The Federal Reserve Board has eased collateral requirements for loans partially secured by banking company obligations.
In a Jan. 21 letter to Wells Fargo & Co., the Fed said it no longer will subject the total amount of these loans to section 23a of the Federal Reserve Act, which imposes strict collateral requirements and limits the total dollar amount of these types of credits.
Under the new policy, the lender would determine the market value of all securities pledged as collateral. It then would deduct the value of government and corporate securities from the loan amount. The remaining amount of the loan would be secured by the bank affiliate securities and would be subject to section 23a.
Under a 1984 Fed interpretation, the entire loan was subject to section 23a, even if securities issued by the lending bank's affiliates constituted only a small portion of the collateral.
"This is a good sign," said Gilbert T. Schwartz, a partner in the Washington law firm of Schwartz & Ballen. "It shows the Fed is willing to reconsider these positions and be more accommodating."