Bank Loan Participations under the Securities Acts

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Practising Law Institute




This Outline discusses two topics: Loan Participations and Notes Under the Securities Acts; and the Implications of Securities Industry Association v. Board of Governors of the Federal Reserve System (“Becker”)*. These topics relate on various levels.

Both topics deal with the definition of a “security.” The first topic focuses on whether Loan Participations, which are part of traditional banking, are “securities” under the securities acts. The second topic focuses on whether commercial paper is a “security” under §§16 and 21 of the Glass Steagall Act of 1933, 12 U.S.C. §§24 and 378(a)(1) (“Glass-Steagall”).

Both topics also relate on the business level. Loan Participations and commercial paper serve essentially the same economic needs for the issuers and purchasers; banks’ role in participating Loans is somewhat similar to banks’ involvement in commercial paper.

Finally, both topics raise a broader issue. As banks and other financial institutions face new market and economic conditions, existing legal categories, such as debt and equity, evidence of indebtedness and notes, become inadequate. They may be overly broad or too narrow. Therefore, both topics raise the question of where to draw the line between “banking” and” securities activities” in the context of the securities acts and Glass Steagall.

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