Circular
Agency Statement to Financial Institutions Providing Financial Support to Advised Investment Funds
January 8, 2004
Circular No. 11565

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

In a joint press release, the federal banking and thrift agencies issued a statement alerting financial institutions to the safety and soundness and legal issues involved in providing financial support to investment funds advised by the institutions or its subsidiaries or affiliates.

The statement was prompted by recent market developments, including market volatility, the continued low interest rate environment, and operational and corporate governance weaknesses. It warns that 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.

The accompanying supervisory letter (SR 04-1), dated January 5, 2004, issues and outlines the policy statement, which makes clear that a bank should not inappropriately place its resources and reputation at risk for the benefit of the fund's investors and creditors. In addition, financial institutions should not violate the limits and requirements contained in applicable legal requirements or in any supervisory conditions imposed by the agencies, and should not create an expectation that they will prop up an advised fund.

In addition, bank affiliated investment advisers are encouraged to establish alternate sources of financial support to avoid seeking support from affiliated banks. Finally, bank management is expected to notify and consult with its appropriate federal banking agency prior to (or immediately after, in the event of an emergency) providing material financial support to an affiliated investment fund.


Press release OFFSITE
Interagency notice OFFSITE PDF
SR letter (04-1) OFFSITE

Contact:
James Keogh
Examining Officer
Corporate Compliance Function
james.keogh@ny.frb.org