when does regulation w apply 
given that regulation w applies to covered transactions between a bank and its affiliate two basic questions need to be answered in determining whether a transaction is subject to this regulation regulation w defines a bank s affiliates quite broadly including any company that the bank directly or indirectly controls or that is sponsored and advised by a bank as well as subsidiaries of the bank 1covered transactions under regulation w cover a wide spectrum of transactions including 1special considerationsunder regulation w transactions with any affiliate must total no more than 10 of a financial institution s capital and transactions with all affiliates combined must total no more than 20 of an institution s capital 4banks are also prohibited from purchasing low quality assets from their affiliates such as bonds with principal and interest payments that are more than 30 days past due meanwhile any extension of credit must be secured by collateral with coverage that ranges between 100 and 130 of the total transaction amount 4as an example consider a transaction where the hypothetical bank bigbanc intends to purchase a loan portfolio from its subsidiary smallbanc in order to comply with regulation w bigbanc must ensure that the transaction with smallbanc does not exceed more than 10 of its capital and that the loan portfolio is not considered a low quality asset the transaction must also take place under market terms and conditions the fed monitors banks exposures to their affiliates through the fr y 8 report that collects information on transactions between an insured depository institution and its affiliates 4 the report has to be submitted by banks quarterly on the last calendar day of each quarter 5financial institutions that are found to be in violation of regulation w can be hit with substantial civil penalties the amount of the fine is determined by several factors including whether the violation was caused with intent undertaken with reckless disregard for the institution s financial safety and soundness or resulted in any type of gain by the perpetrator 6