Financial Institution Letters Interagency Policy on Providing Financial
Support to Advised Funds
January 5, 2004
CHIEF EXECUTIVE OFFICER
Interagency Policy on Banks and Thrifts Providing Financial
Support to Funds Advised By the Banking Organization or Its Affiliates
The federal banking and thrift regulatory agencies are jointly issuing guidance to alert banking organizations' boards of directors and management to the safety and soundness implications and legal impediments of a bank providing financial support to investment funds advised by the bank, its subsidiaries or its affiliates.
The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision (the Agencies) are jointly issuing the attached policy on banks and thrifts providing financial support to funds advised by the banking organizations or their affiliates. The policy is addressed primarily to those financial institutions that advise investment funds - including mutual funds, alternative strategy funds, collective investment funds, and other such funds - where the banking organization, its subsidiaries or its affiliates are the investment adviser and receive a fee for their investment advice.
A banking organization's investment advisory services can pose material risks to a financial institution's liquidity, earnings, capital and reputation, and can harm investors if the associated risks are not effectively controlled. Risks posed by recent market volatility, the current interest rate environment, and operational and corporate governance weaknesses warrant the issuance of this guidance.
The policy alerts bank management to adopt appropriate policies and procedures designed to ensure that the bank will not:
inappropriately place its resources and reputation at risk for the benefit of the funds' investors and creditors;
violate applicable legal requirements, including the limits and requirements contained in Sections 23A and 23B of the Federal Reserve Act and Regulation W, or any special supervisory condition imposed by the Agencies; or
create an expectation that the bank will prop up the advised fund.
For more information, please contact Keith Ligon in the Division of Supervision and Consumer Protection (DSC) at (202) 898-3618 (
); Michael Phillips in the Legal Division at (202) 898-3581 (MPhillips@fdic.gov); or your DSC regional office.
Distribution: FDIC-Supervised Banks (Commercial and Savings)
NOTE: Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20434 (1-877-275-3342 or (703) 562-2200).