OFFICIAL SEAL OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

OFFICIAL LETTERHEAD STATIONERY 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

WASHINGTON, D.C. 20551 

ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 

January 23, 2007 

Patrick S. Antrim, Esq. 

Assistant General Counsel 

Bank of America Corporation 

Legal Department 

101 South Tryon Street 

Charlotte, North Carolina 28255 

Dear Mr. Antrim: 

This is in response to the request by Bank of America Corporation 

("BAC"), Charlotte, North Carolina, for an exemption from section 23A of the 

Federal Reserve Act and the Board's Regulation W. [Footnote 1. Text of 

Footnote 1. 12 U.S.C. section 371c; 12 CFR part 223. End Footnote 1.] The 

exemption would allow BAC's subsidiary bank, Bank of America, N.A. ("Bank"), 

Charlotte, North Carolina, to engage in certain covered transactions with its affiliate, 

Banc of America Securities LLC ("BAS"), New York, New York, in connection 

with Bank's proposed securities lending program. BAC also has requested that the 

Board grant a broader exemption that would apply to securities lending transactions 

between any subsidiary bank of BAC, on the one hand, and any U.S. broker-dealer 

affiliate of such bank, on the other hand, on the same terms and conditions as would 

apply were the transactions between Bank and BAS. 

In Bank's proposed securities lending program, Bank would lend, as 

principal, to BAS securities that have been pledged to Bank as collateral by 

unaffiliated customers ("Borrowed Securities"). In addition, Bank, as agent for an 

unaffiliated trust or custody customer, may lend to BAS securities in the customer's 

portfolio and indemnify the customer for any losses incurred as a result of a failure by 

BAS to return the Borrowed Securities. In both of these types of securities lending 

transaction, BAS may use the Borrowed Securities for its own purposes but must 
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return the securities on demand by Bank (or Bank's customer in cases where the 

bank is acting as agent). BAS would provide collateral to Bank, whether acting 

as 

securities. Bank would ensure that the value of the collateral slightly exceeds 

the value of the Borrowed Securities on a daily basis throughout the transaction. 

[Footnote 2. Begin Footnote 2 text. The amount of collateral that BAS must 

post is generally 102 percent of the value of the Borrowed Securities. End 

Footnote 2.] 

Section 23A and Regulation W limit the amount of "covered 

transactions" between a bank and any single affiliate to 10 percent of the bank's 

capital stock and surplus, and limit the amount of covered transactions between a 

bank and all its affiliates to 20 percent of the bank's capital stock and surplus. 

[Footnote 3. Begin Footnote 3 text. 12 U.S.C. section 371c(a)(l); 12 CFR 223.11 

and 223.12. End Footnote 3.] "Covered transactions" include a purchase of assets 

by a bank from an affiliate, a loan or extension of credit by a bank to an affiliate, 

an issuance of a guarantee by a bank on behalf of an affiliate, and certain other 

transactions. [Footnote 4. Begin Footnote 4 text. 12 U.S.C. section 371c(b)(7); 

12 CFR 223.3(h). End Footnote 4.] In addition, the statute and regulation require 

a bank to secure its extensions of credit to, and guarantees on behalf of, affiliates 

with prescribed amounts of collateral. [Footnote 5. Begin Footnote 5 text. 

12 U.S.C. section 371c(c); 12 CFR 223.14. End Footnote 5.] Moreover, 

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. [Footnote 6. Begin Footnote 6 text. 12 U.S.C. section 

371c(f)(2); 12 CFR 223.43. End Footnote 6.] 

The Board previously has determined that when a bank, acting as agent, 

lends customer securities to an affiliate and indemnifies the customer for any failure 

by the affiliate to return the securities, the bank's indemnity is a guarantee by the 

bank on behalf of that affiliate; therefore, it is a covered transaction subject to 

section 23A and Regulation W. [Footnote 7. Begin Footnote 7 text. See Letter 

dated October 31, 2001, from Jennifer J. Johnson, Secretary of the Board, to 

Marjorie Gross, J.P. Morgan Chase & Co. ("JPMC Letter"). End Footnote 7.] 

Although the Board has not previously addressed securities lending as principal 

under section 23A and Regulation W, the Board 
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believes that when a bank, acting as principal, lends securities to an affiliate, the bank 

is making a "loan or extension of credit" to the affiliate -- a covered transaction that is 

subject to the statute and rule. 

This interpretation is consistent with the form of the transaction -- a loan 

by the bank to the affiliate -- and is a corollary of Board staff's long-standing informal 

position that any transaction in which a bank lends an asset to an affiliate is a "loan or 

extension of credit" by the bank to the affiliate for purposes of section 23A and 

Regulation W. Although a securities loan is different from a loan of cash, neither the 

statute nor the rule limit the scope of this covered transaction type to transactions in 

which the bank has lent cash to an affiliate. The statute does not define a "loan or 

extension of credit." The rule defines an extension of credit broadly as "the making 

or renewal of a loan, the granting of a line of credit, or the extending of credit in any 

manner whatsoever." [Footnote 8. Begin Footnote 8 text. 12 CFR 223.3(o). End 

Footnote 8.] 

Moreover, this interpretation is consistent with the economic substance 

of the transaction. The transaction imposes risks on the bank that are substantially 

similar to the risks associated with any collateralized loan of cash by a bank. 

Throughout the term of the transaction, the bank occupies a position where it stands 

to lose the difference between the value of the property lent by the bank to the 

affiliate and the value of the collateral posted by the affiliate in the event the affiliate 

becomes insolvent or otherwise defaults on its obligation to return the asset lent by 

the bank. In addition, if the Board were not to view a bank's loan of a security (or 

other noncash asset) to an affiliate as an extension of credit by the bank to the affiliate 

for purposes of section 23A and Regulation W, banks could easily evade the 

restrictions of the statute and rule. 

