Regulation W in Banking: Definition & 2025 Insights for Australia

Intercompany transactions are the lifeblood of diversified financial groups, but unchecked, they can also be a source of systemic risk. In the United States, Regulation W governs how banks interact with their affiliates—a topic gaining renewed interest among Australian regulators and banking professionals in 2025 as financial conglomerates and fintech partnerships proliferate.

What Is Regulation W? Defining the US Standard

Regulation W, enforced by the US Federal Reserve, is the rulebook for transactions between banks and their affiliates. It implements Sections 23A and 23B of the Federal Reserve Act, imposing limits and requirements to:

• Prevent banks from taking excessive risks by lending to, investing in, or guaranteeing the obligations of related companies
• Protect depositors by ensuring a bank’s resources aren’t siphoned off to affiliated entities
• Promote stability and transparency across complex banking groups

In practice, Regulation W applies when a US bank engages in transactions such as loans, asset purchases, or service agreements with a company under the same corporate umbrella—think a bank lending to its own brokerage subsidiary or fintech affiliate.

When Does Regulation W Apply? Key Scenarios and Thresholds

Regulation W is triggered whenever a federally insured bank deals with its “affiliates.” The regulation:

• Caps the value of covered transactions with any single affiliate at 10% of the bank’s capital and surplus
• Limits total transactions with all affiliates combined to 20% of capital and surplus
• Requires collateral for loans and credit exposures, with strict valuation rules
• Mandates that all transactions must be on market terms—no sweetheart deals

For example, in 2025, if a US bank wants to provide a short-term loan to a related fintech, it must ensure:

• The loan doesn’t breach the 10% affiliate or 20% group cap
• Adequate collateral is posted, often in the form of government securities
• The interest rate and fees match what an unaffiliated third party would pay

These requirements are enforced through regular reporting, audits, and—since 2023—tighter digital surveillance to spot potential circumvention, such as using back-to-back transactions through non-bank affiliates.

Why Regulation W Matters—and the 2025 Australian Context

While Regulation W is US law, its principles are echoing globally as financial groups become more interconnected. In Australia, APRA and ASIC have flagged intercompany risk as a 2025 supervisory priority, especially given:

• The rise of banking groups with insurance, superannuation, and fintech arms
• Cross-border lending between Australian parents and Asian or US-based subsidiaries
• The ongoing digital integration of banking, payments, and non-bank platforms

Australian banks aren’t governed by Regulation W, but similar prudential standards (such as APS 222 on intra-group exposures) are being revisited in light of the US approach. For example, APRA’s 2025 discussion paper proposes:

• Tighter caps on non-bank affiliate exposures
• Real-time monitoring of large intercompany transactions
• Clearer documentation and transparency for all related-party deals

The lesson? As banking groups diversify, robust rules on affiliate transactions are no longer a US-only concern—they’re becoming best practice for stability and depositor confidence worldwide.

Real-World Example: Inter-Affiliate Lending in Action

Consider a hypothetical: In 2025, a major US bank wants to fund a new payments start-up it owns. Under Regulation W, it:

• Assesses whether the start-up is an affiliate (it is, by ownership)
• Checks existing exposure to this and other affiliates
• Documents the transaction at arms-length terms
• Secures appropriate collateral, such as liquid securities

If the bank fails any step, regulators can intervene with fines, forced unwinding of the transaction, or even capital surcharges. Australian banks are watching closely, as APRA hints at bringing similar enforcement tools online for 2025 and beyond.

The Takeaway for Australian Banks and Finance Professionals

Regulation W is more than a US technicality—it’s a template for managing risk in the modern, interconnected world of banking. As Australian regulators tighten scrutiny on intra-group deals, understanding the spirit (and detail) of Regulation W will be vital for compliance teams, finance executives, and anyone advising on affiliate transactions in 2025.