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the concurrence of the General Counsel, hereby grants the requested exemption,
subject to the indicated conditions and limits.

This determination is specifically conditioned on compliance by
Barclays, the Branch, and the Affiliated Broker-Dealer with all the commitments
and representations they made to the Board in connection with the exemption
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. This determination is
based on the specific facts and circumstances of the transactions described in your
correspondence and this letter. Any material change in those facts and
circumstances or any failure by Barclays, the Branch, or the Affiliated Broker-
Dealer to observe any of its commitments or representations may result in a
different view or in a revocation of the exemption.

Sincerely yours,

fle A deV. Frere

Robert deV. Frierson
Deputy Secretary of the Board

ce: Michael Schussler, Esq.
Federal Reserve Bank of New York


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Dealer must be promptly collectable even in the case of the bankruptcy of the
Affiliated Broker-Dealer."°

Moreover, as noted above, this would be a temporary exemption. The
exemption would be available only for SFTs initiated during the period that the
Federal Reserve System’s special discount window lending facility is available.
For SFTs with a term that exceeds the life of the Federal Reserve System’s special
discount window lending facility, the Branch would be permitted under the
exemption to hold these existing transactions to maturity.

Granting the exemption described above would have significant
public benefits. First, the exemption would enable the Branch to provide a
substantial amount of liquidity to the markets for the Assets. Because of the
operational advantages to the Branch of using the Affiliated Broker-Dealer as its
conduit to convey funds to market participants, the exemption would allow the
Branch to provide the needed liquidity in the most rapid and cost-effective manner
possible for the Branch and the market participants.

The Branch would continue to be subject to the market-terms
requirement of section 23B of the Federal Reserve Act.'! Section 23B requires that
the SFTs between the Branch and the Affiliated Broker-Dealer be on terms that are
substantially the same, or at least as favorable to the Branch, as those prevailing at
the time for comparable transactions with unaffiliated companies.!”

For the reasons stated above, and in light of all the facts you have
presented, the SFTs appear to be consistent with the purposes of section 23A and
in the public interest. Accordingly, the Director of the Division of Banking
Supervision and Regulation, pursuant to authority delegated by the Board, and with

'© This protection applies to “securities contracts” under section 555 of the
Bankruptcy Code. If an SFT between the Branch and the Affiliated Broker-Dealer
qualifies as a securities contract under the Bankruptcy Code, the Branch’s ability to
liquidate the transaction in the event of the bankruptcy of the Affiliated Broker-
Dealer generally cannot be stayed, avoided, or otherwise limited by operation of
any provision of the Bankruptcy Code. See, e.g., 11 U.S.C. § 555.

! 12 U.S.C. § 371c-1; 12 CFR part 223.
See 12 U.S.C. § 371c-1(a)(1).


BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 2055!

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

October 11, 2007

Alan B. Kaplan, Esq.

Deputy General Counsel, Americas
Barclays Bank PLC

200 Park Avenue

New York, New York 10166

Dear Mr. Kaplan:

This is in response to the request by Barclays Bank PLC (“Barclays”),
London, United Kingdom, for a temporary exemption from section 23A of the
Federal Reserve Act and the Board’s Regulation W.' The exemption would allow
Barclays’ New York branch (“Branch”) to engage in certain securities financing
transactions with its affiliate, Barclays Capital Inc. (“Affiliated Broker-Dealer”), as
described below.

The Branch proposes to extend credit to market participants in need of
short-term liquidity to finance their holdings of securities and certain other assets
(“Assets”). For operational reasons, the Branch proposes to channel these
transactions through the Affiliated Broker-Dealer. The transactions between the
Branch and the Affiliated Broker-Dealer and the mirror transactions between the
Affiliated Broker-Dealer and the unaffiliated market participants would take the
form of either reverse repurchase agreements or securities borrowing transactions
(collectively, “securities financing transactions” or “SFTs”). The transactions
between the Affiliated Broker-Dealer and the Branch will be on the same terms as
the transactions between the Affiliated Broker-Dealer and the unaffiliated market
participants. For each of the proposed SFTs, the Branch will be overcollateralized;
the extent of this overcollateralization will vary depending on the type of assets
offered by the unaffiliated market participants as collateral for the SFTs.

' 12 U.S.C. § 371c; 12 CER part 223.


