Regulation W is a U.S. Federal Reserve System (FRS) regulation that limits certain transactions between depository institutions, such as banks, and their affiliates. It sets quantitative limits on covered transactions and requires collateral for certain transactions. The regulation applies to banks that are members of the Fed, insured state non-member banks, and insured savings associations. Regulation W was introduced to consolidate several decades of interpretations and rulemaking under Sections 23A and 23B of the Federal Reserve Act. It aims to limit the risks to a bank from transactions between the bank and its affiliates and to limit the ability of a depository institution to transfer to its affiliates the subsidy arising from the institutions access to the federal safety net, which offers benefits such as lower-cost insured deposits and the discount window.
Regulation W subjects "covered transactions" to limits of 10 percent (single affiliate) and 20 percent (all affiliates) of the banks capital stock and surplus. The term "affiliate" includes any company that "controls" the bank and any company under common control with the bank. It does not include wholly-owned operating subsidiaries of a bank.
In summary, Regulation W is an important regulation that aims to ensure the safety and soundness of banking institutions by limiting certain transactions between banks and their affiliates, thereby reducing the risks associated with such transactions.
