January 9, 2009

Charles M. Horn, Esq.

Mayer Brown LLP

1909 K Street, N.W.

Washington, D.C. 20006-1101

Dear Mr. Horn:

This is in response to the request by BB&T Corporation (“BB&T”) 

and its subsidiary bank, Branch Banking and Trust Company (“Bank”), both of

Winston-Salem, North Carolina, for an exemption from section 23A of the Federal 

Reserve Act and the Board’s Regulation W to allow (i) Scott & Stringfellow, Inc. 

(“Securities Affiliate”), Richmond, Virgina, to hold and receive payments on 

variable-rate demand notes (“VRDNs”) and tender option bonds (“TOBs”) that are 

backed by a liquidity facility provided by Bank and (ii) Bank to purchase up to 

[$ ] of VRDNs and TOBs from Securities Affiliate, in both cases in 

excess of the quantitative limits of section 23A and the Board’s Regulation W. 

The VRDNs Bank intends to purchase from Securities Affiliate were 

issued by a trust that is sponsored by a governmental entity and are supported by 

letters of credit issued by Bank. The interest rate on the VRDNs resets either 

daily or weekly, and the VRDNs are remarketed in a remarketing process 

managed by Securities Affiliate. If the remarketing is not successful, the VRDN 

holders are entitled to put the notes back to the trust, which would draw on the 

liquidity facility provided by Bank to repurchase the VRDNs from the holders. 

In some cases, Securities Affiliate may hold the VRDNs in its inventory in the 

event of a failed remarketing.

Because of ongoing market disruptions, Securities Affiliate 

generally has not been able to remarket the VRDNs successfully. Consistent 

with its past practice, Securities Affiliate proposes to repurchase VRDNs from 

current third-party holders as an accommodation to its customers who desire 

liquidity. Securities Affiliate proposes to hold the VRDNs, possibly for an 
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extended period of time, until it is feasible to remarket the notes. During that 

time, Securities Affiliate will receive regular interest payments on the notes, 

which initially will be funded by Bank under the liquidity facility. Those 

interest payments will then be reimbursed by the issuer. Alternatively, 

Securities Affiliate may sell the VRDNs to Bank or tender the VRDNs to the 

trust, which in turn will draw on the liquidity facility provided by Bank to 

acquire the VRDNs from Securities Affiliate.

The TOBs in Bank’s exemption request are similar in structure to 

the VRDNs but are issued by a trust established by Bank or by a nonbank 

subsidiary of Bank’s parent, BB&T. The assets of the trust are interests in 

municipal bonds that the trust has purchased from Bank, and the trust is 

consolidated on Bank’s balance sheet for financial reporting purposes. 

Accordingly, the municipal bonds continue to be recorded as balance sheet 

assets of Bank, and the TOBs are recorded on Bank’s balance sheet as 

liabilities. By their terms, the bonds can be tendered to the trust by the holders 

at any time. Similar to a VRDN trust, the trust enters into a liquidity facility 

agreement with Bank to support the trust’s obligations to redeem the bonds on 

request. Securities Affiliate proposes to repurchase TOBs from the current 

third-party holders as an accommodation to customers who desire liquidity. As 

with the VRDNs, Securities Affiliate will hold the TOBs until it can 

successfully remarket the securities, or either sell the TOBs to Bank or tender 

the TOBs to the trust, which in turn will draw on the liquidity facility provided 

by Bank to acquire the TOBs from Securities Affiliate.

 

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

transactions between a bank and all its affiliates to 20 percent of the bank's capital 

stock and surplus.1

 “Covered transactions” include the purchase of assets by a 

bank from an affiliate, the extension of credit by a bank to an affiliate, the issuance 

of a guarantee by a bank on behalf of an affiliate, and certain other transactions.2

 

The statute and regulation also require a bank to secure its extensions of credit to, 

and guarantees on behalf of, affiliates with prescribed amounts of collateral.3

 1

 12 U.S.C. § 371c(a)(1) and 12 CFR 223.11 and 223.12.

2

 12 U.S.C. § 371c(b)(7) and 12 CFR 223.3(h).

3

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

 

In addition, section 23A and Regulation W treat a transaction by a member bank 
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with any person as a transaction with an affiliate to the extent that the proceeds of 

the transaction are used for the benefit of, or transferred to, that affiliate under the 