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Sections 23A and 23B and Regulation W apply to transactions
between a U.S. branch of a foreign bank and a U.S. affiliate engaged in securities
underwriting, insurance underwriting, or merchant banking activities (an
“FHC affiliate”) in the same manner and to the same extent as if the branch were a
member bank.’ Section 23A and Regulation W limit the aggregate amount of
“covered transactions” between a U.S. branch of a foreign bank and any
FHC affiliate to 10 percent of the foreign bank’s capital stock and surplus, and
limit the aggregate amount of covered transactions between a U.S. branch of a
foreign bank and all its FHC affiliates to 20 percent of the foreign bank’s capital
stock and surplus.’ “Covered transactions” include the purchase of assets by a
U.S. branch from an FHC affiliate, the extension of credit by a U.S. branch to an
FHC affiliate, the issuance of a guarantee by a U.S. branch on behalf of an
FHC affiliate, and certain other transactions.’ The statute and regulation also
require a U.S. branch of a foreign bank to secure its extensions of credit to, and
guarantees on behalf of, FHC affiliates with prescribed amounts of collateral.>

In addition, section 23A and Regulation W specifically authorize the
Board to exempt transactions or relationships from the requirements of the statute
and rule if the Board finds such an exemption to be in the public interest and
consistent with the purposes of section 23A.° The Board previously has indicated
that the twin purposes of section 234A are (i) to protect against a depository
institution suffering losses in transactions with affiliates; and (ii) to limit the ability
of an institution to transfer to its affiliates the subsidy arising from the institution’s
access to the federal safety net.’ The Board also has stated that it decided to apply
Regulation W to transactions between a U.S. branch of a foreign bank and its
FHC affiliates to preserve competitive equity between U.S. banks and foreign
banks.

? 12 CFR 223.61(a).

> 12 U.S.C. § 371c(a)(1) and 12 CFR 223.11, 223.12, and 223.61(b)(1)(ii).
* 12 U.S.C. § 371¢(b)(7) and 12 CFR 223.3(h).

> 12 U.S.C. § 371c(c); 12 CFR 223.14 and 223.61.

6 12 U.S.C. § 371c(£)(2) and 12 CFR 223.43.

7 67 Federal Register 76560 (Dec. 12, 2002).

* 67 Federal Register 76560, 76598 (Dec. 12, 2002).


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The SFTs between the Branch and the Affiliated Broker-Dealer would
be covered transactions under section 23A and Regulation W. Because the Branch
proposes to engage in SFTs with the Affiliated Broker-Dealer in amounts that
exceed the Branch’s quantitative limits under the statute and rule, Barclays must
receive an exemption from the Board to engage in the proposed transactions.

A temporary, conditional exemption from section 23A and
Regulation W for the proposed SFTs would appear to be consistent with the
purposes of section 23A, in the public interest, and consistent with Board
precedent. The Board recently granted substantively identical exemptions to
Citigroup Inc. (“Citigroup”), JPMorgan Chase & Co. (“JPMC”), Bank of America
Corporation (“BofA”), and Deutsche Bank AG (“Deutsche Bank”).?

Barclays has agreed to several conditions that will help ensure that it
engages in the proposed SFTs in a safe and sound manner. Barclays is well
capitalized and has represented that it will limit its lending under this exemption to
$20 billion, which constitutes less than 30 percent of Barclays’s total regulatory
capital. Barclays will, as a condition of the exemption, also agree to guarantee the
obligations of the Affiliated Broker-Dealer to the Branch in connection with the
proposed SFTs. This parent guarantee provides additional protection to the Branch
in the event of the insolvency of the Affiliated-Broker Dealer.

Each of the proposed SFTs will at all times be overcollateralized, the
Branch will mark to market the SFTs on a daily basis, and the SFTs will be subject
to daily margin-maintenance requirements. In addition, the Affiliated Broker-
Dealer must execute an SFT with an unaffiliated market participant that is
contemporaneous with and on the same terms as the Branch’s SFT with the
Affiliated Broker-Dealer. This requirement should help ensure that each
transaction with the Branch is on market terms, that the Branch does not use SFTs
to finance the securities inventory of the Affiliated Broker-Dealer, and that the
affiliate serves only as a conduit through which the Branch engages in SFTs with
unaffiliated counterparties. To enhance the ability of the Branch to promptly close
out and liquidate SFTs with the Affiliated Broker-Dealer in the event of the
affiliate’s insolvency, the SFTs between the Branch and the Affiliated Broker-

° See Board Letters dated August 20, 2007, to Carl Howard, Esq. (Citigroup);
Kathleen A. Juhase, Esq. (JPMC); Patrick S. Antrim, Esq. (BofA); and
September 12, 2007, to Michael L. Kadish, Esq. (Deutsche Bank).