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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D,C. 20551

DMSION OF BANKING

SUPERVISION AND

REGULATION

December 18, 2007

Mr. Alton E. Yother

Regions Financial Corporation

1900 5thAvenue North

Birmingham, Alabama 35203

Dear Mr. Yother:

This is in response to your letter dated October 30, 2007 regarding the regulatory

capital treatment of the Regulation T margin debits ("Reg. T margin loans") of the

registered U.S. broker-dealer subsidiary of Regions Financial Corporation ("Regions"):

Morgan Keegan & Company, Inc. You ask that Regions be granted an exception from

the Board'srisk-based capital adequacy guidelines for bank holding companies (the

"guidelines") (12 CFR part 225, App. A), which require a 100 percent risk weight for

Reg. T margin loans. Specifically, you ask for an exception from the guidelines to permit

Regions to assign a 10percent risk weight to its Reg. T margin loans, consistent with the

capital treatment that the Board approved for Citigroup Inc. in a letter dated June 15,

2007.

In the request, you contend that the risk-based capital requirement for such loans

is excessive and represent that Regions has a de minimis internal economic capital charge

for credit risk on Reg. T margin loans.

A margin account at a broker-dealer registered with the Securities and Exchange

Commission ("SEC") is a leveraged account, through which securities can be purchased,

sold short, carried, or traded using a loan from the broker-dealer and a deposit of cash or

securities by the customer. The amount of leverage available to a customer is limited by

the Board's Regulation T (12 CFR part 220), the margin-maintenance rules of the

Financial Industry Regulatory Authority (NYSE Rule 431 and NASD Rule 2520), and

the lender's internal margin-maintenance requirements. The request also explains that

Regions generally applies internal margin-maintenance requirements that exceed those in

Regulation T, NYSE Rule 431, and NASD Rule 2520.

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As noted above, Reg. T margin loans held by u.s. bank holding companies

("BRCs") currently are assigned to the 100 percent risk weight category under the

guidelines, resulting in a risk-based capital requirement of 8 percent. In contrast, other

domestic and foreign firms, including foreign banking organizations that own u.s.

broker-dealers, as well as U.S. broker-dealers and consolidated supervised entities

("CSEs") regulated by the SEC, are currently required to hold either no or de minimis

regulatory capital against Reg. T margin loans.

After carefully considering the request, and subject to the conditions listed below,

the Board has approved an exception to the guidelines that permits Regions to treat Reg.

T margin loans in a manner that differs from that set forth in the guidelines. Specifically,

the Board will allow Regions to apply a 10 percent risk weight to its Reg. T margin loans.

The Board has approved this exception under the reservation-of-authority provision

contained in the guidelines (12 CFR part 225, App. A, § III.A). This provision permits

the Board, on a case-by-case basis, to determine the appropriate risk weight for any asset

or off-balance-sheet item that imposes risks on a BRC that are incommensurate with the

risk weight otherwise specified in the guidelines.

To qualify for the capital treatment outlined above, Regions' Reg. T margin loans

must meet the following conditions:

1. The securities collateral for the Reg. T margin loans is liquid and readily

marketable;

2. The Reg. T margin loans and associated collateral are marked to market each

business day;

3. The Reg. T margin loans are subject to initial margin requirements under

Regulation T and daily margin-maintenance requirements under NYSE Rule 431

or NASD Rule 2520; and

4. Regions has a reasonable basis for concluding that it would be able to liquidate

the collateral for the Reg. T margin loans without undue delay, even in the case of

bankruptcy or insolvency of the borrower.

The Board believes that the capital treatment approved above for Regions' Reg. T

margin loans provides a more risk-sensitive treatment for these transactions than their

treatment under the guidelines. The combination of initial margin requirements under

Regulation T, ongoing margin-maintenance requirements under NYSE Rule 431 or

NASD Rule 2520, generally higher ongoing margin-maintenance requirements under

Regions internal policies, Regions' daily mark-to-market and margin-call policies, the

high liquidity of the collateral, Regions' typical right to terminate the loan at any time,

and Regions' general protection from the automatic stay in bankruptcy makes these loans

a low-credit-risk product that warrants a 10percent risk weight.

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This exception accommodates Regions' broker-dealer activities in a risk-sensitive

manner, helps remove an artificial and anachronistic constraint on certain of Regions'

securities-based lending operations, and brings Regions' risk-based capital requirement

for Reg. T margin loans more in accord with the capital requirement for such loans that

the SEC imposes on broker-dealers and CSEs. Regions should be aware, however, that

the Board may in the future impose a regulatory capital treatment for Reg. T margin loans

that differs from the treatment described in the request, depending in part on the outcome

of the current effortsto implement the Basel II Capital Accord in the United States.

This determination is conditioned on Regions compliance with all the commitments

and representations it has made to the Board in connection with the request. These

commitments and representations are deemed to be conditions imposed in writing by the

Board in connection with granting the request and, as such, may be enforced in

proceedings under applicable law. Further, this determination is based on the specific

facts and circumstances described in the request and in your discussions with Federal

Reserve staff. Any material change in those facts and circumstances or any failure by

Regions to observe any of its commitments or representations may result in a different

view or in a revocation of the regulatory capital treatment permitted under this

determination.

The capital treatment set forth in this letter for Reg. T margin loans will be made

available to similarly situated institutions that request and receive Board approval for

such treatment.

If you have any questions with regard to this letter, please direct them to Norah

Barger, Associate Director, at (202) 452-2402, or Juan C. Climent, Supervisory Financial

Analyst, at (202) 872-7526, in the Division of Banking Supervision and Regulation; or

Mark E. Van Der Weide, Senior Counsel, at (202) 452-2263, or April Snyder, Counsel, at

(202) 452-3099, in the Legal Division.

Sincerely,

fLy- 1;~

Roger T. Cole

Director

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