parent, the nonbank subsidiaries, or, in some cases, to the other bank subsidiaries. Regulatory concern focuses on whether such fees are reasonable in relation to the services rendered and onthe financial impact of the fees on the bank subsidiaries. Tax allocation. How a bank holding company organization determines to allocate taxes among its component companies involves questions of both the magnitude and timing of the cash-flow effects. Unreasonable or untimely tax payments or refunds to the bank can have an adverse effect on the financial condition of the banking subsidiaries.Purchases or swaps of assets. Asset purchases or swaps between a bank and its affiliates can create the potential for abuse of subsidiary banks. Regulatory concern focuses on the fairness of such asset transactions and their financial impact and timing. Fairness and financial considerations include the quality and collectibility and fair values of such assets and their liquidity effects. IDIs generally areprohibited from purchasing low-quality assets from affiliates. Asset exchanges may be a mechanism to avoid regulations designed to protect subsidiary banks from becoming overburdened with nonearning assets. Improper timing or certain structurings of asset transactions also can cause them to be regarded as extensions of credit to affiliates. As such, these types of transactions could potentiallyviolate applicable regulations and statutes.
BHC Supervision Manual January 2008 Page 1

2020.0.1 ANALYSIS OF INTERCOMPANY TRANSACTIONS
The analysis of intercompany transactions between a parent company, its nonbank subsidiaries, and its bank subsidiaries is primarily intended to assess the nature of the relationships between these entities and the effect of the relationships on the subsidiaryinsured depository institutions (IDIs). An insured depository insitution includes any state bank, national bank, trust company, or banking association and any institution that takes deposits that are insured by the Federal Deposit Insurance Corporation, including savings associations. Both the legal and financial ramifications of such transactions are areas of concern. Certain intercompanytransactions are subject to the provisions of section 23A or 23B (or both) of the Federal Reserve Act and the Federal Reserve Board’s Regulation W. Section 23A of the Federal Reserve Act is one of the most important statutes on limiting exposures to individual institutions and protecting the federal safety net. Several types of intercompany transactions and the primary regulatory concerns of each are...