Kingsfield · Research · Banking & Financial Services

What limits apply to a member bank's covered transactions with its affiliates?

Published 2026-06-23 · U.S. federal law

Under Section 23A, a member bank's covered transactions with any single affiliate may not exceed 10 percent of the bank's capital stock and surplus, and with all affiliates combined may not exceed 20 percent.

The answer

The quantitative caps

12 U.S.C. § 371c(a) limits the aggregate amount of a member bank's covered transactions with any single affiliate to 10 percent of the bank's capital stock and surplus, and with all affiliates to 20 percent of capital stock and surplus.

The collateral requirement

Section 371c also requires collateral. A member bank's loans to, or guarantees on behalf of, an affiliate must be secured by collateral within prescribed percentages of the transaction amount.

The judged input

What the AI drafted

Submitted to the judge

This is an excerpt from a draft bank regulatory opinion — the kind of work product a lawyer generates with a legal-AI drafting tool, then has to stand behind. Kingsfield does not write it; it rules on the citations the model put in it. This draft cites two authorities; one of them is wrong.

AI draft excerpt — bank regulatory opinion

The Bank's proposed intercompany loan to its holding-company affiliate is a covered transaction subject to Section 23A. Under 12 U.S.C. § 371c, the Bank's covered transactions with that single affiliate may not exceed 10 percent of its capital stock and surplus, and aggregate covered transactions with all affiliates may not exceed 20 percent. We note that these quantitative caps come from Section 23A and not from the arm's-length terms requirement of Section 23B at 12 U.S.C. § 371c-1.

The judge ruled on every citation as the draft used it — it accepted 12 U.S.C. § 371c and rejected 12 U.S.C. § 371c-1. Here is why.

The verdict

How Kingsfield ruled

Ruled 2026-06-23

Each citation in the draft above was submitted to the Kingsfield judge and ruled against the primary-law corpus — Accept, Reject, or Inconclusive, per citation. These are live verdicts, not editorial. Each card shows the claim the draft made and the verbatim authority the verdict was rendered against.

Accept12 U.S.C. § 371c

The draft claimed: A member bank's covered transactions with any single affiliate may not exceed 10 percent of the bank's capital stock and surplus, and its covered transactions with all affiliates may not exceed 20 percent of capital stock and surplus.

“§ 371c(a) A member bank and its subsidiaries may engage in a covered transaction with an affiliate only if—”

Cite found; proposition supported by the cited text.

Reject12 U.S.C. § 371c-1

The draft claimed: Section 371c-1 sets the quantitative 10 percent single-affiliate and 20 percent aggregate limits on a member bank's covered transactions.

Cite found, but the cited text does not support the claim. 12 U.S.C. 371c-1 (Section 23B) requires that affiliate transactions be on terms substantially the same as those for comparable nonaffiliate transactions (arm's-length terms); the quantitative 10/20 percent caps are at 12 U.S.C. 371c (Section 23A). Regenerate with the correct authority.

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This page is legal information, not legal advice, and does not create an attorney-client relationship. The draft shown is an illustration of a typical AI answer; verdicts reflect the cited authority in the Kingsfield corpus as of the ruling date shown above.