BAC has requested an exemption from section 23A and Regulation W 

for these covered transactions to allow Bank to lend securities to BAS on terms and 

conditions that are standard in the industry and that Bank has represented are the 

same terms and conditions under which Bank would, in good faith, lend securities to 

unaffiliated broker-dealers. Granting the requested exemption for the covered 

transactions generated by the Bank's proposed securities lending program would be 

appropriate and consistent with Board precedent. [Footnote 9. Begin Footnote 9 

text. See JPMC Letter; and Letter dated May 5, 2005, from Robert deV. Frierson, 

Deputy Secretary of the Board, to Michael Wiseman, Sullivan and Cromwell. End 

Footnote 9.] 
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In the proposed principal and agency securities lending transactions with 

BAS, the risk of loss to Bank does not appear to be substantial due to the daily markto-market and remargining procedures to be employed by Bank and the proposed use 

of cash and U.S. government securities as collateral to mitigate Bank's exposure to 

BAS. In light of the higher risks often associated with securities lending transactions 

collateralized by assets other than cash or U.S. government securities, and consistent 

with Board precedent, the Board believes that securities lending transactions between 

Bank and BAS that are secured by property other than cash or U.S. government 

securities should be exempt from section 23A and Regulation W only to the extent 

that the total market value of the securities lent to BAS by Bank (whether acting as 

principal or indemnifying agent) against such collateral does not in the aggregate 

exceed the lesser of (i) 5 percent of Bank's capital stock and surplus or (ii) 5 percent 

of the total market value of the securities lent to BAS by Bank (whether acting as 

principal or indemnifying agent). [Footnote 10. Begin Footnote 10 text. If the 

total market value of Borrowed Securities lent to BAS by Bank (as 

principal or indemnifying agent) against property other than cash or U.S. 

government securities exceeds this threshold, the marginal amount would 

be treated as a nonexempt covered transaction under section 23A and 

Regulation W and, accordingly, would be subject to the requirements of the 

statute and rule. End Footnote 10.] 

Bank would continue to be subject to the market-terms requirement of 

section 23B and Regulation W in connection with the proposed securities lending 

program. In particular, section 23B would prevent the bank from lending securities 

as principal to BAS or agreeing to indemnify a securities lending customer on behalf 

of BAS unless the bank would agree to enter into the same transaction with or on 

behalf of a nonaffiliate. Although Bank does not propose to lend securities to 

unaffiliated companies at this time, securities lending and borrowing transactions are 

fairly standardized, and it should be relatively easy for examiners to ensure that 

Bank's securities lending transactions with BAS comply with section 23B by 

comparing the practices of Bank and BAS with the practices of other banks. 

BAC has indicated that granting the exemptions would enable the bank's 

customers to obtain additional securities lending opportunities (and, consequently, an 

increased yield on their investment portfolios) and an increased ability to diversify 

the risks of securities lending, when Bank is acting as agent for its customers. 

Moreover, BAC has stated that, when Bank lends securities as principal, the supply of 
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available securities for securities borrowers will increase, resulting in greater 

competition in the marketplace. 

For the reasons stated above, and in light of all the facts you have 

presented, the transactions appear to be consistent with safe and sound banking 

practices and the purposes of section 23A. Accordingly, the Board hereby grants the 

requested exemption (subject to the indicated conditions and limits on securities 

lending transactions collateralized by property other than cash or U.S. government 

securities). 

Consistent with Board precedent, the Board also grants your request for 

an exemption from the statute and rale for certain short-term, highly collateralized 

credit extensions by Bank to BAS that are incidental to Bank's proposed securities 

lending program. [Footnote 11. Begin Footnote 11 text. Bank typically has a 

short-term credit exposure to BAS when Bank credits to its customer's account 

any dividends, interest payments, or other similar distributions on the Borrowed 

Securities on the date the distributions are payable by the issuer, 

regardless of whether BAS, which has an obligation to transmit such distributions 

promptly, has forwarded the distribution amounts to Bank for the account of the 

customer. This short-term exposure to BAS would be a covered transaction both 

when Bank is acting as principal and as agent. In addition, when Bank is acting as 

agent, rather than as principal, Bank has discretion to advance funds to BAS on 

behalf of a customer, to pay fees owed by the customer to the borrower or to return 

excess collateral to the borrower. End Footnote 11.] In addition, the Board grants 

your request that any subsidiary bank of BAC, on the one hand, and any U.S. 

broker-dealer affiliate of such a bank, on the other hand, may rely on these 

exemptions on the same terms and conditions as would apply were the transactions 

between Bank and BAS. This broader exemption is subject to the additional condition 

that the securities lending program of any other subsidiary bank is structured in 

substantially the same manner as that of Bank (as determined by Federal Reserve 

staff). The Board reserves the right to rescind any or all of these exemptions if they 

are used to evade section 23A or Regulation W. 

These determinations are specifically conditioned on compliance by 

BAC and Bank 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. These determinations are based on the specific facts and circumstances of the 
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securities lending program described in your correspondence and this letter. Any 

material change in those facts and circumstances or any failure by BAC, Bank, or any 

other company relying on the exemption granted in this letter to observe any of its 

commitments or representations may result in a different view or in a revocation of 

the exemption. 

Sincerely yours, 

(signed) 

Jennifer J. Johnson 

Secretary of the Board 

cc: Federal Reserve Bank of Richmond