“attribution rule.”4

Because Securities Affiliate and Bank are both controlled by 

BB&T, Securities Affiliate is an affiliate of Bank for purposes of section 23A 

and Regulation W. As a result, Bank’s purchases of VRDNs and TOBs from 

Securities Affiliate would be covered transactions under section 23A and 

Regulation W. Under the attribution rule in section 23A and Regulation W, 

Bank’s funding of a trust’s repurchase of VRDNs from Securities Affiliate 

through Bank’s liquidity facility also would be a covered transaction.5

 

Moreover, while Securities Affiliate holds the VRDNs, the interest or other 

payments Securities Affiliate would receive, which are initially funded by Bank 

under the liquidity arrangement, would be covered transactions by virtue of the 

attribution rule.6

 The aggregate amount of the covered transactions would be up 

to $5 billion. This amount would exceed Bank's quantitative limits under the 

statute and the Board’s rule.7

 4

 12 U.S.C. § 371c(a)(2); 12 CFR 223.16.

5

 Although the trust is an unaffiliated third party, the proceeds of the bank’s loan 

to the trust under the liquidity arrangement are transferred to Securities Affiliate 

when the trust makes payments to holders of the notes, including Securities 

Affiliate. As a result, the extension of credit from Bank to the trust would be a 

covered transaction under the attribution rule to the extent that the proceeds are 

used to make interest and other payments to Securities Affiliate. 

6

 In the case of the TOBs, however, the trust would not be considered an affiliate 

of Bank for purposes of Regulation W but part of the bank because it is an 

operating subsidiary of the bank. As a result, any interest payment on the TOBs 

that is made to Securities Affiliate as a bondholder or the purchase by trust of 

TOBs from Securities Affiliate would be a direct covered transaction.

7

 As of September 30, 2008, Bank’s capital stock and surplus was $[ ]. 

Accordingly, for purposes of section 23A and Regulation W, the 10 percent limit 

for covered transactions with a single affiliate would be $[ ], and the 

20 percent limit for covered transactions with all affiliates in the aggregate would 

be $[ ]. 

 Accordingly, Bank is requesting an exemption 

from the quantitative limits and collateral requirements of section 23A and 

Regulation W in connection with the proposed transactions.

 
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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.8

 The Board previously has indicated that the twin 

purposes of section 23A 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.9

• The total dollar amount of exempt transactions must be limited to 

[$ ]. 

 

Bank believes that granting the requested exemption would

provide public benefits. In particular, Bank has indicated that permitting the 

proposed transactions with Securities Affiliate would provide an efficient 

means for Securities Affiliate to help its customers obtain liquidity for 

VRDNs and TOBs.

 

Granting the exemption would not expose Bank to additional credit 

or market risk. Bank is obligated to advance funds to the trusts under the terms 

of the liquidity facility agreements regardless of whether the notes are held or

tendered to the trusts by third-party investors or by Securities Affiliate. 

Moreover, the exemption would be subject to the following limits and 

conditions that are designed to help ensure that the transactions are consistent 

with safe and sound banking practices:

• The TOBs and VRDNs purchased or funded by Bank must be externally 

rated by a nationally recognized statistical rating organization at single-A 

or better or the credit equivalent thereof. 

• Bank and BB&T must remain well capitalized, as defined in the FDIC’s 

prompt corrective action regulation and the Board’s Regulation Y.

10

Because the exemption is meant to provide flexibility in addressing the current 

market disruption, the exemption applies only to covered transactions relating to 

TOBs and VRDNs purchased by Securities Affiliate from customers on or before

December 31, 2009. The proposed transactions also are subject to the market 

 8

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

9

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

10 See 12 CFR 325.103 and 12 CFR 225.2(r), respectively. 
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terms requirement of section 23B of the Federal Reserve Act,

11

 11 12 U.S.C. § 371c-1. 

which requires that 

transactions between a bank and its affiliates be on terms that are at least as 

favorable to the bank as the terms of comparable transactions between the bank 

and a third party. 

In light of these considerations, granting the exemption appears to be 

consistent with the purposes of section 23A and in the public interest. 

Accordingly, the Board hereby grants the requested exemption, subject to the 

conditions and limits discussed above. This determination is specifically 

conditioned on compliance by BB&T and Bank with all the commitments and 

representations they made to the Board in connection with this 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 described in your correspondence and this letter. 

Any material change in those facts or circumstances or any failure by BB&T or

Bank to observe any of their commitments or representations may result in a 

different conclusion or revocation of the exemption.

Very truly yours,

(signed)

Robert deV. Frierson

Deputy Secretary of the Board

cc: David Tatum, Vice President

 Federal Reserve Bank of Atlanta 

Federal Deposit Insurance Corporation